The Consumer Financial Protection Bureau today released a final rule sharply reducing allowable late fees on credit card payments. According to the bureau, the rule would reduce the safe harbor dollar amount for late fees to $8, eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type and eliminate the annual inflation adjustment for the safe harbor amount that was provided by the Federal Reserve Board in 2010. It would apply to card issuers with at least 1 million open accounts.
The CFPB last year announced it was pursuing the rule as part of a broader effort by the Biden administration to curb so-called “junk fees” across multiple business sectors. The White House today highlighted the rule in a separate announcement about the creation of a new interagency “strike force” to “crack down on unfair and illegal pricing,” which will be co-chaired by the Department of Justice and Federal Trade Commission.
The new rule will not change a card issuer’s ability to raise interest rates, reduce credit lines or take other actions to deter consumers from paying late, according to the CFPB. It will take effect in early May.
ABA: Late fee rule based on flawed data
The CFPB final rule will not only reduce competition and increase the cost of credit, it will also result in more late payments, higher debt, lower credit scores and reduced credit access for those who need it most, American Bankers Association President and CEO Rob Nichols said. He added that the rule will cap late fees at a level far below banks’ actual costs, forcing issuers to reduce credit lines, tighten standards for new accounts and raise APRs for all consumers, including those who pay on time.
“It comes as the CFPB continues to use misleading blog posts and irresponsible press statements to paint an inaccurate and distorted picture of today’s highly competitive credit card market, which offers consumers a wide variety of card programs and features they value—provided by banks of all sizes across the country,” Nichols said. “Just days before the State of the Union, this supposedly independent agency is clearly choosing to put politics over sound public policy.”
Nichols also noted that the bureau relied on flawed assumptions and a mischaracterization of the role that late fees play in promoting responsible consumer behavior. “Not surprisingly, the bureau disregarded industry data about the true cost of late payments,” he said. “It is highly unusual for a final rule to remain essentially unchanged from its proposal despite detailed stakeholder comments offering reasonable alternatives. This final rule makes clear that the CFPB’s mind was made up from the beginning—the very definition of an arbitrary agency action. We will closely review this final rule and consider all options to fight the harmful consumer policy coming out of Director [Rohit] Chopra’s CFPB.”
