Billions on the line for lenders as White House finalizes late fee cap

WASHINGTON — The Consumer Financial Protection Bureau’s ambitious rule proposal to crack down on credit card late fees, a $14.5 billion income stream for credit card companies, will potentially roll out in January, nearly a year after it was released.

Global corporations and small banks alike are pushing back against the impending rule finalization with some help from business-friendly lawmakers.

Rep. Andy Barr, R-Ky., called the proposal, which is projected to save consumers nearly $12 billion each year by capping late fees at as little as $8, “unclear at best and likely harmful” in the long-term.

The chair of a House subcommittee on financial institutions and monetary policy called on the Government Accountability Office to study the rule’s potential impacts weeks before it is set to go into effect.

The CFPB would not confirm when the rule would be finalized, but interest groups say banks are not yet signaling a preemptive fee change akin to their response to a proposal to ban overdraft and insufficient fund fees.

Late fees, which can reach $41 under a legislative loophole allowing banks to charge unimpeded under a certain threshold, disproportionately affect poor Americans and those with low credit scores, the American Economic Liberties Project reported.

The U.S. Chamber of Commerce said fees “play an important role” in encouraging timely payments and avoiding added interest in its comments on the proposal.

“In contrast to the CFPB’s unfounded statements, late fees are not impermissible, so-called ‘junk fees’ that fail to serve any purpose,” the Chamber wrote, referencing the Biden administration’s overall initiative to shrink excessive surcharges. “Instead, they are heavily regulated by the CFPB, and the Federal Reserve before it.”

The Chamber submitted one of around 1,000 comments objecting to the proposal, out of a total of 57,000 comments, according to Accountable.US, a nonpartisan government watchdog group. The other 56,000 comments were in support of the caps.

The $8 fee is also not reflective of the costs of collections for credit unions, Greg Mesack, senior vice president of government affairs at the National Association of Federally-Insured Credit Unions, told CNBC. The organization spent $1.42 million in lobbying in Q1 of 2023, according to a Senate lobbying disclosure.

In its comment against the rule, the association argued that credit unions usually offer their members lower rates for services like car loans and mortgages compared to big banks.

“We’re going to lose extreme amounts of money every time someone’s late,” Mesack said. The fee, he added, is not enough of a deterrent “so more people are likely to be late.”

“A lot of credit unions will have to face the consequences of potentially limiting their credit card programs, which at that point it makes them not competitive with the big banks,” Mesack said.

CFPB consulted the National Credit Union Administration Board, along with the Comptroller of the Currency and the board of directors of the Federal Deposit Insurance Corporation, when constructing the proposal, according to a Notice of Proposed Rulemaking.

Late fees upward of $41 “are significantly higher than the pre-charge-off collection costs” cited by an unnamed credit union trade group, per the NPRM.

Instead, the $8 fee cap shows the CFPB “dug down, did their research, looked at industry data and came out with a number that they thought best reflected a bank’s ability to recover the cost associated with a late payment,” said Shahid Naeem, senior policy analyst at AELP.

“The fact that the CFPB has determined that $8 is sufficient to cover the costs and banks are charging $41, that’s significant,” said Christine Hines, a legislative director for the National Association of Consumer Advocates. “And it shows that somewhere, there’s conduct that needs to be curbed. Clearly.”

CFPB Director Rohit Chopra told Senators last month that banks should support the proposal “if it’s not a core part of their profit model.”

Credit card companies spent a historic $37.04 million in 2022 on lobbying, according to records database Open Secrets. That year, total outstanding credit card debt surpassed $1 trillion for the first time since CFPB began collecting the data.

Companies have spent over $30.7 million in lobbying so far in 2023.

“In a sense, these big financial firms, they have so much power, they have so much money and they’re waging a war on regulation,” Naeem told CNBC.