Banks to CFPB: Rule to Cut Late Fees Requires Small Business Review

Small community banks and credit unions have recently stated that they will be forced to sue the Consumer Financial Protection Bureau (CFPB) if their plan to cut credit card late fees to $8 goes into effect next year. They argue that the CFPB is required to convene a small business review panel for any regulatory change that would cause an economic impact of over $100 million on small businesses.

“The CFPB may have made a big mistake by not doing a small-business review panel,” said Ed Groshans, senior policy and research analyst at Compass Point Research & Trading, according to American Banker. “It’s clear this rule will impact these small businesses and it’s very clear that the CFPB is going to be sued. This may be a big setback.”

In August, the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and NAFCU sent a letter to CFPB Director Rohit Chopra about the small business requirement, as input from small businesses is supposed to happen before the agency decides on a specific regulatory approach.

In the CFPB’s plan, Chopra asserted that the late fee cut would not impact a substantial amount of small businesses, but that the Bureau does not have enough data to determine the impact of the rule. The CFPB uses a data field from the Federal Reserve Board that cannot be accessed by the public, as it includes private supervisory information for large banks.

Over half of banks that issue credit cards are considered small, with assets of $850 million or less, according to the Small Business Administration. 85 percent or 2,670 credit unions that issue credit cards qualify as small businesses too.

The proposed rule was more aggressive than banks anticipated. Some credit unions and banks took hits to their stocks after the announcement. Given that the declines were minimal, some analysts have suggested that investors are incorrectly pricing the impact of the CFPB’s rule.

“I think there is a greater chance of this [proposed rule] going into effect than what the market is suggesting right now,” said Ed Mills, managing director at Raymond James. “This is really the one rule that has the greatest chance of being finalized.”