On Feb. 1, CFPB issued rule amendments on late fee reasonability.
CFPB proposed rule to rein in excessive credit card late fees and close issuer loophole.
Amends Regulation Z, which implements Truth in lending act (TILA), to better ensure late fees charged on credit cards are reasonable and proportional to the late payment.
Also issued redline amendments, Director Chopra’s remarks and supporting report Credit card late fees: revenue and collection costs at large bank holding companies.
Follows the CFPB's request for comment on junk fees, research report and an advance notice of proposed rulemaking, see #127767, #133540 and #141250 respectively.
Proposed Changes
Would lower the immunity provision dollar amount for late fees from $41 to $8.
Noted $8 would be sufficient for most issuers to cover collection cost of late payments.
CFPB's supporting report showed that revenue from late fees has consistently far exceeded pre-charge-off collection costs over the last several years for issuers.
Companies would be able to charge above the immunity provision so long as they could prove the higher fee is necessary to cover their incurred collection costs.
Eliminate automatic annual inflation adjustment for the immunity provision amount.
CFPB would instead monitor market conditions and provision amount for adjustments.
Restrict any late fee charge to 25% of the minimum payment to be more consistent with Congress’s intent to authorize only reasonable and proportional late fee amounts.
Also seeking comment on other potential changes to CARD act regulations.
For instance, requested comment on whether proposed changes should apply to all credit card penalty fees, whether immunity provision should be eliminated altogether.
Also, whether consumers should be granted a 15-day courtesy period after due date.
Lasty, if issuers should be required to offer autopay in order to make use of provision.
White House Fact Sheet
Fact sheet released regarding fourth meeting of President Biden's Competition Council.
Highlighted proposed rule is projected to save consumers as much as $9 billion a year.
Part of plan to reduce junk fees across various industries via Junk fee prevention act.
Consultation
Comments due by Apr. 3, 2023, or within 30 days after publication in federal register.
Feb. 2, 2023 House FSC Chair, BPI Criticism
On Feb. 2, 2023, House FSC Chairman McHenry issued statement on proposed rule.
McHenry noted proposal would limit loyalty benefits for consumers, while forcing borrowers in good standing to foot bill for those who may be late on their payments.
On same day proposal was issued, BPI responded with its concerns about proposal.
Stated proposed cap on late fees based on deficient analyses and ignores a bipartisan Congressional mandate that the fees should incentivize customers to pay on time.
Could lead to a lack of clarity if late fees become determined on case-by-case basis
No evidence there has been market failure in card market that warrants intervention.
Mar. 3, 2023 CFPB Remarks on Junk Fees
On Mar. 3, 2023, CFPB deputy director discussed reigning in junk fees, a key priority, at Consumer Law Scholars Conference, follows White House action, see #162065.
Martinez provided overview of efforts to increase competition and reduce junk fees.
Also, related rules, guidance, see #151670 (fee guidance) #161903 (card late fees).
Discussed enforcement efforts on unlawful fees, including Regions Bank, see #149084.
Further, open data rulemaking decreasing FI incentives for such fees, see #151671.
Mar. 29, 2023 Fed Reg Proposal
On Mar. 29, 2023, CFPB published proposal in federal register, comments by May 3.
Proposal would amend provisions in 12 CFR 1026 and its accompanying commentary.
In Apr. 2023, BPI published Part 1 re views on credit card fee proposal, see #169683.
May 2023 BPI Comment Letter
On May 3, 2023, BPI published comment letter on CFPB card late fees rule proposal.
Argued CFPB should withdraw proposed rule in favor of a more transparent, inclusive and rigorous rulemaking process that aligns with Truth in lending act (TILA) standards.
Described the $8 late fee safe harbor approach as arbitrary and unsubstantiated by using Fed FR Y-14 undisclosed and variably determined data on collection charge-offs.
Concluded 15-day courtesy period after late fee due-date does not align with Card act and statutory authority, and the proposal should not apply to all credit card late fees.
In May 2023, BPI published Part 2 re views on credit card fee proposal, see #172093.
Mar. 2024 CFPB Final Rule
On Mar. 5, 2024, CFPB issued the final version of the rule on credit card late fees.
Published an unofficial redline version of the rule, entitled Credit Card Penalty Fees.
Also published compliance resources for credit card penalty fees in Regulation Z.
For late fees charged by card issuers with 1 million or more open credit card accounts.
Adopts a late fee safe harbor threshold of $8, down from the current average of $32.
Annual adjustments for changes in consumer price index do not apply to $8 amount.
Issuers must demonstrate to the CFPB why a late fee higher than $8 is justifiable.
The CFPB final rule will be effective 60 days after publication in the federal register.
Director Rohit Chopra issued statement giving praise and overview of the new rule.
Current rule means large banks profit when borrowers inadvertently miss a payment.
New rule closes loophole abused by credit card giants; will save consumers money.
On same day, Senate issued statement with intent to fight rule and its implementation.
House, BPI issued statements criticizing final rule as raising cost for all consumers.
Mar. 2024 CFPB Fed Reg Final Rule
On Mar. 15, 2024, CFPB published final rule in federal register, effective May 14, 2024.
