American Banker’s Kate Berry reports in an article titled Could credit card late fees drop to $10? (behind paywall but probably available on Lexis) that the CFPB is expected to issue a proposal soon that would cut credit card late fees sharply. Under the Credit CARD Act of 2009, credit card late fees must be “reasonable and proportional.” The CARD Act authorized the Fed to create a safe harbor as to what credit card issuers could charge, and the Fed did so. When Congress created the CFPB, it transferred the power to create the safe harbor to the Bureau. The safe harbor has kept up with inflation, and last year the amount was $30 for a first violation, and $41 for a second violation if it occurred during the following six billing cycles. According to the article, Consumer Bankers Association’s Dan Smith warns that the change could cause the industry to curtail access to credit while NCLC’s Chi Chi Wu says the late fees exceed the costs late payments impose on issuers. While credit card issuers are required to disclose late fees in credit card solicitations, a study I co-authored with Nahal Heydari found that more than a quarter of respondents could not understand the late fee disclosure, suggesting that millions of consumers cannot shop effectively for lower late fees and so require regulation to protect them from excessive late fees.
