Credit card late fees could skyrocket up to $32 after judge scraps ‘illegal’ policy protecting consumers

LATE fees for credit cards could skyrocket up to $32, as a judge scraps a Biden policy that protected consumers.

The fees were originally much lower under the previous administration, but that was deemed to be illegal on Tuesday.

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A federal judge has overturned the rule that had initially capped late fees at $8.

It was introduced in March 2024 by the Consumer Financial Protection Bureau (CFPB).

The move was a part of Joe Biden’s crack down on what he called “junk fees” that he saw as pure profit for the big banks.

Rohit Chopra, director of the CFPB said at the time of the $8 decision: “The current rule means large banks profit when borrowers inadvertently miss a payment or struggle to pay on time.”

He cited a loophole that many banks were exploiting at the time to charge card holders what the banks wanted, above a set threshold.

Credit card companies also moved to reduce their own costs through cheaper business processes.

This only increased the profit margin.

Chopra continued: “In our review, the CFPB found that this has turned into a massive loophole that has allowed companies to charge unjustifiably high fees ever since.

“Almost all of the credit card giants have hiked their fees every year in lockstep, using inflation as an excuse.”

The limit did receive support from advocacy groups.

Adam Rust, director of financial services for the Consumer Federation of America, said: “The CFPB’s new rule prioritizes the needs of cash-strapped households ahead of big bank profiteering.

“It closes the loophole that permitted this form of price-gouging and injects fairness where it has been sorely needed.”

LIMIT REVERSED

But now, the Daily Mail reports that $8 limit has been overturned by US District Judge Mark Pittman in Fort Worth, Texas.

The Trump-appointed judge said the limit prevented card issuers from charging fees “reasonable and proportional to violations.”

While it is unclear what the new cap will be, $32 was the prior average payment amount before Biden changed it.

It is unclear if the cap could go even higher than that.

The CFPB has previously been sued by a coalition of American businesses for allegedly overstepping its authority with the $8 cap.

The group, which included the US Chamber of Commerce and American Bankers Association, said that the intent of high fees.

It argued that the fees need to be high enough to deter late payments and compensate card issuers.

They also added the cap was not actually good for consumers as it would force issuers to pass costs to cardholders who pay their bills on time.

The group called Pittman’s decision “a win for consumers and common sense”.

Donald Trump has used the early days of his second term to undo a lot of the Biden-era policies that he sees as being unfriendly to businesses.

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