On March 29, 2022, the Consumer Financial Protection Bureau released a report raising concerns about the late fee practices of credit card issuers. Although the report provided a general assessment of trends in credit card late fees, it was accompanied by a press release criticizing late fees as a central part of the issuer’s profit model that obscures the true cost of credit. The report follows the CFPB’s January report initiative to collect information more generally on “return fees” and “junk fees” associated with a range of financial products and servicesincluding deposit accounts, funds transfer and payment products, prepaid accounts and other types of loans.
In accordance with the Credit Card Accountability Responsibility and Disclosure (CARD) Act and its implementing regulation, Regulation Z, the CFPB is responsible for monitoring late fee policies to ensure that they are “reasonable and proportionate”. In implementing this regulation, the CFPB establishes a “safe harbor” for specific royalty amounts, which are subject to adjustments for changes in inflation. As of 2022, the safe harbor fee limit is $30 for first-time late fees and $41 for subsequent breaches incurring recurring fees. The CFPB wonders if it is considering removing the safe harbor from penalty fees, as the report frequently draws attention to the common practice of the largest issuers in the market, who set their penalty fees at the limits set by regulation. or near. Z and adjust them upwards according to the annual changes in the limits.
CFPB’s continued focus on vulnerable and minority populations
The CFPB report finds that late fee assessments fall disproportionately on low-credit card users, as well as low-income consumers and consumers in predominantly black neighborhoods. For example, the CFPB found that in 2019, almost 60% of credit card accounts were held by super-premium consumers, yet these accounts incurred – perhaps unsurprisingly – 20% of the total volume of credit card fees. delay. In an attempt to understand the links between consumer race and late fee burden, the CFPB found that the average late fee per account increased with the share of the census tract population identifying as black.
The CFPB also found that the volume of credit card charges dropped significantly during the pandemic and matched the increase in federal government assistance. The CFPB called the finding evidence that late fees are a penalty for households living paycheck to paycheck, not an incentive for consumers to make payments on time.
There is a clear disconnect between the CFPB press release, which highlights concerns about the impact of market competition on late fee assessment practices, and the report itself, which focuses on the impact of late fee assessment on low-income borrowers and in minority communities. Although the CFPB criticizes issuers’ reliance on late fees, it notes that issuers comply with the CARD Act – the law enacted to protect cardholders – and does not specifically identify anti-competitive practices or demonstrate that Late fee levels are inappropriate given the cost of the bid. and credit card administration.
The CFPB’s analysis on the late imposition of fees in a minority setting is also noteworthy given its March 16 announcement linking ‘injustice’ theories to discrimination. In the announcement, the CFPB said it will seek information during reviews to assess whether institutions understand the demographic use of financial products, and the fees and revenues associated with those products.