SBA Advocacy Office Asks CFPB to Abandon Credit Card Late Fee Rule

Evaluation says bureau must gather more data, consider impact on smaller credit unions and banks.

The CFPB should abandon its proposed rule governing credit card late fees until the agency performs a complete evaluation of the proposal’s impact on small financial institutions, the Small Business Administration’s Office of Advocacy said in an evaluation of the plan.

“Imposing the requirements of this proposal on small depository institutions without fully understanding the consequences could be problematic for the small depository institutions and the consumers that rely on them,” officials from the office wrote, in commenting on the proposed rule.

The SBA’s Office of Advocacy is an independent office charged with evaluating the impact that proposed rules will have on small entities.

“The CFPB admits that it does not have data about the activities of small banks. It has information about the activities of larger institutions over $10 billion, but not sufficient information about small institutions,” advocacy officials stated.

Further, according to the advocacy office, the bureau appears to assume that the rule’s impact would be the same regardless of the size of a financial institution.

“Until the CFPB has sufficient data to truly ascertain the economic impact of this proposed regulation on small entities, Advocacy recommends that the CFPB maintain the status quo as it relates to small entities,” the evaluation reads.

Backstory and Context

The Biden Administration has started a high-profile campaign to eliminate so-called “junk fees,” with officials singling out several fees, including credit card late fees.

The CFPB has proposed limiting most credit card late fees to $8.

Financial services trade groups, including CUNA and NAFCU, have voiced opposition to the rule and have questioned the proposal’s potential impact on small financial institutions.

Inside the Evaluation

The SBA’s advocacy office agreed with the trade groups.

“By grouping all small banks and credit unions together, the CFPB may be underestimating the impact of the proposal on small depositories,” advocacy office officials wrote. “The costs may be higher for small depositories that have less revenue.”

The rule could cause problems for small banks and credit unions that the CFPB has not addressed, the evaluation stated, adding that a reduction in fees could result in banks or credit unions deciding to offer credit to fewer borrowers.

The CFPB also should consider the role that late fees have in encouraging borrowers to pay on time, the advocacy officials maintained.

The SBA office said additionally that the CFPB has no information about whether the $8 fee will cover the costs that small institutions may incur in processing late fees. “That type of information is germane to determining the impact on small entities and whether the amount being currently charged is reasonable,” the agency wrote.