Biden nods to ‘junk fee’ rule, housing in State of the Union

WASHINGTON — President Joe Biden gave a fiery State of the Union address, amid energetic chants of “four more years” from Democratic lawmakers and loud cries in protest from Republicans, hitting on both so-called “junk fees” and housing initiatives during the course of his speech.

The State of the Union speech, seen by many as Biden’s launch of his 2024 campaign, touted Biden’s plans on the economy. Central to those plans are pocketbook issues, such as mortgages, rent payments and the financial-institution fees that Biden says are impacting middle class families.

Biden shouted out a rule finalized earlier this week from the Consumer Financial Protection Bureau, which cuts credit card late fees to $8 from $32. The White House has promoted the rule from the beginning, first proposing it shortly before last year’s State of the Union address. The bureau’s director, Rohit Chopra, has also appeared alongside Biden at the White House regarding the rule.

“I’m also getting rid of junk fees, those hidden fees added at the end of your bills without your knowledge,” Biden said during Thursday evening’s State of the Union speech. “My administration just announced we’re cutting credit card late fees from $32 to just $8. The banks and credit card companies don’t like it. Why? I’m saving American families $20 billion a year with all of the junk fees I’m eliminating.”

Banking trade groups have, indeed, pushed back hard.

Just hours before the State of the Union, the American Bankers Association, Consumer Bankers Association, the U.S. Chamber of Commerce and a number of Texas groups filed their lawsuit against the bureau over the new rule, which they announced earlier this week, and are seeking an induction to bar the CFPB from implementing it.

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“The CFPB’s action to cap credit card late fees below banks’ actual costs exceeds its authority and would result in more late payments, increased debt, reduced credit access and higher APRs for all consumers – including the vast majority of card holders who pay on time each month,” said ABA President and CEO Rob Nichols in a statement. “Once again, we have reluctantly been forced to sue a federal regulator because the CFPB has ignored industry and other stakeholder comments demonstrating that this rule exceeds the bureau’s statutory authority and will hurt rather than help consumers. This rule is about politics not policy, and we look forward to the court’s review.”

The banking trade associations had a similar reaction to Biden’s comments in the State of the Union address.

“The administration’s ongoing efforts to unfairly demonize the financial services industry is misguided and out of touch with the millions of Americans who value and appreciate the security, convenience and innovation provided by banks of all sizes and our modern payments system,” Nichols said.

Nichols said that the administration’s effort serves to “unfairly demonize” the financial services industry.

“Rather than launch a tsunami of ill-conceived regulatory changes and play politics with serious policy issues in tonight’s state of the union, we urge the administration to work with the industry on a sensible regulatory framework that actually encourages the lending, investment and financial inclusion we all want to see,” he said. “By pursuing that kind of collaboration, we can accomplish our shared goal of growing the economy and giving every American the chance to succeed.”

President and CEO Rebeca Romero Rainey also objected to the term “junk fees.” The term, which is used by the Biden administration and consumer advocates, has long been a point of contention between them and the banking industry.

“Such intentionally reckless language misrepresents the overdraft protection services that banks offer their customers and how community banks meet the credit card needs of their customers,” Rainey said.

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The banking groups repeated arguments they’ve made against the rule — largely, that it would raise costs for consumers who pay their credit card balance on time by pushing banks to offset lost revenue from the higher late fees in other ways.

“These restrictions would also have a negative ripple effect on customers and businesses that rely on overdraft services by causing them to experience the harsh realities of rejected payments,” Rainey said. “The rejection of a payment for a life-saving medical need, or the rejection of payroll payments for a small business’ employees, are just two examples of the significant impact these punitive policies would have. Additionally, the administration’s ill-advised policy on credit card late fees sends the wrong message that punctual credit card payments are not a significant priority, which could result in consumers making more late payments and incurring additional interest charges in the long term.”

Greg Baer, president of the Bank Policy Institute, called Biden’s comments on credit card late fees “political rhetoric masquerading as public policy.” He also said that the smallest banks are exempt from the rule “for political expediency,” making the justification for the rule “hollow.”

“Government imposes late fees on all sorts of activities — parking tickets and tax payments to name a few,” he said. “The Administration’s policy is divorced from data and relies on junk economics to shift the costs from those who pay late to everyone else in the form of annual fees and higher APRs.”

Housing policy got an unexpected amount of airtime in Thursday’s evening’s State of the Union speech.

“I know the cost of housing is so important to you,” Biden said. “If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting.”

As part of his raft of proposals on housing policy, Biden called on Congress to pass a mortgage relief credit, giving first-time home buyers an annual tax credit of $5,000 a year for two years. The administration said this would reduce the mortgage rate by more than 1.5 percentage points for two years on the median home, and would impact more than 3.5 million families in buying their first home over the next two years.

Most strikingly, the Biden administration earlier in the day called on the Federal Home Loan Banks to double their annual contribution to the Affordable Housing Program, up 10% of prior year net income to 20%.

While the FHLB system didn’t get a direct mention in Biden’s speech, the FHLB system has been under scrutiny since the bank failures last year, and the advances that the system gave to Silicon Valley Bank, and other banks that collapsed.

As part of an unrelated review, the Federal Housing Finance Agency, which oversees the FHLB system, said in October that it would increase federal oversight of how banks are using the FHLBs and steer more banks toward the Federal Reserve’s discount window for liquidity needs in the future. The FHFA will propose a rule that would force many banks to hold at least 10% of their assets in mortgage loans to continue using the FHLBs for liquidity.

In his speech, Biden also said that his administration is eliminating title insurance fees for federally backed mortgages, is “cracking down on big landlords who break antitrust laws by price-fixing,” and is helping more builders get federal financing.

Ed DeMarco, president of the Housing Policy Council, which represents mortgage originators, servicers insurers and other service providers, said that, while Biden’s “attention to housing affordability issues is welcome,” his policies “ignore the role that ever-expanding federal, state and local government plays in perpetuating the housing supply shortage.”

“Adding more individual, demand-side tax credits and limits on pricing for legitimate closing costs will further increase house prices and the cost of providing credit,” he said. “Simply put, demand continues to outpace supply and subsidizing more demand inflates house prices. The Administration would be well-advised to examine how the deep and complex regulatory environment governing housing drives up costs and limits supply.”
Claire Williams
Reporter, American Banker
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