CFPB Proposes Rule to Restrict Extreme Credit score Card Late Charges
🔃 Replace (Apr 17, 2025) – A federal decide threw out a U.S. Client Monetary Safety Bureau (CFPB) rule capping bank card late charges at $8, after the company agreed with opponents that the rule was unlawful. U.S. District Decide Mark Pittman in Fort Value, Texas granted a joint request by the CFPB and a coalition of six enterprise and banking teams together with the U.S. Chamber of Commerce and American Bankers Affiliation to scrap the rule that was proposed in 2023.
➡️ Unique article (Feb 01, 2023) – Right this moment, the Client Monetary Safety Bureau (CFPB) proposed a rule to curb extreme bank card late charges. These charges are a substantial expense, as they price American households about $12 billion every year.
Typical late charges could be diminished from roughly $30 to $8 below this proposal. The proposed rule would assist be certain that excessive late price quantities are unlawful. Primarily based on the CFPB’s estimates, it may cut back late charges by as a lot as $9 billion per 12 months.
When somebody misses a fee due date, even when they paid a couple of hours after the deadline, the cardholder could also be hit with an exorbitant late price that far exceeds the bank card firm’s prices to gather late funds. These extreme late charges might not be wanted to discourage late funds, nor be justified primarily based on the patron’s conduct in paying late. These late charges additionally could also be on high of different penalties of paying late, reminiscent of a misplaced grace interval on paying curiosity or a decrease credit score rating, relying on how lengthy the missed fee lasts.
Firms at the moment cost individuals as a lot as $41 for every missed fee. The CFPB’s proposed adjustments, which might amend laws implementing the Credit score Card Accountability Accountability and Disclosure Act of 2009 (CARD Act), would be certain that late charges meet the Act’s requirement to be “cheap and proportional” to the prices incurred by issuers to deal with late funds. Particularly, the proposed rule would decrease the immunity provision for late charges to $8 for a missed fee in addition to finish the automated annual inflation adjustment. The proposed rule would additionally ban late price quantities above 25% of the patron’s required fee.
The Federal Reserve Board, by regulation, created the immunity provisions to permit bank card corporations to keep away from scrutiny of whether or not their late charges met the cheap and proportional normal. Over time, these provisions have risen with inflation to $30 for an preliminary late fee and $41 for subsequent late funds. The CFPB estimates that the revenue generated by the biggest issuers from late charges is roughly 5 occasions higher than the gathering prices that the businesses incur for late fee violations. In 2020, for instance, bank card corporations charged roughly $12 billion in late charges, which represented greater than 10% of all bank card curiosity and charges charged to shoppers.
Proposal
The CFPB’s proposed adjustments would, if finalized:
- Decrease the immunity provision greenback quantity for late charges to $8: The CFPB has preliminarily discovered that late price revenue exceeds related assortment prices by an element of 5. As a result of the immunity provision at the moment permits issuers to cost late charges of as much as $41, the CFPB believes {that a} late price of $8 could be adequate for many issuers to cowl assortment prices incurred on account of late funds. The $8 immunity provision would apply to any missed fee. Firms would be capable of cost above the immunity provision as long as they might show the upper price is important to cowl their incurred assortment prices.
- Finish the automated annual inflation adjustment: The CFPB’s proposal would remove the automated annual inflation adjustment for the immunity provision quantity. This adjustment just isn’t required by regulation, neither is it essentially reflective of how assortment prices change over time. The CFPB would as an alternative monitor market situations and the immunity provision quantity for potential changes as vital.
- Cap late charges at 25% of the required minimal fee: The present rule permits a card issuer to probably cost a late price that’s 100% of the minimal fee owed by the cardholder. The CFPB proposes to limit any late price cost to 25% of the minimal fee to be extra in line with Congress’s intent to authorize solely cheap and proportional late price quantities.
Opposition
The American Bankers Affiliation (ABA) has opposed the proposal. “Right this moment’s excessive CFPB proposal will hurt shoppers by lowering competitors and rising the price of credit score,” Rob Nichols, ABA’s President and CEO mentioned in a assertion. “It should lead to extra late funds, greater debt and decrease credit score scores, and is inconsistent with the CARD Act’s encouragement of accountable credit score administration.”
He added that “Individuals worth and respect the comfort and safety they get from their bank cards, they usually acknowledge there’s a price for that service. Right this moment’s proposal ignores that actuality. We are going to battle this proposal with details, whereas persevering with to problem the Bureau’s efforts to unfairly demonize an business crucial to the U.S. financial system.”
