CFPB Seeking Comment on Whether Credit Card Late Fees Are Reasonable
Agency concerned over revenue generated by late fees and potential regulatory loopholes.
Questioning whether the credit card late payment fees levied by credit unions and banks are reasonable, the Consumer Financial Protection Bureau (CFPB) announced Wednesday it is seeking comment on whether the charges are exorbitant.
“I am concerned that some credit card companies may actually want consumers to be a little late on their payments, given the billions of dollars in revenue generated on late fees,” CFPB Director Rohit Chopra said, in announcing the initiative.
Credit card issuers have immunity as long as the late fees they charge are considered reasonable; issuers are also permitted to increase their fees to adjust for inflation.
“These provisions in the…rule give credit card companies immunity from enforcement actions if they charge fees that aren’t reasonable or proportional,” Chopra stated. “This legal provision to sidestep liability—essentially a go-around—makes it easier on credit card companies to not have to justify their compliance with Congressional mandates governing penalties.”
He noted that the legally protected fees have increased to $30 for the first late payment and $41 for subsequent incidents, adding, “it has almost become a uniform industry standard among large players to charge the max fee authorized by the special immunity provisions.”
The CFPB found that the credit card market generates sizable profit on late fees, with companies charging $12 billion in such fees in 2020.
What Exactly Is the CFPB Asking About?
The agency is seeking comment from card issuers, consumer groups and the public on several issues, including:
–How late fees are set by card issuers.
–Whether revenue goals are part of the calculation in setting fees.
–Whether late fees have a deterrent effect.
The CFPB has said it is examining several types of fees that financial services providers charge consumers—terming such charges “junk fees.” Credit unions and banks have blasted the agency for that terminology.
The agency already has solicited comment on overdraft fees.