On March 5th, the CFPB issued a Final Rule to address “excessive” late fees charged by larger card issuers. This includes those, that together with affiliates, had at least one million open credit card accounts at any point during the prior calendar year. Currently, there is a safe harbor in Regulation Z that generally allows card issuers to charge up to $30 (and $41 for repeat violations during the next 6 billing cycles) for violating any terms of a credit card account. This is without regard to the costs incurred by the card issuer. While this Final Rule actually increases these amounts to $32 and $43 (for repeat violations of the same type during the following six billing cycles), it specifically limits the amount large card issuers can charge for late payments.
Larger card issuers are prohibited from charging more than $8 for a late payment, unless they can demonstrate that any higher amount represents a “reasonable proportion” of the costs they incur for late payments. The $8 threshold will not be subject to annual inflation adjustments.
The Rule will go into effect 60 days after being published in the Federal Register.
As seems to be the case with a lot of things lately, on March 7, 2024, the U.S. Chamber of Commerce filed a lawsuit in the Northern District of Texas seeking a preliminary injunction to stop the CFPB from implementing this Final Rule. It believes the Rule punishes responsible credit card users who pay their bills on time. In promulgating its rule to limit credit card late fees, the CFPB not only exceeded its statutory authority but did so by relying on the use of secret data collected for an unrelated purpose.
So, stay tuned!
Published
2024/03/08
