The CFPB has issued a proposal that would make significant changes to the current rules for credit card late fees, including substantially reducing the safe harbor late fee amounts that card issuers can charge and eliminating annual inflation adjustments. After reviewing the legislative and regulatory history of the current rules, we look at the CFPB’s flawed rationale for reducing the safe harbor to a flat $8 for all late payments, identify the serious flaws in its economic analysis of the likely effects of the reduction, and discuss how the proposal relates to the Biden Administration’s junk fees initiative. We also discuss the likelihood of the proposal’s adoption in its current form and potential legal challenges to a final regulation. We conclude by looking at other major changes on which the CFPB seeks comment in the proposal, such as whether to require issuers using the safe harbor to provide a 15-day courtesy period before imposing a late charge and offer automatic payment options.

Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, hosts the conversation….(read more)

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The Consumer Financial Protection Bureau (CFPB) recently proposed new regulations aimed at limiting credit card late fees. The proposal, which is part of the CFPB’s ongoing efforts to protect consumers from unfair practices by financial institutions, would cap late fees at $10 for first-time offenders and $25 for repeat offenders.

One of the main goals of the proposal is to make credit card late fees more transparent and easier for consumers to understand. Currently, credit card late fees can vary widely among different issuers, with some charging as much as $39 for a single late payment. This lack of consistency can be confusing for consumers and make it difficult for them to fully understand the costs associated with their credit card use.

The CFPB’s proposal also includes provisions to protect consumers from multiple, overlapping late fees. Under the new regulations, credit card issuers would be required to calculate late fees based on the consumer’s payment history over the past six months, rather than charging a separate late fee for each missed payment. This is intended to prevent consumers from being hit with multiple late fees for a single billing cycle, which can quickly add up and become unmanageable.

In addition to capping late fees and limiting the number of fees that can be charged in a given billing cycle, the CFPB’s proposal would also require credit card issuers to provide clearer information to consumers about how late fees are calculated and when they will be assessed. This transparency is designed to help consumers make more informed decisions about their credit card use and avoid unnecessary fees.

Overall, the CFPB’s credit card late fee proposal is a positive step towards protecting consumers from unfair and excessive fees charged by credit card issuers. By capping late fees, limiting the number of fees that can be charged, and requiring greater transparency in fee disclosures, the CFPB is working to ensure that consumers are not unfairly penalized for late payments. This is especially important at a time when many consumers are facing financial hardship due to the ongoing COVID-19 pandemic.

As the proposal moves through the regulatory process, it will be important for consumers to stay informed and engaged in order to ensure that their voices are heard. By providing feedback and input on the proposed regulations, consumers can help shape the final rules and ensure that they truly serve the interests of the people they are intended to protect.