new highest dollar amount fee with respect to inflation . This provision , 12 CFR Part 1026.52 ( b )( 1 )( ii ), states :
( ii ) Safe harbors . A card issuer may impose a fee for violating the terms or other requirements of an account if the dollar amount of the fee does not exceed , as applicable :
( D ) The amounts in paragraphs ( b )( 1 )( ii )( A ) and ( b )( 1 )( ii )( B ) of this section will be adjusted annually by the Bureau to reflect changes in the Consumer Price Index .
As the CFPB points out , this section is not required by law , but was added in case a credit card issuer incurs such costs that would require some sort of “ safe harbor ” to increase late fees . According to the CFPB , the “ annual inflation adjustment ” does not appear to always be reflective of actual market conditions , but rather as a maximum that credit card companies are attempting to charge consumers .
The proposed rule would eliminate the automatic annual inflation adjustment , and instead , task the CFPB with monitoring market conditions and the immunity provisions to determine if any adjustments may be necessary . Consumers will benefit from this change if enacted , as the annual adjustment for inflation will end and late fees will then have to be adjusted manually by the CFPB .
Capping Late Fees at 25 % of the Required Minimum Payment
Within the CARD Act , there is a 25 % limit already in existence for total amounts of fees consumers could be required to pay during their first year of open-end credit in 12 CFR § 1026.52 ( a )( 1 ). This fee is exempted in subsection ( 2 ), allowing credit card issuers to potentially charge consumers up to 100 % of the minimum payment owed by the cardholder .
The proposed change would narrow the scope of the statement “ reasonable and proportional ” to 25 % of the minimum payments , rather than effectively ignoring the language of “ reasonable and proportional ” when it comes to late fees due to the exemption that exists in 12 CFR § 1026.52 ( a )( 2 ). While the original CARD Act legislation allows for a late fee exemption , the CFPB is concerned the rising costs of late fees are harming consumers in a way which could eventually be unsustainable for a market which encourages competition and transparency .
According to the CFPB , adopting a 25 % limit would even the late fee field just enough that credit card issuers could be transparent , competitive and could still turn a profit . Consumers would know their maximum fee is capped and codified in the regulation .
Potential Timeline for the Updated Language
According to the Notice of Proposed Rulemaking , comments regarding the proposed legislation must be submitted by either April 3 , 2023 , or 30 days after the publication . The due date for comments will be whichever happens later . After they are received , more work will be done on the regulatory language , with the eventual hope of consumers that it passes as an amendment to the CARD Act .
Implications for Issuers and Consumers
While the CFPB believes the current CARD Act language allows for “ junk fees ” and other hidden costs , the proposed updated language does not prevent card issuers from ever charging late fees or additional costs for consumers having open-end credit . Instead , it allows the CFPB to implement more accountability on behalf of the credit card issuers for the purported safety and financial health of the consumers .
High credit card late fees are often viewed by consumers as harmful . Many are not even likely to understand how these late fees are calculated , and some credit card issuers create advertising and disclosures which downplay the costs of late fees . Since the CFPB found credit card issuers are earning revenue from late fees that equals approximately five times more than the cost incurred by the issuers needing to rectify late payments , the fees to consumers look less and less fair to consumer groups and the CFPB .
The CFPB has made it a goal in recent years to encourage transparency and competition in the financial institution industry . By implementing stronger regulation and limits on how much card issuers can charge consumers , especially for fees which may not be readily apparent , the CFPB believes consumers may have an easier time identifying card issuers they can trust , and in turn , allows card issuers to introduce flatter rates and fair practices . With consumer outcomes in mind , the CFPB hopes additional limits on late fees will encourage fair and honest practices , while also allowing consumers to feel safer opening credit card accounts . •••
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