A proposal by the Consumer Financial Protection Bureau (CFPB) that seeks to curb excessive credit card late fees drew criticism from several banking industry organizations.
The proposal focuses on the immunity provision, which allows credit card companies to increase late fees with inflation, even, according to the CFPB, they incur no additional collection costs. The CFPB would cap the immunity provision late fee at $8 for most issuers to cover collection costs incurred due to late payments. Companies could charge more than that if they prove the higher fee is necessary to cover their incurred collection costs. The CFPB says companies currently charge as much as $41 for that fee.
The Bank Policy Institute (BPI) has several concerns with the proposal. One, they said it dismisses Congress’s assessment that late and penalty fees are necessary to provide consumers with maximum benefit at the lowest cost. Two, it disregards administrative law, as it does not provide a reasonable basis for the CFPB’s substantial reduction of the late fee safe harbor. Three, they said it contradicts the CFPB’s goal of making consumer regulation “simpler and clearer” by challenging the Federal Reserve’s safe harbor. Finally, BPI officials said it fails to acknowledge intense competition in credit card markets among banks, nonbank Big Tech, and fintech firms. Further, they said the CFPB provides no evidence that there has been a market failure in the credit card market that warrants intervention.
“The proposal is a solution in search of a problem – the bottom line is that the U.S. credit card market is highly competitive and provides customers across the credit spectrum with the ability to make payments anywhere at any time, free of charge if paid on time, and with antifraud and other protections. The CFPB’s current contemplated government intervention, while presumably well-intentioned, would disrupt this well-functioning market,” Paige Pidano Paridon, senior associate general counsel at BPI, said.
Lindsey Johnson, president and CEO of the Consumer Bankers Association (CBA), called it “deeply unfortunate and puzzling” that the CFPB would take this action that could limit consumers’ access to these financial products at a time when they are needed most.
“Further, continuing to conflate fees charged by well-regulated banks with those in other industries is not only disingenuous, it fails to reflect the fact that banks are required by law to provide clear and conspicuous disclosures. America’s leading banks remain committed to supporting hardworking consumers who have suffered from historic inflation over the past two years and continue to face unprecedented economic uncertainty today. Policymakers should be working in tandem with banks to advance this shared objective rather than enact new policy without any regard to data or reality,” Johnson said.
The Independent Community Bankers of America (ICBA) also expressed concerns about the proposal.
“As relationship bankers, community banks offer credit cards as a service to their customers under contracts voluntarily entered into by these consumers. Credit card late fees — which are clearly disclosed and represent a small portion of the cost of credit cards to customers — deter late payments and help offset the significant costs to issuers. Considering these costs, current practices are appropriate and do not constitute ‘junk fees,’ despite the CFPB’s misrepresentation of the community bank business model,” ICBA President and CEO Rebeca Romero Rainey said.