CFPB Ignores Competition, Administrative Law Principles and Misconstrues Credit Card Markets in Late-Fee Review

Washington, D.C. – The Bank Policy Institute responded today to a proposed rule by the Consumer Financial Protection Bureau to impose new government-mandated limits on credit card pricing models. Paige Pidano Paridon, Senior Vice President and Senior Associate General Counsel stated the following:

Today’s CFPB proposal to artificially cap credit card late fees at $8 is based on deficient analyses and ignores a bipartisan Congressional mandate that these fees should incentivize customers to pay their bills on time. By effectively removing those incentives, the proposal would harm the very consumers the CFPB seeks to protect by increasing the overall cost, and reducing the availability, of credit.

The proposal is a solution in search of a problem – the bottom line is that the U.S. credit card market is highly competitive and provides customers across the credit spectrum with the ability to make payments anywhere at any time, free of charge if paid on time, and with antifraud and other protections. The CFPB’s current contemplated government intervention, while presumably well-intentioned, would disrupt this well-functioning market.

BPI’s concerns with the proposal:

  • It dismisses Congress’s assessment that late and penalty fees are necessary to provide consumers with maximum benefit at the lowest cost. Late fees promote responsible repayment and enable institutions to offer better terms to consumers who pay on time, including lower interest rates and no annual fees. Issuers would likely have to cease offering certain types of credit cards, cease offering credit cards to consumers presenting higher credit risk and consider higher upfront pricing for virtually all consumers, including those who will never violate terms.
  • It disregards administrative law. The proposal does not provide a reasonable basis for the CFPB’s substantial reduction of the late fee safe harbor. It ignores the deterrence effect and reflects a departure from the CFPB’s consistently articulated position for over a decade that the changes made by the CARD Act in 2009 to the credit card market, including through the implementing regulations, have been effective and benefited consumers and issuers. The extent of the CFPB’s statutorily required consultation with the prudential agencies is unclear, particularly given the significant safety and soundness issues raised by this proposal.
  • It contradicts the CFPB’s goal of making consumer regulation “simpler and clearer” by challenging the Federal Reserve’s safe harbor. The proposed safe harbor is woefully insufficient to cover the costs of and to deter late payments, which could lead to a lack of clarity for consumers if late fees become increasingly determined on a case-by-case basis. When implementing the rule, the Federal Reserve recognized that determining a ”reasonable and proportional” fee for each card would be unfeasible, particularly for smaller financial institutions with more limited resources. The Fed also recognized that a safe harbor – established based on empirical data considering all of the statutory factors – would facilitate compliance by issuers and increase consistency and predictability for consumers.
  • It fails to acknowledge intense competition in credit card markets among banks, nonbank Big Tech and fintech firms. The CFPB provides no evidence that there has been a market failure in the credit card market that warrants intervention. The U.S. market, with over 5,000 credit card issuers, is far and away the most competitive in the world. Credit card issuers face intense competition to acquire and retain customers, including with respect to late fees, as evidenced by card issuers’ offering credit cards with very low or no late fees and numerous websites that allow consumers to comparison shop for credit cards based on fees and other terms.

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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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