Banks brace for CFPB to tackle credit card late fees


BBanks expect the federal government to crack down on credit card late fees following a highly critical Consumer Financial Protection Bureau report highlighting the effects of penalties on households.

the reportpublished last week, pointed out that the $12 billion in late fees charged in 2020 hurt millions of families, especially those with subprime accounts. The watchdog said it also expects many big card issuers to raise fees further, depending on inflation.

David Pommerehn, senior vice president and general counsel for the Consumer Bankers Association, which represents major U.S. retail banks, told the Washington Examiner in an interview that the report hints at some form of regulatory action.

Pommerehn said the late fee report is just one step in a series of actions the bureau is taking against fees, in addition to “junk fees” and overdraft fees.

Industry and liberal activists expect aggressive regulatory action from CFPB Director Rohit Chopra, an ally of Wall Street’s top congressional critic, Sen. Elizabeth Warren, a Democrat from Massachusetts. During previous stints at the Federal Trade Commission and the CFPB, Chopra gained a reputation for using the full extent of his authority to scrutinize cases and exert regulatory pressure when possible.


The CFPB has some authority in the area of ​​late fees. It has the ability to adjust the “safe harbor” for specific fee amounts annually which can be adjusted for inflation.

The report found that major banks were not breaking the law by issuing late fees and were within Safe Harbor limits, although it found that the average cost of late fees charged approached these thresholds. .

“They have the power to enter [regulation] and tinkering with those safe spheres, whether to increase or decrease them, so that’s something they’re going to do if you ask them which way they’re heading. I think it’s pretty clear…the rhetoric about overdrafts, bank charges [request for information]and this credit card report – clearly the CFPB is going to write some sort of policy on credit card overdrafts and late fees,” Pommerehn said.

the Washington Examiner asked the CFPB to comment on whether it was planning future action on the matter, but a spokesperson did not respond in time.

Chopra highlighted late fees in a statement that accompanies the report, saying late fee penalties are an “essential part” of credit card issuers’ profit model.

“Markets work best when companies compete on price and service rather than relying on management fees that hide the true cost,” Chopra said. “Given their current practices, we expect credit card issuers to increase fees, in line with inflation, as limits continue to increase.”

Despite this claim, the report itself points out that late fees are roughly one tenth of the cost of consumer credit paid to issuers in interest and fees.

Pommerehn said recent CFPB late fee reports included a lot of “out of context” information. He noted that credit card charges were trending down, which was not included in the report.

The CFPB report pointed out that the volume of late fees had declined during the pandemic, which they said moved in parallel with the three rounds of stimulus checks disbursed in 2020 and 2021.

“The fact that late fees for credit card issuers have fallen over the same period suggests that late fees are a penalty for households living paycheck to paycheck rather than a significant incentive to make payments on time,” the office said in a statement. Release.

Pommerehn said the report glosses over the fact that many issuers waived some fees, including credit card late fees, for those directly affected by the pandemic. This factor has a lot to do with why consumers paid fewer late fees during this period, he said.

A spokesperson for the American Bankers Association told the Washington Examiner that the report is “another example of the CFPB criticizing the financial services industry for following the very rules set out by the bureau.”

“Left out of this report is any mention of the millions of consumers who value and value the security and convenience provided by the credit cards they use every day, and the wide range of options they have to choose from. when they choose a credit card,” the spokesperson said.

Regarding the request for information on “undesirable fees” that was issued in January (and whose deadline was later extended), the CFPB said that it was referring to a fee that is not included in the advertised price of a transaction, for example, when people are charged “resort fee” or “service fee” after the fact.

The office said it wanted to hear from the public about fees associated with their bank, credit union, prepaid or credit card account, mortgage, loan or payment transfers.

Shortly after news of the request for information broke earlier this year, a group of eight trade groups, including the ABA, released a joint statement on Wednesday that called it “misguided” and said that it paints a “distorted and misleading picture” of financial services. Marlet.

A group of Republicans on the House Financial Services Committee wrote Chopra a letter this week in response to the request for information. They asked several questions about the actions of the CFPB and asked for clarification on this subject.


“A key feature of the U.S. financial system is its wide array of institutions with diverse business models and offering a broad selection of products and services to consumers,” the lawmakers wrote.

“Any attempt by the CFPB or other financial regulators to stifle financial inclusion or consumer choice or to undermine the safety and soundness of particular financial institutions or the financial system as a whole would be reckless,” they said. added.


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