Bureau cuts penalty, additional late fees for large credit card issuers; smaller issuers get more room

“Large card issuers” are now subject to a much lower safe harbor amount for penalty fees and restrictions on fees for subsequent violations to ensure that late fees they charge are “reasonable and proportional” as required under federal law, the federal consumer financial protection agency said Tuesday.

Smaller card issuers, on the other hand, would see their room to assess fees rise slightly.

The Consumer Financial Protection Bureau (CFPB) said its new Credit Card Penalty Fees Final Rule, finalized and issued Tuesday, applies to card issuers that together with their affiliates have 1 million or more open credit card accounts. It does not apply, the agency said, to those card issuers that, along with their affiliates, have fewer than 1 million open credit card accounts for the entire preceding calendar year.

The final rule amends the bureau’s Regulation Z, which implements the Truth in Savings Act (TILA), the agency noted. It takes effect 60 days after publication in the Federal Register.

CFPB said the final rule does two key things to the large card issuers: Adopts a late fee safe harbor threshold of $8; and provides that the annual adjustments to reflect changes in the consumer price index (CPI) do not apply to the $8 amount.

That represents a big change from the previous rule for the large issuers: the safe harbor was set at $30 generally for penalty fees, except for a safe harbor of $41 for each subsequent violation of the same type that occurs during the same billing cycle or in one of the next six billing cycles.

The bureau, however, said it determined that the safe harbor dollar amounts for late fees were too high “and, therefore, are not consistent with TILA’s statutory requirement that such fees be reasonable and proportional to the omission or violation to which the fee relates.

On late fees for subsequent violations, the bureau said it was concerned — based on data from certain larger card issuers — that the amount was higher than is justified based on consumer conduct and to deter future violations. “Indeed, a late fee that is too high could interfere with a consumer’s ability to make future payments on the account,” the agency stated.

For smaller issuers, on the other hand, get a higher safe harbor amount and greater fee room for subsequent violations. The rule revises the safe harbor threshold amounts for late fees to $32 for the initial violation and $43 for each subsequent violation that occurs in one of the next six billing cycles, the agency said.

CFPB Credit Card Penalty Fees Final Rule