CFPB Increases Penalty Fee Safe Harbor Amounts for Card Issuers

In yesterday’s Federal Register, the Consumer Financial Protection Bureau (“CFPB”) published an amendment to the safe harbor thresholds for credit card penalty fees found in Section 1026.52(b)(1)(ii) of Regulation Z to account for increases in the CPI-W, which is a subset of the federal Consumer Price Index (“CPI”). Pursuant to the new thresholds, issuers will be permitted to assess initial penalty fees of $26 and subsequent fees of $37. The CFPB’s final rule does not address how or whether issuers would be permitted to assess the new, higher fees without amending the cardholder’s agreement or sending a change-in-terms notice pursuant to Section 1026.9(c)(2) of Regulation Z. As a result, issuers will need to consider whether they are required to comply with Section 1026.9(c)(2) or state law prior to assessing the increased fees to cardholders. The amendment is effective as of January 1, 2014.

It is worth noting that the CFPB’s amendment states the adjustment “reflects a 0.9 percent increase in the CPI-W from April 2012 to April 2013 and is rounded to the nearest $1 increment.” However, applying just a 0.9 percent increase to the base penalty rates would amount to a 22.5-cent increase for the $25 amount threshold and a 31.5-cent increase for the $35 amount. As neither of these increases would independently warrant an adjustment to the safe harbor thresholds, and contrary to the explanation in the rule, it appears the CFPB based its adjustments on an unstated cumulative calculation of the CPI-W.

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