Banks believe that fees should be clearly disclosed and comply with the law. Transparency should form the basis of the relationships between companies and consumers. Bank fees are fully disclosed in advance and are subject to significant government regulation. Moreover, the fees charged by regulated financial institutions serve legitimate economic purposes are not “junk fees.” Properly disclosed fees recover costs, encourage sustainable financial behavior, support the affordable pricing of financial services, and are consistent with prudent risk management.
Despite these realities, the Consumer Financial Protection Bureau (“Bureau”) is pursuing a campaign against legal, disclosed, and fairly-assessed fees. The Bureau’s untested and unvalidated assumptions about credit card late fees are wrong, particularly with regard to the deterrence effect of late fees, and these flawed inputs will result in a flawed policy.
One of the major prongs of the campaign is the Bureau’s Notice of Proposed Rulemaking (NPRM or Proposal) regarding credit card late fees and late payments.1 Specifically, the Bureau is proposing to amend Section 1026.52(b) of Regulation Z (Truth in Lending Act), which implements Section 149 of the Truth in Lending Act (TILA) and requires that credit card penalty fees, including late payment fees (late fees), be “reasonable and proportional to [the] omission or violation.”
In the NPRM, the Bureau proposed to: (1) lower the safe harbor dollar amount for late fees to $8 and eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type; (2) eliminate the annual adjustment for the late fee safe harbor; (3) prohibit 1 88 Fed. Reg. 18,906 (Mar. 29, 2023). 3 issuers from including any collection costs that are incurred after an account is charged off from the costs that can be used for purposes of the Section 1026.52(b)(1)(i) cost calculation; and (4) cap late fee amounts at 25 percent of the required minimum payment. The NPRM also requests information on a wide range of far-reaching restrictions on credit card account terms.
This statement consolidates some of the key points made in several comment letters from organizations representing community financial institutions. A joint letter signed by ABA that examines these issues in greater depth can be found here.
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