The Consumer Financial Protection Bureau (CFPB) will be looking more closely at the penalty fees charged to consumers, the bureau recently announced.
A new report from the CFPB shows that credit card penalty fees are costing consumers $12 billion each year. But now the CFPB will begin looking into what it calls "excessive late fees."
In an Advance Notice of Proposed Rulemaking, the CFPB asked 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 trying to determine if late payment fees are "reasonable and proportional." It's also looking for information regarding card issuers’ revenue and expenses, the deterrent result of these fees and how they add to the credit card companies’ profitability.
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Late fees are major revenue generators
In 2009, Congress passed a law to limit fees from credit card companies such as preventing fee harvester cards and over-the-limit fees. It also banned hidden kickbacks to colleges marketing to students. But despite these measures, and more in 2013, the CARD Act just reduced the overall cost of credit card credit by two percentage points or $1.5 billion per year.
"Credit card late fees are big revenue generators for card issuers," CFPB Director Rohit Chopra said. "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. This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation."
The CFPB found that many major credit card issuers set their late fees at the maximum level, according to a recent Credit Card Late Fees report from the CFPB. Credit card companies charged a total of $12 billion in late fee penalties in 2020, which made up about 10% of total costs of credit cards to customers.
The CFPB found that this fee revenue came disproportionately from people living in low-income neighborhoods.
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CFPB seeks answers on late fees
As the CFPB prepares to look into credit card fees, it is asking several key questions. The bureau also wants consumer groups and the public to comment on certain areas.
Some questions the CFPB is asking include:
- How do credit card issuers set late fee amounts?
- Are revenue goals a factor in determining late fees?
- How many calendar days after the due date do consumers make the late payment?
The CFPB is also asking questions about what credit card companies are doing to help prevent late fees such as notifications or auto draft, and what their annual income is from the fees.
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