TAMPA, Fla. (WFLA) — The federal government is targeting late fees and junk fees levied on credit card customers in a new regulatory move, announced Wednesday.

The Consumer Finance Protection Bureau, a federal agency that works to ensure fair treatment of Americans by banks, lenders, and financial institutions, has proposed a new set of policies to limit so-called junk fees on credit cards, and reduce the costs of missed payments.

The CFPB released the rule proposal Wednesday, saying that it wanted to amend a rule called Regulation Z in order to “better ensure that the late fees charged on credit card accounts are ‘reasonable and proportional’ to the late payment as required” by law.

Specifically, the Truth in Lending Act of 1968 requires that users of consumer credit are properly informed before entering the agreements to do so. This includes things like credit card contracts or loan agreements, among others.

Now, CFPB says credit card late fees are costing Americans $12 billion every year and steps need to be taken to “curb excessive” charges. In 2022, the agency initiated a review of penalty policies due to the cost to consumers.

The report found that late fee charges and penalties in recent years have been made “a core part of their profit model” and that most card issuers in the U.S. “charge the maximum late fee allowed” by federal regulators. CFPB said 18 of the top 20 credit card issuers in the U.S. set their fees at or near the maximum.

By proposing the new amended Regulation Z, CFPB said Americans could save as much as $9 billion per year through reduced late fees on credit card payments.

“When someone misses a minimum credit card payment due date, even if they paid a day or two, or even a few hours, after the billing statement date, they can be hit with a cascading series of challenges,” CFPB Director Rohit Chopra said in a statement. “While it might be fair to charge customers for extra costs that credit card companies are incurring, that’s not what we see here.”

According to the agency, late fees have “surged,” in recent years, sometimes as high as $41 for a missed payment. The proposed rule change would set a limit on the late fee costs, down to $8 for what’s called a “safe harbor dollar amount” on the penalty.

Additionally, if the rule is approved, credit card holders would see the safe harbor fee stay at $8 for “subsequent violations of the same type that occur the same billing cycle or in one of the next six billing cycles,” as well as ensure that “annual inflation adjustments for the safe harbor dollar amounts would not apply to the safe harbor amount for late fees.”

The proposal also requires that late fees never exceed 25% of a required payment amount, while the current late fee rules say they may not exceed 100%. Zero to 100% is a large breadth of potential fee amounts.

“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” Chopra said in a statement. “…When someone misses a payment due date, even if they paid a few hours after the deadline, the cardholder may be hit with an exorbitant late fee that far exceeds the credit card company’s costs to collect late payments.”

The rule is now open for public comment, but they must be received on or before April 3.