CFPB Credit Card Late Fee Proposal Deficient on Facts, Risks Higher Costs for All Americans

Washington, D.C. – The Bank Policy Institute commented today on the Consumer Financial Protection Bureau’s misguided proposal to impose strict new limits on the amount banks are allowed to charge for credit card late fees.

Here’s the background:

The proposal would cap the “safe harbor,” authorized under the Card Accountability Responsibility and Disclosure (CARD) Act of 2009, at $8 from its current levels of $30 for the first violation and $41 for subsequent violations. The CFPB’s proposal is based on a profoundly flawed analysis and reflects a blatant disregard for the statutory factors that the CFPB must consider under the CARD Act. The CFPB’s decision to move forward with the proposal in its current form risks harming consumers by leading to more frequent late payments and delinquencies, which could negatively affect consumers’ credit scores and lead to higher costs and fewer benefits, including card rewards, for all Americans.

What BPI is saying:

Paige Pidano Paridon, BPI senior vice president and senior associate general counsel, issued the following statement:

Credit card late fees are transparent, highly regulated and apply equally to all customers that fail to pay their minimum amount due on time, regardless of income level or credit score. The CFPB bases its proposal on politics rather than sound empirical data and, despite pointing to hypothetical savings, the effort will likely harm consumers. The CFPB itself repeatedly acknowledges in the proposal that lower late fees could make interest payments more expensive for all consumers, reduce lending options for some consumers – particularly low-income borrowers – and increase the frequency of late payments and delinquencies, harming consumers’ credit scores. Consumers are best served when policy is based on data and evidentiary support rather than irresponsible rhetoric.

BPI’s letter argues that the proposal:

  • Harms Consumers. The CFPB itself has acknowledged that these changes would likely constrain credit and result in higher costs for all borrowers. Consumers with lower credit scores or limited credit histories will suffer the most and may quickly find credit card products out of reach.
  • Bases its Conclusion on Limited and Deeply Flawed Analyses. The CFPB has not released the comprehensive data, analysis or methodology purportedly relied upon for the proposal, which makes it virtually impossible to understand the CFPB’s methodology or replicate its findings. The limited data that is available is deficient for multiple reasons, including that it is not representative of the credit card market as a whole.
  • Fails to Meet Legal Requirements and Risks Procedural Challenge. Agencies are required under the Administrative Procedure Act to demonstrate with reasoned analysis and actual evidentiary support how rule changes would help achieve regulatory goals consistent with the underlying law. The CFPB fails to meet the legal requirements under the APA and the CARD Act and risks finalizing a rule that is arbitrary and capricious and contrary to the law.
  • Disregards Congressional Intent. Congress in 2009 took bipartisan action to curb fees, mandate disclosures and improve fairness and transparency in credit card markets by passing the CARD Act. The CARD Act recognized the role late fees serve in the credit card market, including by  promoting responsible consumer repayment behavior. The CFPB’s existing proposal disregards this statutory recognition and reflects a prejudgment that fees are inherently bad.

The CARD Act already addressed many of the issues the CFPB seeks to solve.

  • The Credit Card Accountability Responsibility and Disclosure Act “put a stop to deceptive credit card practices and hold credit card companies accountable to their customers. … As of today, consumers will be protected against unreasonable fees and penalties for late payments, as well as unfair practices involving gift cards.  This law will also make the terms of credit cards more understandable and puts a stop to hidden over-the-limit fees and other practices designed to trap consumers.” President Barack Obama, White House press release, 8/10/2010
  • “The CARD Act was designed to reduce surprises in re-pricing of accounts and to take a major step in improving the overall transparency of credit card costs. As a result of the CARD Act, consumers now have better information about how much they are paying for credit and how much they might save on interest if they pay down their balances more quickly than they might otherwise have planned.” Sen. Elizabeth Warren (D-MA), CFPB prepared remarks, 2/22/2011
  • “The CARD Act’s reforms will level the playing field for consumers and usher in a new era of fairness and transparency in the market.” Rep. Carolyn Maloney (D-NY), press release, 2/22/2010
  • “[The CARD Act] has made things simpler and easier for consumers and it continues to save them billions of dollars that had been draining out of their pockets.  At the same time, it has not restricted credit, which is available today on better terms that people are finding more dependable and satisfactory. This legislation shows that fair rules for the marketplace are good for consumers and for responsible businesses as well.” Fmr. CFPB Director Richard Cordray, Rep. Carolyn Maloney (D-NY), press release, 5/21/2019
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About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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