The Consumer Financial Protection Bureau (CFPB) is proposing a rule that would slash excessive credit card late fees that cost American families about $12 billion each year.
The rule is projected to reduce typical late fees from roughly $30 to $8, saving consumers as much as $9 billion a year in late fees.
Because the immunity provision currently allows issuers to charge late fees of up to $41, the CFPB believes that a late fee of $8 would be sufficient for most issuers to cover collection costs incurred as a result of late payments. The $8 immunity provision would apply to any missed payment. Companies would be able to charge above the immunity provision so long as they could prove the higher fee is necessary to cover their incurred collection costs.
The CFPB’s proposal would eliminate the automatic annual inflation adjustment for the immunity provision amount. The CFPB would monitor market conditions and the immunity provision amount for potential adjustments as necessary.
The current rule allows a card issuer to potentially charge a late fee that is 100 percent of the minimum payment owed by the cardholder. The CFPB proposes to restrict any late fee charge to 25 percent of the minimum payment to be more consistent with Congress’s intent to authorize only reasonable and proportional late fee amounts.
The proposal also seeks comment on other potential changes to CARD Act regulations. For instance, it requests comment on whether the CFPB’s proposed changes should apply to all credit card penalty fees; whether the immunity provision should be eliminated altogether; whether consumers should be granted a 15-day courtesy period, after the due date, before late fees can be assessed; and whether issuers should be required to offer autopay in order to make use of the immunity provision.
Comments on the Notice of Proposed Rulemaking must be received on or before April 3, or within 30 days after its publication in the Federal Register, whichever is later.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” said CFPB Director Rohit Chopra. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive,” he added.
When someone misses a payment due date, even if they paid a few hours after the deadline, the cardholder may be hit with an exorbitant late fee that far exceeds the credit card company’s costs to collect late payments.
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