CFPB Proposes Amendments to Regulation Z Targeting Credit Card Late Fees
On February 1, 2023, the Consumer Financial Protection Bureau (CFPB or Bureau) proposed a rule that could reduce consumers’ late credit card fees by as much as $9 billion annually. The proposed rule would amend Regulation Z to require credit card companies to meet the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD act) requirement that late fees be “reasonable and proportionate” to the collection costs incurred by the companies in relation to the cards.
The CFPB believes the current late fee practices of many companies may not be necessary to deter late payments, nor “justified” in relation to the consumer’s conduct.
Credit card companies currently charge up to $41.00 for late fees, sometimes resulting in “a late fee that is 100% of the cardholder’s minimum payment owed.” These late fees can be implemented within hours of the payment deadline and can be assessed along with other late payment consequences, “such as a lost grace period on paying interest or a lower credit score[.]”
According to the CFPB, approximately $12 billion was accrued by credit card companies in 2020 in the form of late fees—a total which was estimated to be “five times greater than the collection costs that the companies incur for late payment violations.”
The Federal Reserve Board “created immunity provisions to allow credit card companies to avoid scrutiny of whether their late fees met the reasonable and proportional standard” as well as a provision that allows them to adjust prices annually for inflation. As a result, the $30.00 fee that was initially assessed for these late payments has risen to the $41.00 fee seen today. According to a statement by CFPB Director Rick Chopra, this increase is evidence that these credit card companies have used the inflation provision as a “loophole” to collect roughly an additional $9 billion each year.
The CFPB invites all interested parties to comment on the proposed rule, which, if implemented, would:
lower the immunity provision dollar amount for late fees to $8;
cap late fees at 25% of the required minimum payment; and
end the automatic annual inflation adjustment.
The proposal also requests comments on “other potential changes to CARD Act regulations” such as whether:
the proposed changes should apply to all penalty fees on credit cards;
the immunity provision should be eliminated;
“consumers should be granted a 15-day courtesy period, after the due date, before late fees can be assessed” and
credit card issuers should be “required to offer autopay in order to make use of the immunity provision.”
Comments on the proposed rule must be received on or before April 3, 2023. Submissions can be made to:
Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments.
Email: 2023-NPRM-CreditCardLateFees@cfpb.gov. Include Docket No. CFPB-2023- 0010 or RIN 3170-AB15 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake—2023 NPRM Credit Card Late Fees, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street, NW, Washington, DC 20552.