CFPB Gets Earful on Limiting Credit Card Late Fees

Source: American Banker

Banks and credit unions are pushing back hard against an effort by the Consumer Financial Protection Bureau to put a halt to a roughly 9% hike next year in credit card late fees pegged to inflation.

The issue has been moot for years because inflation has been so low. But with the Consumer Price Index up 9% in the past year, the CFPB is calling into question whether credit card late fees should be tied to inflation, a provision set by the Federal Reserve in 2010. 

Under the "safe harbor" provision, institutions can raise late fees due to inflation without any cost-benefit analysis as long as the fees being charged are "reasonable and proportional." To receive the safe harbor, credit card issuers can charge $30 for the first late payment and $41 for subsequent late payments within six billing cycles. 

Under a complicated formula, credit card late fees are expected to rise next year to an estimated $33 for the first late payment and $45 for subsequent late payments.

Consumer advocates and critics of the Fed's safe harbor suggest that the CFPB intervene and put a halt to the inflation adjustments. CFPB Director Rohit Chopra wants to lower credit card late fees generally and has already called out financial institutions for charging consumers roughly $12 billion a year in late fees.

The CFPB received 42 comments to an advance notice of proposed rulemaking in June that seeks to determine how credit card issuers set late fees.  A core part of the CFPB's review involves determining whether late fees are generating more revenue than is necessary to cover their cost, a requirement set by the Fed.