Agency says revenues collected from these charges are estimated as much as five times greater than collection costs for late-payment violations
WASHINGTON — The Consumer Financial Protection Bureau is seeking public comments until April 3 on a proposed rule to curb excessive credit card late fees it says costs Americans $12 billion each year.
The agency said that companies are now charging as much as $41 for each missed payment, which it said results in billions of dollars in “annual junk fee revenue” for credit card companies.
The agency said these companies are profiting from late fees that are protected by an expansive immunity provision that allows the companies to hike fees with inflation even if they face no additional collection costs.
It noted that the Federal Reserve Board created the immunity provision to allow credit card companies to avoid scrutiny of whether their late fees were reasonable. As a result, it noted, the provisions have risen with inflation to $30 for an initial late payment and $41 for subsequent late payments, with the revenues from these fees estimated at five times greater than collection costs that companies incur for late payment violations.
“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,” said CFPB Director Rohit Chopra, adding that the proposed rule seeks to “save families billions of dollars and ensure the credit card market is fair and competitive.”
For furniture retailers, the proposed changes could lessen negative consumer sentiment toward their store resulting from the sense that they are being overcharged because of a late payment — even though it’s not the store actually charging the fee. It also could lower angry phone calls they receive from customers in response to exorbitant late fees charged by the credit card company.
The changes proposed by the CFPB would lower the immunity provision dollar amount for late fees to $8, which it said would be sufficient to allow most issuers to cover collection costs incurred as a result of late payments. It added that companies could charge over this amount as long as they can prove the higher fee is necessary to cover the incurred collection costs.
The proposed rule also would end the automatic inflation adjustment and cap late fees at 25% of the required minimum payment.
Of the automatic inflation adjustment, the agency said, “This adjustment is not required by law, nor is it necessarily reflective of how collection costs change over time.” Instead the CFPB said it would monitor market conditions and the immunity provision amount for potential adjustments as necessary.
The proposal also seeks public input on other related issues, including whether the proposed changes should apply to all credit card penalty fees, whether the immunity provision should be eliminated entirely, whether consumers should be granted a 15-day courtesy period after the due date before late fees can be assessed and whether issuers should be required to offer autopay to make use of the immunity provision.
To learn more about the CFPB’s proposed rulemaking click here. To comment on the federal government’s rulemaking portal, visit www.regulations.gov