The Consumer Financial Protection Bureau proposed dramatically revamping credit card late fee policies last week, including dropping the maximum credit card fee per missed payment from $41 to $8.
The proposal, issued Feb. 1, would also end the automatic annual inflation adjustment issuers receive and ban late fee amounts above 25 percent of a required minimum payment. The regulatory agency alleged that credit card issuers have used an immunity provision “to hike fees with inflation, even if they face no additional collection costs.” The CFPB would instead monitor market conditions and the immunity provision amount for potential adustments.
The proposed changes are intended to ensure that card issuers meet their obligations under the Credit Card Accountability Responsibility and Disclosure Act of 2009, including late fees being “reasonable and proportional” to costs issuers face from handling late payments. According to the CFPB, the proposal could reduce late fees by $9 billion on an annual basis.
“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,” said CFPB Director Rohit Chopra. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
The CFPB is also seeking public comment on whether the proposed changes should apply to all credit card penalty fees, if the immunity provision should be eliminated, if consumers should be granted a 15-day courtesy period after their due date to be charged late fees, and whether issuers using the immunity provision should be required to offer autopay.
“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 regulatory agency stated. “These excessive late fees may not be needed to deter late payments, nor be justified based on the consumer’s conduct in paying late.”
Both American Bankers Association President and CEO Rob Nichols and Independent Community Bankers Association President and CEO Rebeca Romero Rainey criticized the proposal.
To Nichols, the proposal “flagrantly violates federal law meant to protect the competitiveness of community banks,” and would force many smaller banks to completely exit the credit card market. “It will result in more late payments, higher debt and lower credit scores and is inconsistent with the CARD Act’s encouragement of responsible credit management,” he said.
Romero Rainey said the proposal would hamper the availability of credit to small communities. “Credit card late fees — which are clearly disclosed and represent a small portion of the cost of credit cards to customers — deter late payments and help offset the significant costs to issuers,” she said. “Considering these costs, current practices are appropriate and do not constitute ‘junk fees,’ despite the CFPB’s misrepresentation of the community bank business model.”