The Consumer Financial Protection Bureau (CFPB) has proposed a rule to curb excessive credit card fees that cost US families around $12bn a year.
According to CFPB, major credit card issuers continue to profit off late fees that are protected by an expansive immunity provision. Credit card companies have also relied on this provision to hike fees with inflation, even if they face no additional collection costs.
The proposed rule would help ensure that over the top late fee amounts are illegal. Based on the CFPB’s estimates, the proposal could reduce late fees by as much as $9bn per year.
Rohit Chopra – CFPB director – said, “Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee. Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
When a US citizen misses a payment due date – even if they paid a few hours after the deadline – the cardholder may be hit with an exorbitant late fee that far exceeds the credit card company’s costs to collect late payments. These excessive late fees may not be needed to deter late payments, nor be justified based on the consumer’s conduct in paying late.
These late fees also may be on top of other consequences of paying late, such as a lost grace period on paying interest or a lower credit score, depending on how long the missed payment lasts.
Companies currently charge people as much as $41 for each missed payment, and these fees result in billions of dollars in annual junk fee revenue for credit card companies.
The CFPB’s proposed changes, which would amend regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, would ensure that late fees meet the Act’s requirement to be “reasonable and proportional” to the costs incurred by issuers to handle late payments.
Specifically, the proposed rule would lower the immunity provision for late fees to $8 for a missed payment as well as end the automatic annual inflation adjustment. The proposed rule would also ban late fee amounts above 25% of the consumer’s required payment.
If finalised, the CFPB’s proposed changes would lower the immunity provision dollar amount for late fees to $8, end the automatic annual inflation adjustment and cap late fees at 25% of the required minimum payment.
Copyright © 2023 FinTech Global
