White House Wants to Slash Credit Card Late Fees
The White house on Wednesday revealed a proposal to “curb excessive credit card late fees”. The rule, proposed by the Consumer Financial Protection Bureau (CFPB), would reduce typical late fees from roughly $30 to $8.
The CFPB says that excessive credit card late fees cost American families about $12 billion each year. Companies currently charge people as much as $41 for each missed payment. Based on the CFPB’s estimates, the proposal could reduce late fees by as much as $9 billion per year.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” CFPB said in a statement. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
The CFPB’s proposed changes would, if finalized:
- Lower the immunity provision dollar amount for late fees to $8: The CFPB has preliminarily found that late fee income exceeds associated collection costs by a factor of five. Because the immunity provision currently allows issuers to charge late fees of up to $41, the CFPB believes that a late fee of $8 would be sufficient for most issuers to cover collection costs incurred as a result of late payments. The $8 immunity provision would apply to any missed payment. Companies would be able to charge above the immunity provision so long as they could prove the higher fee is necessary to cover their incurred collection costs.
- End the automatic annual inflation adjustment: The CFPB’s proposal would eliminate the automatic annual inflation adjustment for the immunity provision amount. This adjustment is not required by law, nor is it necessarily reflective of how collection costs change over time. The CFPB would instead monitor market conditions and the immunity provision amount for potential adjustments as necessary.
- Cap late fees at 25% of the required minimum payment: The current rule allows a card issuer to potentially charge a late fee that is 100% of the minimum payment owed by the cardholder. The CFPB proposes to restrict any late fee charge to 25% of the minimum payment to be more consistent with Congress’s intent to authorize only reasonable and proportional late fee amounts.
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We got these amazing penalties and sky-high interest rates from the feds, people. Under Ronnie Raygun. It’s way, way past time to fix this usury, and only the feds can undo what was done by the feds. “Meddling by the gubmint”? You betcha. Make it gone now!
More meddling by the government. First of all the “American families” this hurts are the ones that don’t pay their bills on time. Why should we protect these people? To avoid the fee simply pay your bills – very simple. Secondly, these fees are built into the overall cost of the product (credit card in this case). If an issuer has to cut expected revenue in the event of non-payment or late payment they will simply either raise the interest rate on everyone (I pay my bills completely every month so that doesn’t impact me), increase other fees or reduce benefits associated with the card. There is no “free lunch” and restricting this fee will only cause other impacts.
Gotta love when UN-elected bureaucrats get to just make up rules based upon what they think vs. what Congress has written into law.
If the CFPB (which has its place) wants to propose changes – then they should lobby Congress to change the LAW – that they can enforce!
I love people who make interest and late fees to bank issuers – it helps pay for my points and miles!