CFPB Ignores Competition and Misconstrues Credit Card Markets in Late-Fee Review

Washington, D.C. — The Bank Policy Institute responded today to a Consumer Financial Protection Bureau review of credit card late fees. The request sought large quantities of complex data ranging from how late fees are determined to the costs incurred from violations while initially providing just 30 days to respond. The CFPB has previously acknowledged that the CARD Act and its implementing regulations, in place for over a decade, effectively reduced the cost of credit for consumers. Nonetheless, it issued an advance notice of proposed rulemaking in June 2022 criticizing late fees charged by credit card issuers and discounting the effectiveness of the existing regulations in limiting late fees while providing appropriate disincentives to consumers to make late payments.

What BPI is saying:

“The request reflects a serious misconception about how markets work and fails to acknowledge significant competition that helps to preserve consumer choice and maintain low-cost access to credit. The CFPB should prioritize real harms facing consumers, such as crypto and unregulated fintechs, rather than revisiting issues already addressed by Congress through the CARD Act, which has been lauded by the CFPB — both Democratic- and Republican-led — as effective in protecting consumers from excessive late fees.” – Paige Pidano Paridon, senior vice president and senior associate general counsel

What is the background:

Congress took action to protect consumers against late fees through the Credit Card Accountability Responsibility and Disclosure (CARD) Act in 2009. The law limited penalty fees to those that are “reasonable and proportional” and required more transparency for the fees charged to consumers, among other requirements.

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. Instead, as permitted by the CARD Act, the Federal Reserve set a maximum amount for all institutions known as a “safe harbor” and authorized the amount to adjust with inflation. Enforcement of the CARD Act authority was transferred to the CFPB in 2011 after the passage of the Dodd-Frank Act.

Problems with the CFPB’s current approach:

  • 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. Late fees discourage behaviors that could be more harmful to consumers in the long run, including by decreasing the availability and increasing the cost of credit.
  • It fails to acknowledge intense competition in credit card markets. Credit card issuers face intense competition to acquire and retain customers, as evidenced by widely available online resources to compare rates and fees.
  • It contradicts the CFPB’s goal of making consumer regulation “simpler and clearer” by challenging the Federal Reserve’s safe harbor. If the CFPB chose to modify or abandon the safe harbor, it would have to consider all of the statutory factors, the costs incurred from violations, the amount necessary to deter violations and the consumer conduct associated with violations. The Federal Reserve didn’t perform its task because safe harbor made it unnecessary. 
  • It fails to provide adequate time to respond with meaningful data. Empirical evidence with real data to 38 questions, many with multiple parts, cannot be provided in only 30 days. A request for the extension was authorized only five days before submissions were due, delaying the deadline by 10 days.
  • It disregards administrative law. The request does not articulate the basis for the CFPB’s newfound concerns about credit card late fees nor engage in fact-finding to propose a solution for credit card late fees. Future changes that are not rational and reasonably explained, including by not allowing commenters sufficient time to gather information, risk procedural challenges.

To access a copy of the letter, please click here.


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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