With proposal, bureau opens investigation into credit card fees focusing on ‘reasonable and proportional’

Excessive credit card late fees – particularly data about the fees and late payments and whether the fees are “reasonable and proportional” – are the topic of an advance notice of proposed rulemaking issued Wednesday by the federal consumer financial protection agency.

Additionally, the Consumer Financial Protection Bureau (CFPB) said, its proposal will also seek data about credit card issuers’ revenue and expenses, the “potential deterrent effect” of late fees, and the role the fees play in credit card companies’ profitability.

The agency noted that the proposal focuses on the Federal Reserve’s 2010 late fee immunity provision, and that the CFPB is asking for information about the provision that allows credit card companies to escape enforcement scrutiny.

In a statement, CFPB Director Rohit Chopra asserted that credit card late fees are big revenue generators for card issuers. “We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” he said. “This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation.”

The advanced notice of proposed rulemaking (ANPR) issued Wednesday seeks to review the Fed’s immunity provision and determine whether adjustments are needed to address late fees, the bureau said, noting that late fee penalties are charged in addition to interest when a cardholder does not make the minimum payment by the due date.

The agency said it seeks public comment on a group of questions that will inform revisions to Regulation Z, which implements the CARD Act and the Truth in Lending Act. Comments are due by July 22.

Among the questions the agency seeks answers to are:

  • How do credit card issuers set late fee amounts? How is the fee determined to be considered reasonable or proportionate or at least related to the actual costs to the card issuer? How is the fee related to the statement balance?
  • Are revenue goals a factor in determining late fees? How do they figure into profitability for the card issuers?
  • What are card issuers’ costs and losses associated with late payments?
  • Do late fees have a deterrent effect? Does the amount have a deterrent effect? Do card issuers impose other consequences other than late fees when payments are late?
  • What methods are card issuers using to encourage timely payments, including autopay and notifications?
  • How many calendar days after the due date do consumers make the late payment? For example, what percentage of accounts is less than 24 hours late versus 30 days late?
  • For card issuers, what annual income is coming from interest and fees? What are annual expenses?

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