Though credit cards are powerful purchasing tools that let you spend money almost anywhere and can give rewards back on your spending, they’re also a dangerous debt trap. A new Bankrate report shows that one third of Americans have greater credit card debt than emergency savings.
And then there’s the late fees. According to the Consumer Finance Protection Bureau, credit card late fees cost Americans $12 billion in 2020. President Joe Biden highlighted those late fees — along with similar costs in the airline, hotel, entertainment, auto, internet and cell phone industries — in his State of the Union address on Feb. 7.
Biden said that his administration will be “taking on ‘junk’ fees, those hidden surcharges too many businesses use to make you pay more.”
In his speech, he broadened the definition of “junk fees,” a term that’s historically been used to refer to closing costs at home sales. Biden used the term to include baggage fees, resort fees, mobile phone service switching fees and other surcharges that seem much higher than the cost of the service provided.
What are “junk fees,” and how is the White House proposing to regulate them? Learn what the Biden administration has planned for credit card late fees and other penalties and how new rules could put some extra money in your pocket.
For more money tips, check out the biggest credit card mistakes and learn if debt consolidation will hurt your credit score.
What are ‘junk fees?’
“Junk fees” is a colloquial term referring to payments for services that are notably expensive and often unexpected, such as hidden charges for a hotel room or concert.
The term formerly was confined to the real estate industry, referring to extra costs that arise during home sales. A May 1996 article in the Chicago Sun-Times describes several closing-cost “junk fees,” such as a “document processing fee,” “underwriting fee,” and “escrow service fee.”
With junk fees, the universal theme is that you’re paying much more than what it actually costs to provide the service.
In his State of the Union speech, Biden specifically called out certain junk fees:
- Hidden airfare costs
- Bank overdraft fees
- Credit card late fees
- Resort fees
- Internet and mobile phone switching fees
- Service fees to concerts and sporting events
What is the White House planning to do about ‘junk fees?’
In the major address, Biden said that “Americans are tired of being played for suckers.” He also urged Congress to “pass the Junk Fee Prevention Act so companies stop ripping us off.”
Here are the key elements of the proposed plan from the White House:
- Airlines must show full price of tickets upfront
- Flight cancellations and delays get refunds
- Prohibit fees for families sitting together on airplanes
- Cut credit card late fees by 75%
- Reduce or eliminate switching fees for mobile phones and internet
- Cap service fees for concerts and sporting events
The Junk Fee Protection Act hasn’t been introduced in Congress yet, however. Biden has provided a public outline for the bill, but the legislation itself has not been formally entered into the record.
How does the Consumer Finance Protection Bureau want to change the rules for credit card late fees?
One plan for ending junk fees with plenty of details comes from the Consumer Financial Protection Bureau, and it’s in regard to credit cards. On Feb. 1, six days before the State of the Union, the CFPB released its plan to “rein in excessive credit card fees.”
The CFPB notes that credit card fees for late payments can start as high as $30 for an initial late payment and go up to $41 for subsequent late payments. The agency now recommends lowering the “immunity provision” for late charges to $8, the limit that credit card companies could charge without further explanation and documentation.
That’s why Biden said, “We’re cutting credit card late fees by 75%, from $30 to $8.”
Most important, the CFPB’s proposed rules would eliminate the yearly inflation adjustment for fees. That $8 limit would not be adjusted based on inflation next year.
The new CFPB rules would also prohibit any credit card late fees totaling more than 25% of the required minimum payment. Currently they can be as high as 100%.
Why is the Consumer Finance Protection Bureau considering rule changes for credit card late fees?
The Consumer Financial Protection Bureau sets and enforces the rules of federal consumer financial laws. CFPB Director Rohit Chopra said credit card companies are exploiting a “regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee.”
The agency contends that the cost-of-living increases that have pushed late fees up above $30 violate the spirit of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which requires such fees to be “reasonable and proportional.” The new rules are aimed to bring credit card late fees back in accordance with those guidelines.
The proposed rule changes from the CFPB are open to public comment until April 3, 2023.
For more money tips, learn about the benefits of converting to a Roth IRA or how to rent your car online.
How the White House Is Tackling ‘Junk Fees’ and Other Rising Costs for Consumers – CNET
Source: Media Star Philippines
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