A proposal by the Consumer Financial Protection Bureau to limit credit card late fees would have negative economic consequences for consumers and the agency needs to explain the process it used to draft the rule, Rep. Andy Barr (R-Ky.), House Financial Services Committee Chairman Patrick McHenry (R-N.C.) and 16 House Republicans said Thursday in a letter to the agency.
The lawmakers said that last year, the CFPB broke precedent by failing to address credit card late fees when it issued the annual fee adjustments as required under Regulation Z of the Truth in Lending Act. “In prior years when the CFPB did not make inflation adjustments, because inflation was low, it explained the statistical basis for not indexing the fee,” they said. “However, the CFPB has yet to explain or justify why there was not an increase in the most recent annual adjustment announcement—a striking lack of transparency and accountability, and especially so in an era of outsized inflation.”
The CFPB has since proposed new rulemaking to end the practice of annually adjusting the late fee safe harbor for inflation, lower the safe-harbor amount to $8 and cap permissible late fee amounts at 25% of the required minimum payment. The lawmakers posed several questions to Director Rohit Chopra about that decision, including why the agency failed to convene a small business review panel to advise on the rulemaking, as required by law; what data it used determined the dollar limits; and what communications it has had with the Biden administration, which has labeled late fees “junk fees.”
“Without the incentive to pay on time, and facing only a maximum penalty of $8, it is highly likely that timely payment rates will decrease as borrowers see little downside for late payments,” the lawmakers said. “That, of course, means more shifting of delinquent payment costs to other, innocent, consumers who absorb the associated costs through higher rates or inability to further access unsecured credit that they may need to smooth their consumption.”
