The credit card business is a good one as this type of credit typically charges outlandish rates as well as silly fees. Today, the Consumer Financial Protection Bureau (CFPB) is specifically targeting late fees charged to consumers as it proposes a reul that aims to cut these fees by up to $9 billion a year – making “over the top late fee amounts” illegal.
The CFPB notes that when a credit card user is late in paying – even by a few hours – they may be hit by exorbitant fees that exceed the issuer’s cost to collect late payments.
According to the Bureau, companies currently charge people as much as $41 for each missed payment, labeling them junk fee revenues.
The CFPB aims to amend regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which would ensure that late fees meet the Act’s requirement to be “reasonable and proportional.” The proposed rule would lower the immunity provision for late fees to $8 for a missed payment as well as end the automatic annual inflation adjustment. The proposed rule would also ban late fee amounts above 25% of the consumer’s required payment.
CFPB Director Rohit Chopra said that more than a decade ago excessive late fees were banned by credit card issuers, but they continue to exploit a regulatory loophole. He called these fees otherwise illegal.
The CFPB estimates that the income generated by the largest issuers from late fees is approximately five times greater than the collection costs that the companies incur for late payment violations. The CFPB reports that in 2020 credit card companies charged approximately $12 billion in late fees.
The proposed rule, available here, is accepting comments until April 3, 2023, or 30 days after being published in the Federal Register – whichever is later.