Banks brace for CFPB to take aim at credit card late fees

Banks expect the federal government to crack down on credit card late fees following a highly critical report from the Consumer Financial Protection Bureau highlighting the effects of the penalties on households.

The report, published this past week, emphasized that the $12 billion in late fees charged in 2020 hurt millions of families, particularly those with subprime accounts. The watchdog agency said it also expects many major card issuers to further increase the fees, based on inflation.

David Pommerehn, senior vice president and general counsel of the Consumer Bankers Association, which represents America’s leading retail banks, told the Washington Examiner in an interview that the report likely portends some form of regulatory action.

Pommerehn said the report on late fees is just one step in a series of actions the bureau is taking against fees, in addition to “junk fees” and overdraft fees.

Both the industry and liberal activists expect aggressive regulatory action from CFPB Director Rohit Chopra, an ally of top congressional Wall Street critic Sen. Elizabeth Warren, a Massachusetts Democrat. In previous stints at the Federal Trade Commission and CFPB, Chopra developed a reputation for using the full extent of his authority to scrutinize business and exert regulatory pressure when possible.


The CFPB does have some authority in the realm of late fees. It has the ability to adjust the “safe harbor” for specific fee amounts annually that can be adjusted for inflation.

The report found major banks weren’t breaking the law in issuing late fees and were adhering to the safe harbor limits, although it found that the average cost of late fees being charged was nearing those thresholds.

“They do have the authority to go into [regulation] and tinker with those safe harbors, whether it’s to raise them or lower them, so that’s something that I think they’re going to do if you ask what direction are they moving in. I think it’s pretty clear … the rhetoric on overdrafts, the bank fee [request for information]and this credit card report — it’s clear the CFPB is going to be writing some type of policy on both overdraft and credit card late fees,” Pommerehn said.

the Washington Examiner asked the CFPB for comment about whether it is preparing future action on the matter, but a spokesperson did not return a response by deadline.

Chopra highlighted the late fees in a statement that accompanies the report, saying late fee penalties make up a “core part” of credit card issuers’ profit model.

“Markets work best when companies compete on price and service rather than relying on back-end fees that obscure the true cost,” Chopra said. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.”

Despite the claim, the report itself points out that late fees represent just about one-tenth of the consumer cost of credit paid to issuers in interest and fees.

Pommerehn said recent reports on late fees from the CFPB have included a lot of “out of context” information. He noted that credit card fees have trended downwards, something that was not included in the report.

The CFPB report highlighted that the volume of late fees declined during the pandemic, something they said moved in tandem with the three rounds of stimulus checks disbursed in 2020 and 2021.

“The fact that late fee charges for credit card issuers fell during the same period suggests that late fees are a penalty on households living paycheck-to-paycheck rather than a meaningful incentive to make on-time payments,” the bureau said in a news release.

Pommerehn said the report glossed over the fact that many issuers waived certain fees, including credit card late fees, for those who had been directly affected by the pandemic. That factor has much to do with why consumers paid less in late fees during that period, he said.

A spokesman for the American Bankers Association told the Washington Examiner that the report is “yet another example of the CFPB criticsizing the financial services industry for following the very rules the bureau sets.”

“Left out of this report is any mention of the millions of consumers who value and appreciate the safety and convenience provided by the credit cards they use every day, as well as the wide array of options they have to choose from when they pick a credit card,” the spokesman said.

Regarding the “junk fees” request for information that was issued in January (and later had its deadline extended), the CFPB said it is targeting fees that are not included in the advertised price of a transaction, for example, when people are charged “ resort fees” or “service fees” after the fact.

The bureau said it wants to hear from the public about fees associated with their bank, credit union, prepaid or credit card account, mortgage, loan, or payment transfers.

Soon after news of the request for information broke earlier this year, a group of eight trade groups, including the ABA, issued a joint statement Wednesday that called it “misguided” and said it paints a “distorted and misleading picture” of the financial services marketplace.

A group of Republicans on the House Financial Services Committee wrote Chopra a letter this week in response to the request for information. They asked several questions about the CFPB’s actions and requested further clarification on the matter.


“A key feature of the US financial system is its wide range of institutions with varied business models and offering a broad selection of products and services to consumers,” the lawmakers wrote.

“Any attempts by the CFPB or other financial regulators to stifle financial inclusion or consumer choice or undermine the safety and soundness of particular financial institutions or the financial system as a whole would be imprudent,” they added.

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