When the Consumer Financial Protection Bureau proposed in February to cap credit card late fees at $8, payments industry professionals probably suspected the idea would encounter pushback. They were right.
In the weeks since then, detractors and supporters of the idea have weighed in with public comments as part of the agency’s review of the proposal. The deadline for submitting comments was Wednesday. Banks, credit unions, consumer finance organizations and individuals submitted about 220 comments.
The CFPB’s plans to amend the Credit Card Accountability Responsibility and Disclosure Act, also known as the Card Act of 2009, would effectively cap credit card late fees at $8 per payment, and ban those fees from being over 25% of the minimum payment.
CFPB Director Rohit Chopra has made reducing consumer “junk fees” a central part of his mission in leading the agency tasked with protecting consumers from abuse when they buy into financial products and services.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” Chopra said in February. The proposed rule “seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
Consumer advocate groups have rallied around the proposal. “We strongly support the Proposal, as it will afford relief to beleaguered consumers and align the penalty fees under the safe harbor with the legal standards that Congress established as well as the currently available empirical evidence,” the non-profit organization Better Markets said in its May 3 commentary on the proposal.
Late fees have been used to gouge consumers and drive up revenue for financial institutions, Better Markets contended in a press release the next day. Card penalties, mainly late fees, add up to $14 billion annually, averaging about $35 to $41 per fee, the release said. The organization also argues that the Federal Reserve’s format for overseeing the fees is faulty.
In its May 3 letter, the National Consumer Law Center backed the CFPB’s proposal to cap the fees, noting the $8 cap is “fair, reasonable, and proportional to the costs incurred by issuers for late payments.” That language is a nod to the requirements of the law.
Nonetheless, the American Bankers Association, Consumer Bankers Association and National Association of Federally-Insured Credit Unions also submitted commentary on the rule proposal this week, insisting that the CFPB’s assumptions about the fees are wrong and warning that its policy approach would harm all credit cardholders. A central point in their arguments is the popularity of the cards among consumers.
“Unlike the Bureau’s mischaracterization of late fees, consumers understand late fees and recognize the importance of late fees in promoting responsible consumer behavior and more efficiently allocating costs,” the financial institutions contend in their May 3 letter to the agency.
They also argued that precedent is on their side when it comes to the current legal interpretation of the law. “It is inappropriate and irresponsible to finalize significant changes to a long-standing rule that has endured through CFPB leadership appointed by both political parties when there is an open Constitutional question under consideration by the Supreme Court,” they said in their 39-page letter.
Many other credit unions and banks across the country also submitted letters to voice their opposition to the proposal.
As for individual consumers, they chimed in on both sides of the issue, with many predictably railing against the banks over fees, but others noting that penalties are a natural part of receiving the financial services.