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Rohit Chopra, director of the Consumer Financial Protection Bureau, testifies during a hearing of the Senate Banking, Housing and Urban Affairs Committee on April 26, 2022.

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The Consumer Financial Protection Bureau on Wednesday signaled crackdown on late fees levied by credit card companies, as inflation threatens to increase so-called “junk” charges levied on consumers.

Watchdog, a federal agency created in the wake of the 2008 financial crisis, issued a Advance notice of proposed rule making Obtaining late fee information from card issuers, consumer groups and the public.

CFPB director Rohit Chopra said in a press call on Wednesday that the data would help the regulator draft new rules aimed at “vulnerable spots” in existing laws governing “back-end penalties” levied by card companies. is to be removed.

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Public comments are due by July 22. Time is unclear on a formal rules proposal (and eventually a final rule), but agency officials said they do not expect the process to end before the end of the year.

Officials expect to reduce total late fees by billions of dollars each year, they said Wednesday. He also indicated future regulations on other types of fees, without offering specifics.

credit card late fee

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According to the regulator, the cost disproportionately affects users in low-income and majority-black neighborhoods.

Watchdog characterizes late fees as a type of “junk” fee charged by credit card issuers. the agency had issued a separate request In January soliciting input from consumers on hidden and exorbitant fees from a range of lenders.

According to a CFPB official, “It’s just a project related to some sort of junk fee.” “I think it would be fair to say that there will be other fee-related projects in the near future as well.”

Missing from this announcement is the fact that banks – more than any other industry – have taken concrete steps to make their products more affordable and accessible to millions of Americans.

Richard Hunt

President and CEO of Consumer Bankers Association

Richard Hunt, president and CEO of the Consumer Bankers Association, said the additional restrictions would hurt customers and could eventually lead them to riskier types of credit.

“Today’s announcement is another reminder that the Bureau is more interested in advancing a specific agenda than in developing fact-based policies that improve the lives of hardworking families,” Hunt said in a statement. “Missing from this announcement is the fact that banks — more than any other industry — have taken concrete steps to make their products more affordable and accessible to millions of Americans.”

What will the CFPB do?

Current law does not allow credit card issuers to charge customers for late payments, except in a few cases. In order to charge the fee, the company must determine that the fee is a “reasonable” proportion of the total costs the company incurs to process the late payment.

But the law also provides a legal safety net: issuers can usually avoid cost analysis (and regulatory scrutiny) if they charge $30 or less for late payments, and are made within the next six billing cycles. Up to $41 for each subsequent late payment made.

“In today’s advance notice of the proposed rule-making, the CFPB is seeking information on these charges to assess whether they are in fact reasonable and proportionate,” Chopra said.

The Consumer Financial Protection Bureau is headquartered in Washington, DC. is in

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These maximum “safe harbor” fees are adjusted for inflation each year – giving the CFPB the urgency to make rules at a time when consumer prices are low. Growing at its fastest pace in nearly 40 years,

According to a CFPB official, “This effort is especially timely as the rule allows banks to increase their fees based on inflation.” “several [people] Struggling to meet their needs at the moment and under high cost.”

Most small banks and credit unions charge a maximum late fee of $25 or less, but almost all the largest issuers have fees at or near the maximum allowed, according to CFPB data.

“The truth is that late fees have been capped by federal regulation since the Obama administration imposed in 2010, and those caps are updated annually by the CFPB,” said American Bankers spokeswoman Sarah Grano. The association said in an e-mailed statement. “In addition, banks that issue credit cards are regularly supervised by the CFPB for compliance with those regulations.”

Chopra questioned whether the cost of processing late payments tends to increase with inflation, or if it is more reasonable to expect those costs to decrease as technology improves.

However, Hunt of the Consumer Bankers Association cited inflation as a major reason why the CFPB should not impose additional rules on the industry.

“Hardworking households will be hit hardest by more restrictions on the credit products banks offer, forcing them to meet their needs outside of the well-supervised banking system,” Hunt said. “The risk is even greater now as families grapple with the effects of inflation.”

The CFPB said it is seeking information on the following points, among other things: factors used by card issuers to determine late fee amounts; costs and losses of companies associated with late payments; deterrent effects of late fees; Late payment behavior of cardholders; the methods the firm uses to facilitate or encourage timely payments (such as autopay and notifications); and their use of “safe harbor” provisions.

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