Late payment fees could drop dramatically under a proposal expected to be released soon by the Consumer Financial Protection Bureau. Some analysts are predicting that the old fees could be cut in half to $15, but retailers want the CFPB to lower the fees. late down to $9 or based on what the cardholder owes.
CFPB Director Rohit Chopra launched a public crackdown last year on what he called “bad pay“and said he specifically wants to reduce the $12 billion a year in late fees charged by credit companies. in February.
“Our hope is that the CFPB will reduce late payment fees through rulemaking to between $15 and $25, although there are some who want the fee to go under $9,” said Ed Groshans, senior analyst and research analyst at Compass. Research and Trade.
Banks and credit card companies have argued that reducing late fees will hurt low-income and low-income consumers the most. Any reduction in late fees will encourage lenders to add fees to other products, reduce credit, raise the annual percentage rate on everyone. cardholders, and may also reduce rewards and cash-back cards, the bank’s trade groups argue.
Robert Maddox, a partner at the law firm Bradley Arant Boult Cummings, noted that many large banks cut or waive overdraft fees last year under pressure from the CFPB and other regulators.
“The fact that banks have cut overdraft fees is just about any customer-oriented fee,” Maddox said.
Currently, banks and credit card issuers charge $29 for late credit card payments and $40 for late payments within six billing cycles. . Some credit card executives say they are not concerned about the changes made by the CFPB because almost all late fees now comply with the maximum amount set by the Credit Card Accountability Responsibility and Disclosure Act. called the CARD Act.
In its upcoming proposal, the CFPB intends to review whether Rule Z — the regulatory framework for the CARD Act and the Truth in Lending Act — should continue to contain a safety net provision. This safe harbor was created by the Federal Reserve Board in 2010. The safe harbor allows credit card companies to increase late fees each year based on inflation. It also allows for higher late fees for second violations to deter consumers from paying late.
Chopra also indicated that changes are coming.
“The Fed has created a set of protective measures that are going up (due to) prices every year,” Chopra said at a conference last year. “We will reassess whether that number is appropriate or whether we need to have a new base on it.”
Credit card companies are coming off three years of low default rates and unpaid fees. Even if the recession is coming, credit card debt is expected to rise to 2.6% by the end of this year, from 2.1% last year, according to the statement. an announcement was made this week from credit bureau TransUnion. The number of new credit cards opened is the highest in 10 years, TransUnion found.
“As we face an emergency and an emergency, and more and more people have more and more debt on their credit cards, retailers are encouraged to delay going to down,” Maddox said.
Banks and lenders say that late payments should be set in a cost-effective manner, and that the penalty is not a hidden fee but should reduce the number of times the customer is late. . Dan Smith, executive vice president and head of regulatory affairs at the Consumer Bankers Association, said efforts to reduce late credit bills are misguided and will hurt consumers with low scores who are trying the office to help.
“Late payments are intended to encourage responsible spending behavior and encourage consumers to avoid negative effects on their credit scores that may occur in four “failure and failure,” said Smith. “The reduction or significant reduction of the security of the city will undoubtedly affect the consumers of these important products because the creditors will be forced to strengthen their business models to reduce the risks associated and increasing frequency of missed payments.”
The CFPB is considering changes to the CARD Act to include a safe harbor for penalty payments. Currently, credit card companies cannot issue a late payment penalty unless they can prove that the dollar amount of the fee represents “a reasonable proportion of the total cost,” incurred. by the financial institution, the The CFPB said in advance notice of rulemaking in June.
Groshans told Compass Point that he thinks the agency may choose to change the language of the safe harbor to favor consumers rather than financial institutions.
“The whole industry has been operating under that safe harbor for over a decade, so don’t think the safe harbor is gone,” Groshans said. “But the danger is that the CFPB is trying to change the foundation of the safe harbor.
“Currently the basis (of the safe harbor) is that the fee is reasonable … according to the cost to be spent by the financial institution,” he said. “They’re trying to change that if the fee is fair and proportionate to the harm to the consumer? That safe harbor is very different and it seems like it could be.”
Consumer advocates say late debt payments disproportionately affect low-income borrowers and become a major profit center for banks and credit card companies. Advocates want late fees based on the amount owed by the cardholder and point out that the CFPB includes a grace period. There is a legal waiting period of several days before a late bill can be processed.
“Delay fees for issuing cards are more than the amount they receive in terms of value, especially for accounts with small balances and for short-term defaults,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center.