CFPB Director Rohit Chopra Testifies Before House, Senate Committees

Last week, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra testified at hearings before the House Financial Services Committee and Senate Banking Committee to present the CFPB’s Semi-Annual Report to Congress.

One major topic of the hearings was the Bureau’s proposal to decrease credit card late fees. Chopra rejected the arguments by banks that capping late fees would make them recover lost revenue by cutting credit access or charging higher interest rates.

“They are fully allowed to capture their costs. One of the things that our issuers tell us it that they don’t want to profit off of late fees,” Chopra said under questioning from Senator Tim Scott (R-S.C.), the top Republican on the committee, according to Reuters. “That’s exactly the goal here because the law says those penalty fees are supposed to be reasonable and proportional.”

The CFPB’s proposal would lower late fees to just $8, down from $30 for the first late payment and $41 for subsequent late fees, which the Bureau says would save consumers an estimated $9 billion. In defense of the proposal, Chopra said credit card issuers could charge more than $8 if they can show the cost to collect the late fees is higher than that.

Republicans criticized the proposal, arguing that credit card issuers would find other ways to make up the cost of late payments that would make loans either more expensive or nearly impossible to receive for low- and middle-income consumers. “Taking away the fee only means that you’re going to paint it into the overall structure and cost associated with that institution,” Scott said.

Alternatively, Senator Elizabeth Warren (D-Mass.) defended Chopra, noting that late fees make up a relatively small stream of revenue for credit card issuers. “When I asked the biggest credit card issuers for this information, their response was that it was less than 1 percent,” she said, according to Roll Call.

“So if there’s an $8 cap on credit card fees—unless the banks can show that their costs are higher, in which case they can charge more—all that will happen, as best I can tell, is that the banks will have slightly lower profit margins,” she continued.

Other Democrats pressed Chopra on consequences if the Supreme Court upholds the Fifth Circuit Appeals Court decision from October that the CFPB’s funding structure is unconstitutional. If upheld, it could throw the Bureau’s rulemaking into question, even for the late fee proposal.