How The White House Is Tackling 'Junk Fees' And Other Rising Costs For Consumers

While credit cards are a powerful shopping tool that lets you spend money almost anywhere and get rewarded for spending, they're also a dangerous debt trap. A new Bankrate report shows that one-third of Americans have more credit card debt than windfall savings.

And you have to pay late. Credit card late fees cost Americans $12 billion in 2020, according to the Consumer Financial Protection Bureau. He addressed the nation on February 7.

Biden said his administration would "turn on junk fees, hidden fees that many companies use to make you pay more."

In his speech, he expanded on the definition of "junk fee," a term historically used to refer to the cost of closing a home sale. Biden used the term to include baggage fees, resort fees, cell change fees and other additional charges that appear to be much more than the service provided.

What are "garbage tariffs" and how does the White House propose to regulate them? Find out what the Biden administration has planned for credit card late fees and other penalties, and how the new rule could put more money in your pocket.

For more money advice, check out The Biggest Credit Card Mistakes and How Debt Consolidation Will Hurt Your Credit Score .

What is "littering"?

"Trash fees" is a common name for expensive upfront and often unexpected service fees, such as hidden fees for a hotel room or concert.

Previously, the term was limited to real estate and referred to additional costs incurred when selling homes. A May 1996 article in the Chicago Sun-Times described various "junk fees," such as "document processing fees," "subscription fees," and "rights fees."

When it comes to unnecessary fees, a common theme is that you are paying far more than what the service is actually worth.

In his speech to Congress, Biden specifically mentioned some unnecessary fees:

Hidden flight costs
Bank overdraft fee
Credit card late fee
resort fee
Commission for the exchange of Internet and mobile communications
Service fee for concerts and sporting events

What does the White House want to do about "garbage collection"?

In his keynote speech, Biden said "Americans are tired of being stupid." He also asked Congress to "pass the Unsolicited Payment Prevention Act to stop companies from ripping us off."

Here are the key elements of the plan proposed by the White House:

Companies must show the full price of tickets in advance
Flight cancellations and delays are covered
Travel ban for families sitting together on the plane
Reduce Credit Card Delinquency Fees by 75%
Reduce or eliminate mobile and internet exchange rates
Maximum cost of service for concerts and sporting events

However, the Garbage Collection Rate Protection Act has not yet been introduced in Congress. Biden presented public drafts of the bill, but the bill itself has not been formally introduced.

How does the Consumer Financial Protection Bureau want to change credit card late fee rules?

The plan to end unnecessary fees comes in more detail from the Consumer Financial Protection Bureau and applies to credit cards. On February 1, six days before the announcement of the national position, the CFPB unveiled a plan to "excessively regulate credit card fees."

The CFPB notes that credit card late fees can start at $30 for the initial late payment and rise to $41 for subsequent payments. The agency currently recommends reducing the "immunity clause" for late fees to $8, a limit that credit card companies can charge without further explanation or documentation.

That's why Biden said, "We're going to cut our credit card late fees by 75%, from $30 to $8."

Most importantly, the CFPB's proposed rules will eliminate annual inflation rate adjustments. That $8 cap will not be adjusted for inflation next year.

The new CFPB rules also prohibit credit card late fees that exceed 25% of the minimum payment required. Now they can reach 100 percent.

Why is the Consumer Financial Protection Bureau considering changing credit card late fee rules?

The Consumer Financial Protection Bureau enforces and enforces federal consumer protection laws. CFPB Director Rohit Chopra said credit card companies exploited a "loophole" that allowed them to avoid checks for unnecessary charges or illegal fees.

The agency says cost-of-living increases, which result in late fees of more than $30, violate the spirit of the Credit Card Notification and Disclosure Act of 2009 (CARD Act), which requires such surcharges to be "reasonable and proportionate." . . . The new rules are designed to offset credit card late fees, according to these guidelines.

The proposed CFPB rule changes are open for public comment until April 3, 2023.

For more money tips, check out the benefits of switching to a Roth IRA or how to rent a car online .