SBA Advocacy: CFPB late fee proposal’s deficiencies warrant small issuer pause

The Consumer Financial Protection Bureau’s proposal to overhaul the safe harbor dollar amount for credit card late fees lacks evidence to support its claim that the rule will not have significant economic effects on a substantial number of small entities, the Small Business Administration’s independent Office of Advocacy wrote in a recent letter to the bureau. The CFPB has proposed reducing the safe harbor dollar amount for late fees from $30 to $8 and eliminating a higher safe harbor dollar amount for late fees for subsequent violations of the same type. However, SBA Advocacy’s letter questioned a number of claims made by the CFPB in justifying the rule change, noting that the bureau had issued its analysis despite lacking data about small depository institutions.

“Advocacy is concerned about this rule’s deficiencies under the [Regulatory Flexibility Act] and the CFPB’s reliance on data that represent the activities of large institutions,” SBA Advocacy said in its letter. “For the foregoing reasons, Advocacy recommends that the CFPB maintain the status quo for small entities until the CFPB has sufficient data to perform a more thorough analysis of the economic impact that the proposed rulemaking may have on small entities.”

SBA Advocacy cited four chief concerns about the rulemaking. First, the agency is concerned that the CFPB does not have the necessary data to develop an adequate factual basis for its certification. Second, the CFPB doesn’t have sufficient information to indicate that small institutions contribute to the problem that is the target of the regulation. Third, the agency is concerned about the CFPB’s reliance on the reasonableness test as an option for small entities. Finally, the rulemaking could be problematic for the small depository institutions and the consumers, including small businesses, that rely on them.

“There is also no way of knowing if the safe harbor will even cover the costs associated with processing late fees at a small institution,” SBA Advocacy said. “If it does not cover the costs, it is possible that small depositories may no longer offer the product to their customers.”