REGular Blog: CFPB Issues Final Rule Limiting Credit Card Late Fees

Today the CFPB issued its final rule on credit card late fees, which lowers the safe harbor on credit card late fees for large issuers. The rule was proposed last year, and it did change slightly from the proposed version. The Final Rule is a hot conversation topic here at GAC!

Related post: CFPB Issues Final League-Opposed Credit Card Penalty Fee Rule

Refresher - what did the proposed rule say?

Last year's proposed rule would have lowered the safe harbor for credit card late fees from $30 for the first late payment and $41 for repeat late payments down to $8 for all late payments. Credit card late fees must be proportional to the issuer's collection costs, but the safe harbor is the amount where a fee is presumed to be properly correlated. Credit card issuers can charge late fees higher than the safe harbor, but they must be able to show that their collection costs justify the higher fee. In addition to the safe harbor, there is also a hard cap on the amount of a credit card late fee. The proposed rule would have lowered that cap from 100% of the minimum payment amount to 25% of the minimum payment amount.

What does the final rule say?

In the final rule, the CFPB went through with the first change of lowering the safe harbor down to $8 for late payment fees. However, they did not include the second part - the lowering of the hard limit. The maximum late fee amount remains at 100% of the minimum payment amount.

Additionally, the final rule only applies directly to issuers with more than 1 million active credit cards. This threshold will exempt almost all credit unions from direct application of the rule. However, credit unions must be aware of the market pressures. If all of your competitors lower their late fees to $8 and you're still charging $20, that could lead to a negative reputation, decreased card usage, and other potentially harmful impacts.

We'll be parsing through the details of the 338-page final rule in the coming days, but we can expect large issuers to examine their fee structures and gear up for legal challenges to this rule. In the leadup to the final rule, we've seen some large issuers discuss how they will offset lost late fee revenue through higher interest rates or other fees.

You can find the final rule here.

Related Articles:

• CFPB Issues Final League-Opposed Credit Card Penalty Fee Rule
• League Files Comment Letter on Credit Card Late Fees; Notes 'Negative Consequences' of CFPB Proposal
• CFPB's Credit Card Late Fee Proposal Could Hit Small Institutions Hard
• Credit Card Rate Cap Bill Would Hurt Consumers, Negatively Impact Access to Credit
• League Notes CFPB's Focus, Recent Action on 'Fees' Will Harm CUs, Members
• Trade Groups Seek More Time to Comment on CFPB's Proposed Credit Card Fee Cuts