US Watchdog backs new proposal

The proposal by the U.S. Consumer Financial Protection Bureau (CFPB) to limit late fees on credit card balances faced staunch opposition from the banking industry, but the agency defended its position in a Senate testimony on Tuesday. Rohit Chopra, Director of the CFPB, refuted claims by banks that capping late fees would lead to higher interest rates or reduced access to credit. He emphasized that banks have the ability to recover their costs and stated that the goal of the proposal is to ensure that penalty fees are reasonable and proportional, as required by law.

In February, the CFPB introduced a regulatory proposal that would cap late fees at $8, a significant decrease from the current range of $30 to $41. Credit card issuers would only be allowed to charge more if they could provide justification. This move is part of the Biden administration’s efforts to combat what it considers “junk fees” imposed on consumers. However, lobbyists and industry advocates argue that the term misrepresents legitimate charges and express concerns about potential unintended consequences for the banking sector.

During the Senate Banking Committee hearing, Senator Tim Scott, the top Republican and a presidential candidate for 2024, questioned Chopra on the proposal. Chopra reiterated that the aim is not for credit card issuers to profit from late fees and that the fees should align with the requirements of being reasonable and proportional. The CFPB’s stance reflects its commitment to protecting consumer interests and ensuring fair practices in the financial industry.

The debate surrounding the proposal highlights the ongoing tensions between consumer protection and the profitability of financial institutions. The outcome of the discussions and potential regulatory changes will have implications for how credit card late fees are handled, impacting both consumers and banks in the United States.

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