Regulatory Compliance Weekly Roundup: March 8, 2024

Happy Friday everyone! It's been quite a week. I was in DC for the Governmental Affairs Conference, which was not only the first one put on by the newly formed America's Credit Unions, but the first one with Carrie Hunt on board as the organization's new Chief Advocacy Officer. Carrie not only gave some terrific remarks on the big stage but also had an insightful one-on-one with NCUA Chairman Todd Harper. Virginia had a great showing at the GAC, and it was wonderful to see everyone who made it. Let's look at some highlights from this week.

In State of the Union, Biden highlights "junk fees"

As he did last year, President Biden again highlighted his administration's priority to reduce "junk fees" in last night's State of the Union address. Here are his remarks from the script:

"I’m also getting rid of junk fees those hidden fees added at the end of your bills without your knowledge. My administration just announced we’re cutting credit card late fees from $32 to just $8. The banks and credit card companies don’t like it. Why? I’m saving American families $20 billion a year with all of the junk fees I’m eliminating.

And I’m not stopping there. My administration has proposed rules to make cable, travel, utilities and online ticket sellers tell you the total price upfront, so there are no surprises. It matters."

He also went off script, adding that: "banks and credit card companies are allowed to charge what it costs them to instigate the collection. And that's more, a hell of a lot more like 8 dollars than thirty-something dollars."

The announcement he references is, of course, the CFPB's final rule on credit card late fees, which was published earlier this week. The rule would apply to credit card issuers with more than 1 million active cards and would lower the safe harbor - the level at which a credit card late fee is presumed to be proportional to collection costs - from $30 for the first fee and $41 for subsequent fees to $8 for all late fees.

CFPB's credit card late fee rule heads to the courts

As was widely predicted and expected, the CFPB's final rule now faces legal challenges less than three days after it was published.

Several Chambers of Commerce, the American Bankers Association, the Consumer Bankers Association, and the Texas Association of Business filed suit against the CFPB and Director Chopra on Thursday, challenging the new Final Rule on credit card late fees.

In the Complaint, the Plaintiffs note that the current safe harbor level was set by the Federal Reserve Board of Governors and that every CFPB director has maintained that level until now. They also argue that the CFPB's rule violates the Appropriations Clause and exceeds the Bureau's statutory authority. They note that the rule ignores the deterrent value of a consequence for failure to pay an obligation.

The Complaint also alleges that the effective date of the rule (60 days after its publication in the Federal Register) ignores the effective date requirements of the Truth In Lending Act (the October 1 which follows - by at least six months - the date of promulgation). The Plaintiffs are saying issuers will need to update and distribute their disclosures and update their systems, and the rushed implementation timeline does not give them enough time to do so.

As other Complaints have done, the Plaintiffs also cite the recent challenges to the constitutionality of the CFPB's funding structure. In their description of the irreparable harm that will be caused if the rule goes into effect, they list millions of dollars in lost revenue, including losses on accounts that never would have been issued if there had been an $8 safe harbor, significant compliance costs, training costs, costs stemming from reduced deterrents, and loss of customer goodwill if issuers are forced to change other terms and conditions to offset the effects of lowered late fees.

For me, this section of the Complaint is key, because it signals the actions that large credit card issuers will take if this rule ultimately goes into effect.

When I see "including losses on accounts that never would have been issued if there had been (or if issuers knew there later would be) an $8 safe harbor," I hear "tightening of credit standards for credit cards." People with poor and marginal credit histories - often those who need credit the most - may have a tougher time qualifying for credit cards.

When I see "loss of customer goodwill if issuers are forced to change other terms and conditions to offset the effects of lowered late fees," I hear "new fees, higher fees in other areas, higher interest rates, or reduced benefits or services." If they lose revenue from credit card late fees, they need to make it up from somewhere else.

Stop and Study: Secure Payments Act seeks to halt Fed action on debit interchange

This week, Rep. Blaine Luetkemeyer (R-Mo.) introduced H.R.7531, the Secure Payments Act, which would stop the finalization of the Fed's proposed debit interchange proposal.

The Federal Reserve has proposed a rule to lower the debit interchange fee cap, claiming that data they collect has shown a decrease in both the costs to process debit transactions as well as debit fraud losses, as well as an increase in costs of fraud prevention measures. These are the three components of the Reg II interchange fee cap, which was put into place in 2011.

While these caps only directly apply to financial institutions with more than $10 billion in total assets, we know both from experience and research that this cap also affected and continues to affect smaller institutions, including credit unions. FIs of all sizes saw their debit interchange revenue decline in the years following the implementation of these caps. The data the Fed uses when deciding if the cap needs adjustment comes from $10 billion-plus FIs, which includes only about 20 credit unions. As a result, the Fed is using data from large FIs to make rule changes which will eventually impact both large and small FIs.

H.R. 7531 would require the Fed to conduct a quantitative impact analysis on the proposal's impact on small depository institutions and the availability of debit cards and banking products to low-income communities.

You can read more about H.R.7531 here. The bill is supported by your League and America's Credit Unions, as well as the American Bankers Association.

That's just a quick recap of some of the highlights from this week. Next week we'll be discussing some of these issues and more at our quarterly virtual compliance roundtable - be sure to sign up here.

Related Articles:

• League Notes Growing Pressure and Attacks on Fees, CU Business Model
• FIs, Chamber Sue Over Late Fee Cap Slated to Cost $10 Billion
• League Supports 'Stop-and-Study' Legislation for Fed's Debit Interchange Proposal
• CFPB Issues Final League-Opposed Credit Card Penalty Fee Rule
• REGular Blog: CFPB Issues Final Rule Limiting Credit Card Late Fees