WASHINGTON–Changes to late fees on credit cards as proposed by the CFPB could end up penalizing “responsible” consumers, according to several market analysts.
As CUToday.info has reported, the Consumer Financial Protection Bureau (CFPB) is proposing to cap late fees, but it will be those who don’t carry a balance who will end up paying more, those same analysts are suggesting, according to Fox News.
The CFPB has proposed capping late fees to 25% of the required payment and end the automatic inflation adjustment for these charges.
As CUToday.info has also reported, credit card companies could still charge late fees under the proposal, but under the new provision they must prove that their fees align with their collection costs. The move to lessen late fees could save millions of Americans as much as $9 billion a year, the White House said in a press release, noted Fox News.
‘Regulatory Loophole’
The report added that Congress initially banned exorbitant late fees in 2009. However, the Federal Reserve added an immunity provision that “created a regulatory loophole that companies used to avoid scrutiny.”
But experts who oppose the late fee changes told Fox News they are concerned existing credit card users who pay their bills on time, could be penalized.
The majority of Americans don't make late payments and wouldn't see any cost savings, but they could carry the brunt of increased costs arising from card issuers having to recoup that money in other ways, Bill Hulse, a vice president at the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, told Fox News.
Potentially Fewer Choices
“Consumers could also have fewer choices because credit card issuers could respond to the changes by reducing credit lines, tightening standards for new accounts and raising APRs for all consumers,” the report added. Added Hulse, “The changes could also mean an end to popular perks such as rewards, discounts on groceries and gas, and travel perks with airline and hotel partners.”
"If the Consumer Financial Protection Bureau wants to protect consumers, it shouldn't raise costs on responsible consumers who pay on time," Hulse said in a statement, according to the report. "The proposed rule is harmful and misguided, and the agency should withdraw it at once."
NAFCU Shares View
NAFCU’s chief economist, Curt Long, was quoted by Fox News as stating a reduction in the late fee cap to $8 would also squeeze the already narrow margins under which credit unions operate.
"Fees are lower due to credit unions being not-for-profit, member-owned cooperatives and costs are higher due to economies of scale," Long said in a recent video as quoted by Fox News.
As a result, a cap could reduce the extension of credit to high-risk borrowers, Long said. Nearly 40% of member credit unions said they would charge high fees on other products to recoup losses, according to Long.
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