WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) is taking the first step toward addressing credit card company penalty policies costing consumers $12 billion each year, starting by looking at excessive late fees.
The CFPB is asking for information on the Federal Reserve Board of Governors’ 2010 immunity provision for excessive late fees that allows credit card companies to escape enforcement scrutiny. The CFPB is seeking data about credit card late fees and late payments, assessing whether those fees are “reasonable and proportional.” The agency is also seeking data about card issuers’ revenue and expenses, the potential deterrent effect of late fees, and the role late fees play in credit card companies’ profitability.
“Credit card late fees are big revenue generators for card issuers. We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” said CFPB Director Rohit Chopra. “This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation.”
Credit CARD Act of 2009
To address concerns of widespread abuse by the credit card industry, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The law curtailed a range of junk fees, coercive contract clauses, and other suspicious practices. For example, Congress curtailed fee harvester cards and over-the-limit fees, “universal default” clauses, and hidden kickbacks to colleges marketing to students. It also created a range of other protections for cardholders, including limiting how much credit card companies could charge for penalties such as late fees. In a Congressionally mandated review of the CARD Act in 2013, the CFPB found that the CARD Act reduced the overall cost of credit card credit by two percentage points, but only reduced late fees by $1.5 billion per year.
The CARD Act banned excessive penalties.