Analysis: Financial Industry’s Rhetoric On Credit Card Junk Fees Distorts Costly Reality For Consumers

Washington D.C. — Ahead of today’s Senate Banking subcommittee hearing on “Fees and Tactics Impacting Americans’ Wallets,” government watchdog Accountable.US released a new analysis dispelling top myths employed by the credit card industry to excuse hidden and excessive late fees – including claims that lowering these junk fees will somehow have adverse effects on borrowers and that high credit card fees are actually beneficial to consumers.

Big banks and credit card companies have escalated PR and lobbying efforts in defense of late fees after the Consumer Financial Protection Bureau (CFPB) released a proposed rule in February 2023 that would cap most credit card late fees to $8 and end the automatic adjustment of fees to inflation — saving American families $9 billion every year. The CFPB has already received nearly 57,000 comments, mainly in support of the announcement. Meanwhile, the financial services industry flooded the comment period with letters in staunch opposition. 

And despite the fact consumers have already saved a staggering $4.25 billion under the CFPB’s initiative as many big banks chose to preempt the Bureau’s actions by voluntarily revamping their overdraft and non-sufficient fund fee practices, Republicans on the Senate Banking Committee and the House Financial Services Committee have bent over backward to defend junk fees after taking millions of dollars from companies that exploit the practice

“And Republicans in Congress that treat big banks like a campaign cash ATM machine have been more than happy to parrot industry rhetoric in support of excessive and often hidden fees, no matter the cost to their own constituents.”

FINANCIAL INDUSTRY RHETORIC VS REALITY ON JUNK FEES:  

RHETORIC: Industry groups, such as the Consumer Bankers Association and Independent Community Bankers of America have argued that “junk fees” simply do not exist, calling the CFPB’s rulemaking “misguided.”

•     REALITY: Academics point out that excessive fees were created in the 1990s, as late fee revenue for credit card issuers dramatically climbed from $1.7 billion in 1996 to $7.3 billion by 2001. CFPB data showed late fees cost consumers $12 billion by 2022.

RHETORIC: Industry claims that capping late fees at $8 would cause issuers to raise the cost of credit for consumers.  

•     REALITY: Evidence shows that previous regulations on credit card fees did not cause lenders to hike borrowing costs for consumers.

RHETORIC: Industry argues that the CFPB’s credit rule would be “especially” harmful “for the most vulnerable consumers.”  

•     REALITY: Data collected by the CFPB shows that low-income and Black-majority communities are already the most impacted by high credit card late fees.

RHETORIC: Industry argues that lowering credit card late fees would create fewer incentives for Americans to make payments on time.

•     REALITY: Research shows previous regulations on credit card late fees did not cause Americans to be “less careful in avoiding [credit card late] fees.“

RHETORIC: Credit card issuers argue that the new “safe harbor” rule will not allow banks to adequately cover the costs of missed payments by Americans.

• REALITY: The CFPB and consumer groups have pointed out that banks can charge higher fees if they show the fee is needed to fully cover costs.

READ MORE FROM ACCOUNTABLE.US: 

Who’s Not Celebrating CFPB’s Birthday? Bad Industry Actors

Before Biden ‘Junk Fee’ Event, Here’s What to Know About Industries That Exploit Them

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