WASHINGTON—NAFCU, CUNA and the Virginia League are asking the CFPB to rescind its proposed rule to reduce the credit card late fees safe harbor.
Each trade association sent letters to the CFPB as the comment period for the Bureau’s credit card late fee proposed rule ends.
NAFCU Vice President of Regulatory Affairs Ann Petros called on the CFPB to rescind its proposed rule to reduce the credit card late fees safe harbor, outlining more than 20 pages of concerns about the rule’s “onerous” impact on credit unions and their 135 million members.
“This proposed rule will not lead to the Bureau’s intended outcome,” Petros wrote. “Rather, it will reduce competition in the credit card market, as only the largest credit card issuers will be able to absorb the resultant losses. Consequently, this will lead to further consolidation among our nation’s community-based financial institutions and reduced access to credit for consumers.
“The proposed changes would not meaningfully reduce consumer indebtedness… it will harm smaller, community-based financial institutions like credit unions and their members who will experience tighter credit standards and reduced access to products and services,” Petros continued. “…The Bureau should instead further study the market, including taking a closer look at the role of credit card payment processors and newer fintech lenders, before continuing to rush through this rulemaking process.”
CUNA’s Comment
“We strongly object to this proposal and the process by which it was promulgated,” said CUNA President/CEO Jim Nussle. “This dramatic change to the long-held standard for late fees will impact the ability of small issuers to offer credit card programs and is a solution in search of a problem. The proposal is built on flawed and incomplete data and additional research is required by law.”
“Federal credit unions—subject to a statutory usury cap—would be competitively disadvantaged compared to other card issuers in responding to a dramatically reduced permissible late fee. The Bureau did not study these potential effects,” CUNA stated.
What Analysis Found
CUNA added that it commissioned an economic analysis on the proposal that found CFPB failed to provide a “valid and reliable” analysis of the proposal’s impact on card issuers and consumers, and that it failed to study the rule’s impact on small business as required.
“The CFPB also did not study how freezing credit card late fees at $8, which is substantially less than the typical current late fee, would impact credit card issuers and customers in an economy with a higher inflation rate and market interest rates than at any time since safe harbor penalty late fees were first regulated in 2010,” the analysis states.
CUNA’s comments also outline the many ways the trade group said the proposal “will both negatively impact the ability of credit unions to offer viable credit card programs, manage the risks associated with those programs, and increase the cost of credit cards for all cardholding members – not just those that incur late payment fees.”
The Negative Impacts
According to CUNA, those negative impacts include:
- Clearly disclosed, heavily regulated fees incurred due to consumers’ late payments are not so-called “junk fees,” particularly as most rules governing credit union fees are promulgated or administered by the CFPB
- The consequences for consumers could be significant, as well-disclosed fees both encourage positive behavior and help recoup costs of losses due to non-payment
- The proposal’s “indefensibly short comment” period provided insufficient opportunity for stakeholders to respond with necessary levels of data and research.
- The CFPB failed to conduct the proper Small Business Regulatory Enforcement Fairness Act (SBREFA) process, despite the CFPB acknowledging the proposal will have a significant impact on the amount of fees recovered by card issuers.
- The CFPB’s underlying research and data does not support its proposed reduction of the late fee safe harbor threshold, especially as credit unions are not part of the Federal Reserve data informing the rule, which applies to large banks with more than $100 billion in assets.
CUNA also urged the CFPB to postpone the rulemaking until after the U.S. Supreme Court resolves the dispute over the constitutionality of the CFPB’s funding structure.
Virginia League Files Comment
Separately, the Virginia Credit Union League has filed a comment letter with the CFPB over the proposal, as well.
In its letter, the VCUL stated that the Bureau's proposal fails to consider the negative consequences likely to result from the proposal, including interest rate hikes and changes to other terms and fee amounts.
“The proposal also does not take into account credit unions' member-owned, not-for-profit business model, which incents credit unions to keep fees reasonable and proportionate to the costs of providing the service,” the league said.
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