“The ABA and ICBA have criticized plans to limit late fees on credit cards, which the CFPB believes will slash costs to consumers by $9 billion.”

Why this is important: Alleging that major credit card issuers continue to profit off late fees that are protected by an expansive immunity provision and in an effort to reduce costs to bank customers by $9 billion on so-called “junk fees”, the Consumer Financial Protection Bureau (“CFPB”) announced recently that it planned to cap late fees at 25 percent of the required minimum payment on bank-issued credit cards. Banking industry groups have warned that the CFPB proposals will raise credit costs and reduce availability. The regulator also wants to slash the immunity provision dollar amount for late fees from its current upper limit of $41 to $8, cutting the perceived disparity between late fees and the cost of collection. Automatic annual inflation-linked increases to these fees also will be scrapped under the CFPB’s proposals.

The American Bankers Association (“ABA”) claims that these changes would reduce competition and raise the cost of credit for consumers regardless of whether they pay on time. In a recent statement, the ABA argued that the plans would “result in more late payments, higher debt and lower credit scores, and is inconsistent with the CARD Act’s encouragement of responsible credit management”.

The Independent Community Bankers of America (“ICBA”) joined with concern and urged the CFPB to ensure that any new rules did not adversely affect smaller credit card issuers such as community banks. In its recent statement, the ICBA stated “Considering these costs, current practices are appropriate and do not constitute ‘junk fees’, despite the CFPB’s misrepresentation of the community bank business model.”

Both banking organizations have stated that the new CFPB proposals will adversely affect small issuers, needlessly restrict access to credit in local communities, and mispresent how banks, particularly community banks, meet the credit card needs of their customers and both organizations are lining up support in the Congress where the Chairman of the House Financial Services Committee has voiced opposition to the CFPB proposals. --- Bryce J. Hunter

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