WASHINGTON–Consumer Financial Protection Bureau Director Rohit Chopra spent a good part of his testimony before the Senate Banking Committee this week defending the Bureau’s proposal to lower credit card late fees to $8.
CUNA, meanwhile, sent a letter ahead of the hearing outlining recommendations for the CFPB when it comes to rulemaking.
During the hearing Chopra was primarily grilled by Republicans over the issue, with GOP members of Congress suggesting credit card issuers will just find other ways to recoup the cost of late payments that would make loans more expensive or elusive for low- and middle-income borrowers.
“There is no free lunch,” said Sen. Tim Scott (R-SC). “You can’t just take away a fee and assume that it’s gone. You have to understand that taking away the fee only means that you’re going to paint it into the overall structure and cost associated with that institution.”
As CUToday.info has reported, the CFPB put forward a proposal in February that would lower that threshold from $30 for the first late payment and $41 for subsequent late payments to $8. The agency estimated the change would save consumers $9 billion each year.
Credit unions have been pushing back on the proposal since it was made, arguing it will lead to a reduction in many offerings.
‘Not an End to Late Fees’
But Chopra told the Senate committee credit card issuers would be able to charge more than $8 if they can show the cost to collect the overdue debt is higher than that.
“It’s not an end to late fees,” Chopra said. “The rule just lowers the maximum amount the credit card companies can charge while getting automatic immunity from enforcement actions, and that dollar figure right now is proposed at $8.”
But not every senator was critical of the proposal, with at least one expressing support.
“When I asked the biggest credit card issuers for this information, their response was that it was less than 1%,” said Warren. “So, if there’s an $8 cap on credit card late fees — unless the banks can show that their costs are higher, in which case they can charge more — all that will happen, as best I can tell, is that the banks will have slightly lower profit margins.”
Questions Over Threat to Funding
For their part, committee Democrats questioned Chopra over the potential consequences of a Supreme Court ruling upholding the Fifth Circuit Appeals Court decision in October 2022 that found the CFPB’s funding structure is unconstitutional.
Should the justices uphold the lower court decision, it very likely could affect many of the CPPB’s rulemakings.
The Bureau is funded through the Federal Reserve, rather than congressional appropriations.
Chopra responded to the funding questions by saying it could “create major uncertainty in our mortgage markets. It will be difficult for lenders to know what the rules of the road are, and borrowers may not have the clear responsibilities and rights to safeguard them.”
Could Create ‘Chaos’
Sen. Mark Warner (D-VA) shared that view, saying the result would be “chaos.”
Similarly, committee Chairman Sherrod Brown (D-OH) was critical of the appeals court decision, saying it could not only undermine the CFPB but other regulators that are funded independent of the congressional appropriations process. (NCUA is also funded independently, but the agency has said it does not expect any potential ruling against the CFPB’s funding structure to have any effect on the agency.)
“If the CFPB’s independent funding structure is unconstitutional, there’s going to be far-reaching collateral damage. The Fed would be in jeopardy. So would the FDIC,” Brown said, referring to the Federal Deposit Insurance Corporation. “These are entities vital to our economy — and to how corporations operate.”
Republicans countered that the CFPB’s funding structure made the agency unanswerable to Congress.
But South Carolina’s Scott disagreed, saying the CFPB is “not accountable to Congress or the American taxpayer through the appropriations process, and it routinely and brazenly acts outside of the scope of its authority.”
CUNA Letter Offers Recommendations
Meanwhile, ahead of the hearing CUNA sent a letter saying the CFPB should tailor rules to not be “overly burdensome” on credit unions, as CUs are the “original consumer financial protectors.”
“The CFPB has missed many opportunities to leverage credit unions’ mission and history to the benefit of consumers and finalized regulations that ultimately hampered credit unions and their members,” the letter reads. “Consumers lose when one-size-fits-all rules force credit unions to pull back safe and affordable options from the market, pushing consumers into the arms of entities engaged in the very activity the CFPB’s rules were designed to curtail.
“Under Director Rohit Chopra’s leadership, the Bureau has yet again missed numerous opportunities to recalibrate its approach to regulation in a manner that fulfills its consumer protection mission without impeding consumers’ access to credit or safe and affordable financial products and services,” it adds.
Principles Highlighted
CUNA highlighted several principles it believes should guide CFPB actions, including:
- Use the Bureau’s authority in a manner consistent with the original purpose of the CFPB and the spirit of the Dodd-Frank Act
- Appropriately tailor regulations to reduce disruption for community-based financial institutions
- Be consistent and transparent during the development and implementation of rulemakings and supervision and enforcement policies
- Consult with NCUA during the policymaking process and avoid implementing duplicative or contradictory policies
- Provide certainty to regulated entities by adopting clear “rules of the road” and prioritizing internal consistency
- Conduct thorough research prior to the adoption of a new rule or policy and base policy decisions on relevant data
- Ensure continued access to credit from reputable providers
- Encourage and support innovation in the consumer financial services marketplace
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