CFPB Plans Rule Next Year to Toughen Caps on Credit Card Late Fees
Source: American Banker
The Consumer Financial Protection Bureau plans to issue a rule next year to address whether credit card late fees are set at reasonable levels and if they should continue to be pegged to inflation.
CFPB Director Rohit Chopra for the first time has set a framework for the bureau to issue a rule that could potentially unwind a set of provisions created by the Federal Reserve Board in 2010 that have allowed credit card issuers to raise late fees annually due to inflation.
Under the current rules, credit card late fees could jump by 9% next year, tracking the rise of the Consumer Price Index, experts have said. Under a complicated formula, credit card issuers are set to raise late fees in 2023 to roughly $33 for the first late payment and $45 for subsequent late payments.
Some advocates had hoped Chopra would use his authority by issuing guidance that would quickly lower the maximum allowable amounts for late fees and avert any increases next year pegged to inflation. A formal rule suggests that the 9% jump in late fees could still occur next year before the formal rulemaking process is complete.
"The Fed created a set of immunity provisions that has been going up by inflation every year and so we are going to be reviewing whether that number makes sense or whether there needs to be a new framework on it," Chopra said last week during a discussion with Dan Berger, the president and CEO of the National Association of Federally-Insured Credit Unions, at the trade group's congressional caucus.
In June, the bureau issued an advance notice of proposed rulemaking that sought comment from industry and the public on how credit card issuers set late fees. Some consumer advocates and former CFPB officials had urged Chopra to move quickly by issuing an interim final rule that could prevent credit card issuers from raising late fees in 2023. Chopra did not address taking quicker action, though a formal rulemaking suggests such a move might be off the table.
Still, credit unions, banks and their trade groups have pushed back against Chopra's efforts to reset the Fed's immunity provisions in the CARD Act.
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