US consumer watchdog to look into ‘excessive’ late payment charges on credit cards

A customer signs the credit card pad while paying for a purchase at Macy’s in New York November 26, 2010. REUTERS/Jessica Rinaldi/File Photo

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WASHINGTON, June 22 (Reuters) – The top U.S. consumer watchdog said on Wednesday it had begun a review of “excessive” credit card charges and asked card issuers for income and spending data with the aim of eradicating abuses and stimulating competition.

The advance notice of proposed rulemaking issued by the Consumer Financial Protection Bureau (CFPB) confirms a Reuters report from April that the agency would review credit card fees as part of a broader crackdown on what she calls “junk fees,” an overdraft catch-all, credit card late payment fees, NSF check fees, and other fees. Read more

The CFPB said it will assess whether credit card late fees are “reasonable and proportionate”; the potential deterrent effect they may have on customers; and the role they play in the profitability of credit card companies.

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“Credit card late fees are major revenue generators for card issuers,” CFPB Director Rohit Chopra said. “Our findings will inform rulemaking and help us ensure that we make the credit card market work better for all consumers.”

Card issuers typically charge late payment fees when a customer misses their minimum payment. The current rules state that these fees must not exceed a “reasonable and proportionate” regulatory cap which is set each year by the CFPB.

Banks and credit unions took in more than $15 billion in overdraft and related fees in 2019 and $12 billion in late credit card fees in 2020, according to CFPB estimates.

Wednesday’s review is unlikely to result in a rule before the end of the year, a CFPB official told reporters.

The deadline for comments is July 22.

The agency said lenders have become too dependent on these fees and its review of “unwanted fees” is intended to stimulate competition.

Industry groups dispute that and say the CFPB is wrong to suggest the fees show banks are not offering competitive services. These fees are also clearly disclosed, they claim.

“Banks – more than any other industry – have taken concrete steps to make their products more affordable and accessible to millions of Americans,” Consumer Bankers Association CEO Richard Hunt said in a statement.

Chopra said the agency would examine whether existing rules allow consumers to be “beset” by multiple penalties related to the same transaction or late payment. It will also examine a rule that allows issuers to increase late fees to account for inflation.

Advances in technology should drive down those treatment costs, Chopra suggested, adding, “We’re not looking for opinions, but rather empirical evidence.”

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Reporting by Katanga Johnson in Washington Editing by Nick Zieminski, Michelle Price, Chizu Nomiyama and Aurora Ellis

Our standards: The Thomson Reuters Trust Principles.

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