Billions are on the line for lenders as White House finalizes credit card late fee cap

WASHINGTON — The Consumer Financial Protection Bureau‘s formidable rule proposal to crack down on credit card late charges, a $14.5 billion income stream for credit card firms, will doubtlessly roll out in January, almost a 12 months after it was launched.

Global companies and small banks alike are pushing again in opposition to the impending rule finalization with some assist from business-friendly lawmakers.

Rep. Andy Barr, R-Ky., known as the proposal, which is projected to save lots of customers almost $12 billion annually by capping late fees at as little as $8, “unclear at best and likely harmful” in the long run.

The chair of a House subcommittee on monetary establishments and financial coverage known as on the Government Accountability Office to review the rule’s potential impacts weeks earlier than it’s set to enter impact.

The CFPB wouldn’t verify when the rule can be finalized, however curiosity teams say banks are not but signaling a preemptive fee change akin to their response to a proposal to ban overdraft and insufficient fund fees.

Late charges, which can reach $41 below a legislative loophole permitting banks to cost unimpeded below a sure threshold, disproportionately affect poor Americans and people with low credit scores, the American Economic Liberties Project reported.

The U.S. Chamber of Commerce mentioned charges “play an necessary position” in encouraging well timed funds and avoiding added curiosity in its comments on the proposal.

“In distinction to the CFPB’s unfounded statements, late charges are not impermissible, so-called ‘junk charges’ that fail to serve any goal,” the Chamber wrote, referencing the Biden administration’s general initiative to shrink excessive surcharges. “Instead, they are closely regulated by the CFPB, and the Federal Reserve earlier than it.”

The Chamber submitted considered one of about 1,000 comments objecting to the proposal, out of a complete of 57,000 feedback, in line with Accountable.US, a nonpartisan authorities watchdog group. The different 56,000 feedback have been in assist of the caps.

The $8 fee can be not reflective of the prices of collections for credit unions, Greg Mesack, senior vp of presidency affairs at the National Association of Federally-Insured Credit Unions, advised CNBC. The group spent $1.42 million in lobbying in Q1 of 2023, in line with a Senate lobbying disclosure.

In its comment in opposition to the rule, the affiliation argued that credit unions normally supply their members decrease charges for providers such as automotive loans and mortgages in comparison with massive banks.

“We’re going to lose excessive quantities of cash each time somebody’s late,” Mesack mentioned. The fee, he added, shouldn’t be sufficient of a deterrent, “so extra individuals are more likely to be late.”

“Lots of credit unions should face the penalties of doubtless limiting their credit card packages, which at that time it makes them not aggressive with the massive banks,” Mesack mentioned.

CFPB consulted the National Credit Union Administration Board, together with the Comptroller of the Currency and the board of administrators of the Federal Deposit Insurance Corporation, when setting up the proposal, in line with a Notice of Proposed Rulemaking.

Late charges upward of $41 “are considerably greater than the pre-charge-off assortment prices” cited by an unnamed credit union commerce group, per the NPRM.

Instead, the $8 fee cap reveals the CFPB “dug down, did their analysis, checked out business knowledge and got here out with a quantity that they thought greatest mirrored a financial institution’s means to recuperate the price related to a late cost,” mentioned Shahid Naeem, senior coverage analyst at AELP.

“The proven fact that the CFPB has decided that $8 is ample to cowl the prices and banks are charging $41, that is vital,” mentioned Christine Hines, a legislative director for the National Association of Consumer Advocates. “And it reveals that someplace, there’s conduct that must be curbed. Clearly.”

CFPB Director Rohit Chopra advised senators final month that banks ought to assist the proposal “if it is not a core a part of their revenue mannequin.”

Credit card firms spent a historic $37.04 million in 2022 on lobbying, in line with information database Open Secrets. That 12 months, whole excellent credit card debt surpassed $1 trillion for the first time since CFPB started gathering the knowledge.

Companies have spent more than $30.7 million in lobbying to this point in 2023.

“In a way, these massive monetary companies, they’ve a lot energy, they’ve a lot cash and so they’re waging a warfare on regulation,” Naeem advised CNBC.

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