CFPB may limit credit card late fees as inflation threatens to raise them

Rohit Chopra, director of the Consumer Financial Protection Bureau, testifies throughout a Senate Banking, Housing and Urban Affairs Committee listening to on April 26, 2022.

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The Consumer Financial Protection Bureau signaled a crackdown on late fees charged by credit card firms on Wednesday, as inflation threatens to improve these so-called “junk” fees levied on shoppers.

The watchdog, a federal company created within the wake of the 2008 monetary disaster, issued an advance notice of proposed rulemaking looking for info from card issuers, client teams and the general public on late fees.

The information will assist the regulator draft new guidelines aimed to shore up “weak spots” in current legal guidelines governing “back-end penalties” imposed by card firms, CFPB director Rohit Chopra stated in a press name Wednesday.

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Public feedback are due by July 22. Timing on a proper rule proposal (and finally a last rule) is unclear, however company officers stated they do not count on the method to conclude earlier than year finish.

Officials count on modifications to cut back complete late fees by billions of {dollars} every year, they stated Wednesday. They additionally signaled future laws on different varieties of fees, with out providing specifics.

Credit card late fees

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The prices disproportionately affect customers in low-income and majority-Black neighborhoods, in accordance to the regulator.

The watchdog characterizes late fees as a kind of “junk” payment charged by credit card issuers. The company had issued a separate request in January asking shoppers for enter on hidden and extreme fees from a spread of lenders.

“This is just one project relating to one type of junk fee,” in accordance to a CFPB official, who spoke on background. “I think it’s fair to say there will be other projects relating to other fees in the near future.”

Missing from this announcement is the truth that banks — greater than another business — have taken concrete steps to make their merchandise extra reasonably priced and accessible for hundreds of thousands of Americans.

Richard Hunt

president and CEO of the Consumer Bankers Association

Richard Hunt, president and CEO of the Consumer Bankers Association, stated further restrictions would hurt clients and will finally push them to riskier varieties of credit.

“Today’s announcement is another reminder the Bureau appears more interested in advancing a particular agenda than developing fact-based policies that improve the lives of hardworking families,” Hunt stated in a press release. “Missing from this announcement is the fact that banks — more than any other industry — have taken concrete steps to make their products more affordable and accessible for millions of Americans.”

What would the CFPB do?

Current regulation disallows credit card issuers from charging clients a payment for a late fee, besides in sure circumstances. To levy a payment, the company should decide that the payment is a “reasonable” proportion of the whole prices the company incurred to course of a late fee.

But the regulation additionally affords a authorized security web: Issuers can usually keep away from the associated fee evaluation (and regulatory scrutiny) in the event that they cost $30 or much less for a late fee, and up to $41 for every subsequent late fee made inside the subsequent six billing cycles.

“In today’s advance notice of proposed rulemaking, the CFPB is asking for information on these fees in order to assess whether they really are reasonable and proportional,” Chopra stated.

The Consumer Financial Protection Bureau headquarters in Washington, D.C.

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However, Hunt of the Consumer Bankers Association framed inflation as an enormous motive why the CFPB mustn’t impose further guidelines on the business.

“Imposing more restrictions on bank-offered credit products will hurt hardworking families most, forcing them to meet their needs outside of the well-supervised banking system,” Hunt stated. “This risk is even greater now as families contend with the effects of inflation.” 

The CFPB stated it is looking for info on the next factors, amongst others: components utilized by card issuers to set late payment quantities; firms’ prices and losses related to late funds; the deterrent results of late fees; cardholders’ late fee habits; strategies corporations use to facilitate or encourage well timed funds (like autopay and notifications); and their use of “safe harbor” provisions.

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