CFPB may limit credit card late fees as inflation threatens to raise them

Rohit Chopra, director of the Consumer Financial Protection Bureau, testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on April 26, 2022.

Tom Williams | Cq-roll Call, Inc. | Getty Images

The Consumer Financial Protection Bureau signaled a crackdown on late fees charged by credit card companies on Wednesday, as inflation threatens to increase those so-called “junk” fees levied on consumers.

The watchdog, a federal agency created in the wake of the 2008 financial crisis, issued an advance notice of proposed rulemaking seeking information from card issuers, consumer groups and the public on late fees.

The data will help the regulator draft new rules aimed to shore up “weak spots” in existing laws governing “back-end penalties” imposed by card companies, CFPB director Rohit Chopra said in a press call Wednesday.

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Public comments are due by July 22. Timing on a formal rule proposal (and ultimately a final rule) is unclear, but agency officials said they don’t expect the process to conclude before year end.

Officials expect changes to reduce total late fees by billions of dollars each year, they said Wednesday. They also signaled future regulations on other types of fees, without offering specifics.

Credit card late fees

The costs disproportionately impact users in low-income and majority-Black neighborhoods, according to the regulator.

The watchdog characterizes late fees as a type of “junk” fee charged by credit card issuers. The agency had issued a separate request in January asking consumers for input on hidden and excessive fees from a range of lenders.

“This is just one project relating to one type of junk fee,” according to a CFPB official, who spoke on background. “I think it’s fair to say there will be other projects relating to other fees in the near future.”

Missing from this announcement is the fact that banks — more than any other industry — have taken concrete steps to make their products more affordable and accessible for millions of Americans.

Richard Hunt

president and CEO of the Consumer Bankers Association

Richard Hunt, president and CEO of the Consumer Bankers Association, said additional restrictions would harm customers and could ultimately push them to riskier types of credit.

“Today’s announcement is another reminder the Bureau appears more interested in advancing a particular agenda than developing fact-based policies that improve the lives of hardworking families,” Hunt said in a statement. “Missing from this announcement is the fact that banks — more than any other industry — have taken concrete steps to make their products more affordable and accessible for millions of Americans.”

What would the CFPB do?

Current law disallows credit card issuers from charging customers a fee for a late payment, except in certain cases. To levy a fee, the company must determine that the fee is a “reasonable” proportion of the total costs the company incurred to process a late payment.

But the law also offers a legal safety net: Issuers can generally avoid the cost analysis (and regulatory scrutiny) if they charge $30 or less for a late payment, and up to $41 for each subsequent late payment made within the next six billing cycles.

“In today’s advance notice of proposed rulemaking, the CFPB is asking for information on these fees in order to assess whether they really are reasonable and proportional,” Chopra said.

The Consumer Financial Protection Bureau headquarters in Washington, D.C.

Joshua Roberts/Bloomberg via Getty Images

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