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Financial Services Law Insights and Observations

CFPB releases report on credit card late fees

Federal Issues CFPB Consumer Finance Credit Cards CARD Act Fees

Federal Issues

On March 29, the CFPB released a report analyzing credit card late fees. Using three data sources to study the consumer impact of and industry reliance on late fees, the report found that credit card issuers charged approximately $12 billion in 2020. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) requires that late fees be “reasonable and proportional,” and its implementing regulation (Regulation Z) sets a “safe harbor” for certain fee amounts, which are adjusted by the CFPB annually for inflation. The report described that these limits have increased to $30 for the first late payment and $41 for a subsequent late payment within 6 billing cycles. The Bureau noted that Congress transferred provisional authority to the CFPB, who “expects many major card issuers to hike fees further, based on inflation, given the existing reliance on the immunity provisions in the marketplace.” Other significant findings of the report include, among other things, that: (i) the average deep subprime account was charged $138 in late fees in 2019, compared with $11 for the average superprime account; (ii) credit card accounts held by consumers living in the United States’ poorest neighborhoods paid approximately twice as much on average in total late fees than those living in the richest areas in 2019; (iii) late fee volume decreased when stimulus checks arrived in 2020 and 2021, particularly in households with lower credit scores; and (iv) “[l]ate fees account for a greater share of charges for issuers who service a higher percentage of subprime accounts at almost 20 percent of total interest and fees.”