Sen. Elizabeth Warren (D-Mass.) recently called on the Consumer Financial Protection Bureau to finalize a proposal that would drastically reduce credit card late fees.
The June 29 letter pertained to a proposal in February to reduce the maximum credit card fee per missed payment to $8 from the current figure of $41. The proposal would eliminate the automatic annual inflation adjustment and restrict late fees to 25 percent of the minimum payment. Issuers could charge more than $8 if they show that the costs of collecting the fees exceeds the cap.
Warren said the proposal is needed “to protect American consumers from the predatory practices of greedy financial institutions and furthers the Biden administration’s efforts to root out junk fees.” Warren called reducing credit card late fees “a much-needed move that would save American families an estimated $9 billion a year.
“For too long, big banks and other card issuers have abused late fees to pad their bottom line,” she added.
Warren and six other Democratic senators penned letters to 10 of the largest credit card issuers: American Express, JPMorgan Chase, Citi, Discover, U.S. Bank, PNC, USAA, Wells Fargo and CapitalOne. Other Democratic cosigners included Tammy Baldwin of Wisconsin; Jack Reed of Rhode Island; Richard Blumenthal of Connecticut; Bernie Sanders and Peter Welch of Vermont; and Sherrod Brown of Ohio.
Warren said none of the issuers substantiated their claims that the costs associated with collecting late payments is more than the total late fees collected. “Information provided by Wells Fargo indicates that late fees collected exceed the cost of collections by as much as tens of millions of dollars,” her letter stated.
Both American Bankers Association President and CEO Rob Nichols and Independent Community Bankers of America President and CEO Rebeca Romero Rainey have criticized the late fee proposal, arguing it would make credit more difficult to obtain and not benefit cardholders.
In a May 3 letter, the ABA, Consumer Bankers Association and National Association of Federally-Insured Credit Unions said the proposal’s “untested and unvalidated assumptions about credit card late fees are wrong, resulting in flawed policy that will ultimately harm all cardholders whether they pay on time, pay late or carry a balance.”
According to the trade groups, the steep drop in late fees would eliminate the current deterrence against overdrafts and “gives short-term preferential treatment to a small minority of frequently late-paying consumers at the expense of the vast majority of consumers who pay their bills on time.”