Credit Union Trades and Consumer Groups Clash Over Card Late Fees

Credit union trade groups defend card fee structures in comments to CFPB, while consumer groups call them unreasonable.

Credit unions do not use credit card and other late fees as revenue; as a result, the CFPB’s efforts to rein in those fees are misguided, credit union trade groups are telling the agency.

“There are costs that go into collecting on delinquent accounts, such as training and paying personnel who spend a significant amount of time collecting on those delinquent accounts,” Kari Osier, compliance specialist at the Illinois Credit Union League, told the agency. “A credit union must be able to cover its operational costs in order to continue to provide essential financial services to its membership.”

The CFPB is examining several types of fees that financial services providers charge consumers—terming such charges “junk fees.” Both credit unions and banks have blasted the agency for that terminology.

A comment period on credit card late fees came to an end on Monday. 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.

Pushback From Consumer Advocates

While credit union trade groups contend that credit card late fees are reasonable, a coalition of consumer groups disagreed.

“The late fees imposed by card issuers exceed the amounts they incur in costs, especially for accounts with smaller balances and for delinquencies of short periods of time,” Americans for Financial Reform, the Consumer Federation of America and the National Consumer Law Center told the agency in a joint letter.

Response from Credit Union Groups

But Osier countered that if unable to assess reasonable fees, credit unions would face safety and soundness issues, while the cost of non-payments would be borne by the entire credit union membership.

The cost of labor involved in collecting on a late account also should be considered when evaluating such fees, David Pace, manager of regulatory advocacy at the League of Southeastern Credit Unions, told the CFPB.

He noted that the average salary of a collection agent in the U.S. is $55,027, according to Glassdoor.com, which breaks down to a rate of $26.50 an hour. Based on the work involved in attempting to collect on a late debt, Pace said it becomes apparent that a $30–$40 late fee is completely consumed by the labor involved in the collection.

National credit union trade groups also criticized the CFPB for even considering that the late fees charged by credit unions are unreasonable.

“We strongly caution the Bureau against painting a broad picture of fees in the financial services market,” wrote Alexander Monterrubio, CUNA’s senior director of advocacy and counsel for consumer protection. “Many credit unions have specifically designed their fee schedules with members in mind and as a result there is substantial diversity across the industry.”

The bureau should concentrate on abuses to the fee structure used by some financial services providers, NAFCU Vice President of Regulatory Affairs Ann Petros said.

“The CFPB should focus on pursuing individual enforcement actions against the truly bad actors or repeat offenders that are harming consumers by assessing exorbitant fees and making it difficult for consumers to escape from a cycle of debt,” she stated.

However, the coalition of consumer groups said the CFPB should concentrate on the financial services industry as a whole.

“Late fees are still an inappropriate, back-end profit center for credit card issuers that obscures the costs of credit cards,” they wrote. “As long as they are, issuers will have a tremendous incentive to engage in unfair, deceptive, and abusive practices in order to trigger the fees.”