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Credit card late fee proposal ‘gross deviation’ of CFPB rulemaking standards

May 3, 2023

The Consumer Financial Protection Bureau’s (CFPB) credit card late fee proposed rule is a “gross deviation from the bureau’s standards for issuing policies grounded in sound and relevant data,” CUNA wrote Wednesday. The proposed rule would amend Regulation Z to uniformly reduce the level of permissible late fees charged on credit cards.

“We strongly object to this proposal and the process by which it was promulgated,” said CUNA President/CEO Jim Nussle. “This dramatic change to the long-held standard for late fees will impact the ability of small issuers to offer credit card programs and is a solution in search of a problem. The proposal is built on flawed and incomplete data and additional research is required by law.”

Federal credit unions—subject to a statutory usury cap—would be competitively disadvantaged compared to other card issuers in responding to a dramatically reduced permissible late fee. The Bureau did not study these potential effects.

CUNA commissioned an economic analysis on the proposal that found CFPB failed to provide a “valid and reliable” analysis of the proposal’s impact on card issuers and consumers, and that it failed to study the rule’s impact on small business as required. 

“The CFPB also did not study how freezing credit card late fees at $8, which is substantially less than the typical current late fee, would impact credit card issuers and customers in an economy with a higher inflation rate and market interest rates than at any time since safe harbor penalty late fees were first regulated in 2010,” the analysis states.

CUNA’s comments also outline the many ways the proposal “will both negatively impact the ability of credit unions to offer viable credit card programs, manage the risks associated with those programs, and increase the cost of credit cards for all cardholding members – not just those that incur late payment fees.”

These include:

  • Clearly disclosed, heavily regulated fees incurred due to consumers’ late payments are not so-called “junk fees,” particularly as most rules governing credit union fees are promulgated or administered by the CFPB. 
  • The consequences for consumers could be significant, as well-disclosed fees both encourage positive behavior and help recoup costs of losses due to non-payment. 
  • The proposal’s “indefensibly short comment” period provided insufficient opportunity for stakeholders to respond with necessary levels of data and research. CUNA made several requests to the CFPB to provide the data behind the proposal and extend the comment deadline to allow for proper analysis. 
  • The CFPB failed to conduct the proper Small Business Regulatory Enforcement Fairness Act (SBREFA) process, despite the CFPB acknowledging the proposal will have a significant impact on the amount of fees recovered by card issuers. 
  • The CFPB’s underlying research and data does not support its proposed reduction of the late fee safe harbor threshold, especially as credit unions are not part of the Federal Reserve data informing the rule, which applies to large banks with more than $100 billion in assets. 

The letter argues the bureau should delay rulemaking until after the U.S. Supreme Court resolves the dispute over the constitutionality of the CFPB’s funding structure.  

CUNA calls for the CFPB to withdraw this proposal or, at a minimum, postpone progress until it can conduct a proper analysis of the entire credit card market and the potential outcomes of changing late fee levels.