The Biden administration is trying to rein in what it says are unnecessarily high credit card late fees, putting in place a new consumer protection rule it says will lower them.

For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers, Rohit Chopra, director of the Consumer Financial Protection Bureau said Tuesday.

Todays rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines.

The move is part of a slate of measures unveiled Tuesday by regulators and agencies meant to show the Biden administration is trying to boost competition and bring down costs to consumers as many voters are still chafing from the effects of prices increases in 2022 and 2023.

Those other moves include a proposal by Federal Communications Commission Chairwoman Jessica Rosenworcel to limit bulk billing of broadband services in multi-household buildings, such as condo and apartment complexes, and a move by the Agriculture Department to boost competition for processing in livestock and poultry markets.

But the CFPB rule, to be officially published Tuesday, may get the most notice. The bureau said banks collected more than $14 billion in late payments in 2022 and that those fees made up more than 10% of all the fees and interest banks charged customers.

A 2009 law was meant to limit late fees to no more than the amount needed to actually recover late payments. But in implementing the law, the Federal Reserve provided an exception for banks that charged no more than $25 for the first late payment and $35 for subsequent ones, and it allowed those amounts to rise with inflation.

The average fee is now $32, said the CFPB, which is now in charge of enforcing the 2009 law. Its new rule would bring that down to $8, saving an estimated $220 annually for the 45 million people who pay late fees.

Though fees have long been a steady source of income for banks, they are in good financial shape and may not feel much of an effect from the change. The Federal Deposit Insurance Corp. said in November that U.S. banks made $68.4 billion in profits in the third quarter of 2023 , down slightly from the quarter before.

Still, major banking trade groups the American Bankers Association, the Consumer Bankers Association and the National Association of Federally-Insured Credit Unions warned in 2023 that the change would mean more borrowers would pay late because the fees would not deter them and would subsequently see their creditworthiness suffer.

The CFPB said its proposal would only cover issuers with more than 1 million open accounts and would not affect the ability to raise interest rates on late payers, cut credit lines or take other actions to encourage timely payment.

In fact, the rule would increase the desire for credit card companies to facilitate on-time payment, since it would lower incentives to build a business model on late fees, the agency said.