The current safe harbor for late fees should remain in place, as any changes would have significant adverse impact on smaller financial institutions and consumers, CUNA wrote to the Consumer Financial Protection Bureau (CFPB) Monday. CUNA filed two letters responding to the CFPB’s request for information on credit card late fees, one with other financial services organizations, and one on its own expanding on credit unions’ role in the marketplace.

“When set appropriately, late fees encourage consumers to pay on time and develop good financial management habits,” the letter reads. “However, if late fees are too low, consumers are more likely to pay late and miss payments, leading to lower consumer credit scores, reduced credit access, and higher credit costs.

“Reducing or eliminating the safe harbor could harm consumers,” it adds.

The letter cites CFPB research that found if late fees are not set at an appropriate level to cover issuers’ costs, effectively deter late payments, and mitigate late payment risks, issuers may have to rebalance risks to their credit portfolios in other ways, including higher rates and tighter account standards.

“The current safe harbor provides legal certainty to issuers, as well as predictability and consistency to consumers,” the letter reads. “Should the Bureau proceed with additional rulemaking, any proposed permitted late fees should account for costs incurred by issuers related to late payments, the deterrent effect of late fees, and the conduct of the cardholder as required under the Truth in Lending Act.”

CUNA’s individual letter notes credit unions are the original consumer protectors and practice the kind relationship banking commended by CFPB Director Rohit Chopra.

“We strongly caution the Bureau against painting a broad picture of fees in the financial services market,” the letter reads. “Many credit unions have specifically designed their fee schedules with members in mind and as a result there is substantial diversity across the industry. There are many examples of credit unions exploring and adopting changes to their fee schedules in response to consumer preferences.”