CFPB Releases Proposal Slashing Credit Card Late Fees
The Consumer Financial Protection Bureau (CFPB) recently issued a proposed rule that it says will rein in excessive credit card late fees that cost Americans nearly $12 billion every year. The Bureau alleges that many big credit card issuers profit off of late fees through an expansive immunity provision, so the rule would ensure that excessive late fees are illegal by cutting the fees to as low as $8.
“Over a decade ago, Congress banned excessive credit card late fees but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” CFPB Director Rohit Chopra said in a press release. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
Credit card companies currently charge as much as $41 for every missed payment. The CFPB’s proposal would amend regulations in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) to ensure that any late fees are “reasonable and proportional” to costs obtained by issuers to handle late payments.
The proposed rule would lower the immunity provision for late fees to $8 and end the yearly automatic adjustment for inflation. It would also ban late fee amounts over 25 percent of the consumer’s required payment.
American Banker noted that the proposal came as credit card debt has risen to almost $1 trillion, and fears of an economic recession have increased. Last year, Chopra brought up concerns about junk fees and companies that hide prices of goods and services by adding fees that lead to price gouging.
“This is one of many efforts the CFPB has pursued to restore more competition to the market and reduce the billions of dollars in junk fees drained from family budgets,” Chopra said. “Our work has already contributed to billions of dollars in savings in fees on bank accounts and other products.”
The CFPB’s proposal requests comment on other possible changes to CARD Act regulations, like whether the changes should apply to all credit card penalty fees, whether the immunity provision should be eliminated, and whether consumers should get a 15-day grace period before being charged a late fee.