FOR IMMEDIATE RELEASE
Feb. 1, 2023
New CFPB Protections will Reduce Credit Card Late Fees, Save Consumers $9 Billion
But Flawed Court Decision Threatens this Effort by CFPB, and More
Washington, D.C. – A new plan from the Consumer Financial Protection Bureau (CFPB) announced today should save real people real money – $9 billion each year – by capping the late charges that credit card companies impose on customers. But the consumer agency also faces an existential threat that the Supreme Court may soon address.
“Regulations seldom deliver such concrete benefits to consumers as the plan that the CFPB has set in motion today,” said Elyse Hicks, consumer policy counsel at Americans for Financial Reform. “This agenda, created after the financial crisis in 2008, is as relevant as ever, looking out for Americans’ financial interests, and keeping an eye on the big banks and predatory lenders who would rip them off.”
The CFPB plan, a proposed regulation that will take effect following a legally required comment period, will knock down late fees from as high as $41 to $8. The Federal Reserve, which regulated credit cards before Congress created the CFPB in 2010, created an exemption from a requirement that fees be “reasonable and proportional” to the costs incurred by the companies. The largest card issuers took in revenue from late fees, $12 billion in 2020, that is approximately five times greater than the collection costs the companies incur for late payments.
Despite its good work, the CFPB has to contend with an October ruling by the Fifth Circuit that its funding structure is unconstitutional. The Supreme Court may decide on Feb. 17 whether to hear the Biden administration’s appeal of CFPB v. CFSA, a lawsuit brought by a lobby organization for payday lenders seeking to overturn part of an anti-predatory lending rule approved by CFPB in 2017. The Fifth Circuit decision is wrong on the law by any plausible reading of the nation’s founding document.
The Fifth Circuit’s ruling threatens not only the 2017 rule, but also any other rules the CFPB has implemented since its inception in 2010. Allowed to let stand, the Fifth Circuit’s decision would also sabotage an agency nearly 80 percent of Americans say they support.
Today’s announcement fits neatly into President Biden’s initiative announced last October to crack down on a wide range of junk fees plaguing consumers. The White House today also called on Congress to address the junk fees tacked onto event and airline tickets, hotels and resorts, and early termination of subscriptions like cable and mobile phone services.
Both initiatives reflect many suggestions Americans for Financial Reform and its partners called for in a May 2022 letter to the CFPB.
Businesses often use hidden, needless fees to deceptively increase the cost of goods and services. Such fees are often revealed only after the consumer has committed to a transaction. In addition to being a drag on individuals’ and families’ finances, junk fees are also a form of unfair competition because they inflate or mask the price of a product or service and are deceptive to consumers.