The CFPB has taken the first formal step towards a new rulemaking on credit card late fees by issuing an Advance Notice of Proposed Rulemaking (ANPR). Comments on the ANPR must be received by July 22, 2022.
The issuance of the ANPR follows the CFPB’s release of a report on late fees in March 2022. Both the CFPB’s press release about the report and its press release about the ANPR contain comments from Director Chopra regarding the amount of revenues that credit card issuers generate from late fees and concerns about fee “hikes” based on inflation. In a blog post regarding a “new approach” to rulemaking by the CFPB, Director Chopra identified the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) rules on credit card late fees as one of the long-standing rules at which the CFPB needed to take “a fresh look.”
The CARD Act, which is implemented by Regulation Z, requires that late fees imposed by credit card issuers be “reasonable and proportional” to the violation of the account terms. It also authorized the Federal Reserve Board (which then had the Reg. Z rulemaking authority that was transferred to the CFPB by Dodd-Frank), in consultation with other agencies, to establish a “safe harbor” for specific fee amounts that are deemed to be “reasonable and proportional” to the violation. Pursuant to that authority, the Federal Reserve Board initially set safe harbor amounts in 2010 of $25 for a first late payment and $35 for subsequent late payments and made those amounts subject to an annual inflation adjustment. The most recent inflation adjustments to the safe harbor amounts made by the CFPB for 2022 allow a card issuer to impose a fee of $30 for a first late payment and $41 for subsequent late payments. (Reg. Z also permits an issuer to assess a late fee that is higher than the safe harbor amounts if it can demonstrate that a higher fee is justified as a reasonable proportion of its internal costs.)
The questions on which the CFPB seeks comments in the ANPR are divided into the following categories:
- Factors used by card issuers to set existing levels of late fees
- Costs and losses associated with late payments
- Deterrent effect of late fees
- Cardholder behavior (categories used to classify cardholders based on late payment behavior and timing of late payments relative to due date)
- Use of autopay
- Practices regarding notifications of upcoming due dates
- Courtesy periods and waivers
- Use of the Reg. Z safe harbor and cost analysis provisions
- Revenues and overall expenses from credit card operations, and late fee revenues.
When the Federal Reserve Board initially set the safe harbor amounts in 2010, it indicated that it believed those amounts were generally sufficient to cover issuers’ costs and to deter future violations and also recognized the need to annually adjust those amounts for inflation to cover increases in issuers’ costs. Should the CFPB now seek to abandon the safe harbor amounts (by rescinding the Reg. Z safe harbor provision or resetting the safe harbor amounts and/or eliminating annual inflation adjustments), it will need to demonstrate with empirical evidence why a card issuer charging the safe harbor amounts currently permitted by Reg. Z is not charging late fees that are “reasonable and proportional” to the violation.
The Consumer Bankers Association immediately responded to the issuance of the ANPR with a statement in which it called the CFPB’s announcement “another reminder the Bureau appears more interested in advancing a particular agenda than developing fact-based policies that improve the lives of hardworking families.” The CBA commented that “[m]issing from this announcement is the fact that banks – more than any other industry – have taken concrete steps to make their products more affordable and accessible for millions of Americans.”