February 3, 2023

CFPB Proposes Updates to Credit Card Regulations that Limit Excessive Late Fees for Consumers

Lori Kalani, Bernard Nash

Cozen O'Connor

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Cozen O'Connor

The CFPB announced a proposed rule that would amend existing regulations regarding credit card late fees to better ensure that the Credit Card Accountability Responsibility and Disclosure Act of 2009’s (CARD Act) goal of “reasonable and proportional” late fees is met.
According to the proposed rule, the CARD Act amended the Truth in Lending Act by, in part, mandating that late payment fees or any other penalty fees for consumer credit plans must be “reasonable and proportional” to the omission or violation. The regulation’s safe harbor provisions for late fees currently allow credit card companies to charge up to $30 for missed payments and $41 for specified types of subsequent missed payments, even after a cardholder misses payment by only a few hours after the deadline, resulting in billions of dollars of revenue for the companies. The proposed rule would lower the amount for late fees to $8 and would no longer allow a higher amount for subsequent violations. It would also eliminate the annual inflation adjustments for these amounts and would provide that late fee amounts cannot exceed 25 percent of a consumer’s required payment.
The CFPB requests public comment on the proposed rule. Specifically, the Bureau is soliciting comment as to whether card issuers should be prohibited from imposing late fees on consumers who make the required payment within 15 calendar days following the due date, and whether requiring card issuers to either offer automatic payment options or provide notification of the payment due date within a certain number of days prior to the due date is an appropriate condition of allowing the issuers to use the safe harbor for late fees.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.