The Consumer Financial Protection Bureau’s “untested and unvalidated assumptions” about credit card late fees are wrong, particularly about the deterrence effect of late fees, and result in “flawed policy,” the American Bankers Association and two banking and credit card associations said Wednesday. In a joint letter on the CFPB’s proposal to reduce the safe harbor amount for late fees, the associations said the rulemaking would increase the cost of credit cards, make cards more difficult to obtain and reduce the number of institutions that offer the products.
“As with many obligations, late fees provide an important incentive to pay on time and help cover the costs and risk of people failing to pay,” the associations said. “Late fees are designed to recover at least part of the issuer’s costs associated with late payment, encourage on‐time payments, minimize defaults and delinquencies, and promote good credit management.”
The letter cited a recent survey commissioned by ABA that found late fees are more effective in motivating consumers to pay bills on time than negative credit scores. They also noted that 68% of consumers surveyed believed that it is reasonable for banks to charge late fees.
In addition, the associations argued the CFPB violated various process and procedural requirements. The bureau failed to consider the effects of the proposal on small banks and credit unions, the groups said, adding that it is engaging in “rushed rulemaking with a preordained outcome,” in violation of the Administrative Procedure Act. The trade groups also argued that the proposal signals an intent to evade a provision in Truth in Lending Act that sets forth the effective dates of regulations containing new or changed TILA disclosure requirements.