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The CFPB Wednesday announced an Advance Notice of Proposed Rulemaking (ANPR) in an effort to sharply reduce the $12 billion in late credit card fees that financial institutions, including credit unions, collect each year.

“Credit card late fees are big revenue generators for card issuers. We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” said CFPB Director Rohit Chopra. “This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation.”

Because the Consumer Financial Protection Act transferred authority to adjust late fee provisions from the Federal Reserve to the CFPB, the bureau will now review the Federal Reserve’s immunity provision in the Credit Card Accountability Responsibility and Disclosure (CARD) Act and determine whether adjustments are needed to address late fees.

NAFCU recently wrote a letter to the CFPB submitting feedback to their request for information (RFI) on transparency around junk fees, which mentioned that the bureau’s mischaracterization of fees in financial services as “junk fees,” “excessive or exploitative fees,” or “inflated or surprise fees,” confuses consumers. In addition, the letter urged the bureau to conduct further analysis on the markets and products listed in the RFI before taking any supervisory or regulatory action.

In the letter, NAFCU also noted that the CARD Act limits the amount of initial fees that can be charged during the first year after an account is opened, specifically the amounts of penalty fees, including late fees, as well as the conditions under which the fees could be imposed. “Given these limits, late fees are reasonable, serve as a deterrent to consumers routinely missing their payment due dates, and help cover the collection costs to follow up with members,” wrote NAFCU Vice President of Regulatory Affairs Ann Petros.

Additionally, NAFCU and other trade groups jointly weighed in on the issue, stating that “The CFPB is charged with ensuring that ‘consumers are provided with timely and understandable information to make responsible decisions about financial transactions. If the CFPB now asserts that its past rulemaking efforts have failed to achieve that objective, it must square that assertion with the actual evidence, much of which is already available to the CFPB.

“If, based on such evidence, the CFPB determines that policy intervention may be warranted, it should proceed in a fair and impartial manner, grounded in its authority, and in coordination with other relevant agencies,” the group concluded.

Yesterday’s ANPR asks card issuers, consumer groups, and the public to comment on the following questions:

• How do credit card issuers set late fee amounts? How is the fee determined to be considered reasonable or proportionate or at least related to the actual costs to the card issuer? How is the fee related to the statement balance?;
• Are revenue goals a factor in determining late fees? How do they figure into profitability for the card issuers?;
• What are card issuers’ costs and losses associated with late payments?;
• Do late fees have a deterrent effect? Does the amount have a deterrent effect? Do card issuers impose other consequences other than late fees when payments are late?;
• What methods are card issuers using to encourage timely payments, including autopay and notifications?;
• How many calendar days after the due date do consumers make the late payment? For example, what percentage of accounts is less than 24 hours late versus 30 days late?; and
• For card issuers, what annual income is coming from interest and fees? What are annual expenses?

The association will remain engaged on the issue and keep members aware of any developing actions from the CFPB.