Consumer Finance Insights
February 17, 2023

CFPB Proposes Rule To Amend Regulation Z Credit Card Late Fees

On February 1, 2023, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule with request for public comment to amend Regulation Z, the implementing regulation of the Truth in Lending Act (TILA), to “better ensure that the late fees charged on credit card accounts are ‘reasonable and proportional’ to the late payment as required under TILA.”  Specifically, the proposed rule would (1) adjust the safe harbor dollar amount for late fees to $8 and eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type; (2) provide that the late fee safe harbor amount would not be eligible for annual inflation adjustments; and (3) provide that late fee amounts must not exceed 25% of the required payment.

In the press release announcing the proposed rule, the CFPB noted that excessive credit card fees cost American families about $12 billion each year, and that the CFPB’s proposal could reduce late fees “by as much as $9 billion per year.”  It also noted that companies charge as much as $41 for each missed payment, resulting in “billions of dollars” in annual junk fee revenue for credit card companies and that the income generated by the largest issuers from late fees is “approximately five times greater than the collection costs” the companies incur for late payment violations.  The press release also noted that the proposed rule “seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”

On February 2, 2023, in response to the proposed rule, the newly selected Chairman of the House Financial Services Committee, Patrick McHenry, a Republican from North Carolina, issued a statement disagreeing with the amendments, stating, “[a]t a time when more American families are carrying credit card debt due to Democrat-induced inflation, Director Chopra is pushing a proposed rule that would raise costs for all credit card users” and asserting that the proposal “would also limit loyalty benefits for consumers.”

Public comments on the proposed rule must be submitted by April 3, 2023.

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