WASHINGTON—NAFCU and CUNA are each calling on the CFPB to leave the current safe harbor for late fees in place.
The trade associations wrote to the CFPB regarding its advanced notice of proposed rulemaking (ANPR) regarding credit card late fees and late payments.
In its letter, NAFCU Vice President of Regulatory Affairs Ann Petros stated the association’s position that credit card late fees are not surprise fees and are fully disclosed to consumers, while also being some of the lowest fees available in the market.
She also said that credit unions estimate that the cost of servicing members with late payments “exceeds both the fee assessed to the consumer and the revenue that this fee provides to the credit union.”
Petros urged the Bureau not to eliminate or reduce the safe harbor fee amounts for credit card late fees. Based on responses from a Regulatory Alert seeking feedback from NAFCU members on the ANPR, Petros stated that limiting late fees could negatively affect communities by tightening credit and increasing industry consolidation.
Reducing the safe harbor fee amounts could also potentially result in more expensive products and services to account for this lost revenue, such as increased interest rates for credit products “to account for the additional risk and reduced late fee income,” she added.
‘Solutions to Avoid Fees’
Petros also mentioned that credit unions offer solutions for members to avoid late fees, including a penalty free grace period, no cost fixed payment arrangements or payment plans, payment deferrals, and case-by-case waivers of late fees for consumers experiencing financial hardship.
“The CFPB should not require financial institutions to perform an annual cost assessment to set their fees, but instead search for ways to enhance the deterrent effect of these late fees,” wrote Petros. “NAFCU recommends the CFPB adopt changes to its disclosures to make them more adaptable to online and mobile banking platforms to help financial institutions effectively deliver information about their late fee structures on the platforms consumers use most often.
“The CFPB should also consider structural changes to minimum payment amounts to assist consumers in escaping a cycle of credit card debt,” concluded Petros.
CUNA’s Comment
Meanwhile, in its letter, CUNA wrote, “When set appropriately, late fees encourage consumers to pay on time and develop good financial management habits. However, if late fees are too low, consumers are more likely to pay late and miss payments, leading to lower consumer credit scores, reduced credit access, and higher credit costs.
“Reducing or eliminating the safe harbor could harm consumers,” it adds.
CUNA cited CFPB research it said found if late fees are not set at an appropriate level to cover issuers’ costs, effectively deter late payments, and mitigate late payment risks, issuers may have to rebalance risks to their credit portfolios in other ways, including higher rates and tighter account standards.
“The current safe harbor provides legal certainty to issuers, as well as predictability and consistency to consumers,” the letter reads. “Should the Bureau proceed with additional rulemaking, any proposed permitted late fees should account for costs incurred by issuers related to late payments, the deterrent effect of late fees, and the conduct of the cardholder as required under the Truth in Lending Act.”
‘Original Consumer Protectors’
CUNA further argued that credit unions are the original consumer protectors and practice the kind relationship banking commended by CFPB Director Rohit Chopra.
“We strongly caution the Bureau against painting a broad picture of fees in the financial services market,” the letter reads. “Many credit unions have specifically designed their fee schedules with members in mind and as a result there is substantial diversity across the industry. There are many examples of credit unions exploring and adopting changes to their fee schedules in response to consumer preferences.”