Fees would be capped at $8 for credit card payments made late, and an annual inflation adjustment would be eliminated, under a proposal issued Wednesday by the federal consumer financial protection agency.
The advance notice of proposed rulemaking (ANPR) from the Consumer Financial Protection Bureau (CFPB) would also restrict any late fee charge to 25% of the minimum payment required by the card issuer, the agency said.
In a release, the CFPB called the rule its effort to “reign in excessive credit card late fees.” According to the agency, the late fees cost consumers around $12 billion annually; it estimated that its proposal could lower that amount by as much as $9 billion annually.
The agency said firms now charge consumers as much as $41 for each missed payment, which the agency said resulted in “billions of dollars in annual junk fee revenue for credit card companies.”
Its ANPR, the CFPB said, would amend regulations implementing the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act). The changes, the CFPB asserted, would ensure that late fees meet the CARD Act’s requirement to be “reasonable and proportional” to the costs incurred by issuers to handle late payments.
Comments are due by April 3, or within 30 days after the ANPR’s publication in the Federal Register, whichever is later, the agency said.
The agency said its proposal, more specifically, would:
- Reduce the so-called “immunity provision” (a Federal Reserve rule which requires credit card companies to charge late fees that meet a “reasonable and proportional” standard) to $8, from the current $41. “The CFPB has preliminarily found that late fee income exceeds associated collection costs by a factor of five,” the agency stated. “Because the immunity provision currently allows issuers to charge late fees of up to $41, the CFPB believes that a late fee of $8 would be sufficient for most issuers to cover collection costs incurred as a result of late payments.” The agency said the $8 immunity provision would apply to any missed payment. However, companies would be able to charge above the immunity provision so long as they could prove the higher fee is necessary to cover their incurred collection costs.
- Eliminate the automatic annual inflation adjustment for the immunity provision amount. The agency argued that the adjustment is not required by law, and is “not necessarily reflective” of how collection costs change over time. Instead, the agency said, it would monitor market conditions and the immunity provision amount for potential adjustments as necessary.
- Restrict any late fee charge to 25% of the minimum payment owed by the cardholder. Current rules allow an issuer to charge up to 100% of the minimum payment owed by the cardholder.
CFPB Proposes Rule to Rein in Excessive Credit Card Late Fees