RSSThe Consumer Financial Protection Bureau released a finalized rule on March 5 that caps consumer credit card fees at $8 per incident.
The rule applies to credit card issuers with more than 1 million open accounts. According to the CFPB, the rule will limit fees that currently cost American families more than $14 billion annually and save them more than $10 billion in annual late fees.
The CFPB ended automatic inflation adjustments unless issuers prove that doing so is necessary to collect on costs incurred by late fees, after finding that many issuers had been increasing their late fees without providing evidence of increased costs. Credit card companies will still be allowed to reduce credit lines, raise interest rates and take other actions to prevent late fees.
The CFPB sees the late fees as adding onto “other punitive measures credit card companies impose on consumers who miss payments, including extra interest charges, loss of their grace period, negative credit reporting, reductions in their credit limit, and a higher interest rate on future purchases.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said CFPB Director Rohit Chopra. “Today’s 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.”
Trade groups announce lawsuit
The American Bankers Association, U.S. Chamber of Commerce, Consumer Bankers Association and three Texas-based Chambers of Commerce filed a federal lawsuit two days later seeking a preliminary injunction against the rule.
The lawsuit, filed March 7 in the Northern District of Texas, alleges the CFPB exceeded its statutory authority and provided flawed reasoning and analysis to secure a desired outcome. ABA President and CEO Rob Nichols said the rule “would result in more late payments, increased debt, reduced credit access and higher APRs for all consumers — including the vast majority of cardholders who pay on time each month.
The ABA filed a separate lawsuit last month against the Federal Reserve, FDIC and Office of the Comptroller of the Currency, after federal regulators allegedly exceeded their statutory authority during recent updates to the Community Reinvestment Act.
“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,” Nichols added. “This rule is about politics, not policy, and we look forward to the court’s review.”
CBA President and CEO Lindsey Johnson said the policy is “at best, consumer redistribution, not consumer protection. Equally concerning is that this rule continues the CFPB’s deeply problematic practice of rushing to prioritize headlines at the expense of legal process. But this time they’re also endangering consumers’ long-term financial health.”
After the rule was finalized, Independent Community Bankers of America President and CEO Rebeca Romero Rainey said she “remained concerned” that consumers could incur more late payments and additional interest charges due to regulators signaling that credit card payments are not their top priority.
“While we generally oppose regulatory efforts to regulate the free market and set prices that interfere with competition and consumer choice, relationship-based community banks offer credit cards as a service to their customers under contracts voluntarily entered into by these consumers and are rightly not targeted by today’s rulemaking,” Romero Rainey said.
