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Financial Services Law Insights and Observations

CFPB lowers most credit card late fees to $8, amending Regulation Z

Federal Issues Agency Rule-Making & Guidance CFPB TILA Regulation Z

Federal Issues

On March 5, the CFPB announced a final rule that will amend TILA Regulation Z and lower the typical credit card late fees from $30 to $8. According to the final rule, the CFPB determined that the Regulation Z §1026.52(b) $30 discretionary safe harbor for fees (for card issuers that together with their affiliates have at least one million open credit card accounts, i.e., “larger card issuers”) is too high, and therefore “are not consistent with TILA’s statutory requirement that such fees be reasonable [for a] violation.”

For larger card issuers, the final rule will repeal the current safe harbor threshold amount and adopt a late fee safe harbor dollar amount of $8. It also will eliminate late fees for a higher safe harbor dollar amount for repeat violations that occur during the same billing cycle or in one of the next six billing cycles. Larger card issuers will still be able to charge fees above the safe harbor threshold for late fees if they can prove the higher fee is necessary to cover their actual collection costs.

With respect to late fees imposed by larger card issuers, the provision on annual adjustments for the safe harbor dollar amounts (to reflect changes in the consumer price index) will not apply to the $8 safe harbor amount for those late fees. For card issuers that together with their affiliates have fewer than one million open credit card accounts for the entire preceding calendar year (“smaller card issuers”), the safe harbors revised pursuant to the annual adjustments will continue to apply to the late fees imposed by them. The final rule also amended comments and sample forms in Appendix G to revise current examples of late fee amounts to be consistent with the $8 safe harbor amount. Card issuers that meet or exceed the one million open credit card account thresholds, transforming them into larger card issuers, will have 60 days to comply with the requirements of the rule.

Regarding annual adjustments for safe harbor threshold amounts, the rule will adjust safe harbor threshold amounts in §§1026.52(b)(1)(ii)(A) and (B) to $32, and $43 for repeat violations that will occur during the same billing cycle or in one of the next six billing cycles. These two revised threshold amounts will apply to penalty fees other than late fees for all card issuers, as well as late fees imposed by smaller card issuers. The CFPB’s final rule will go into effect 60 days after publication in the Federal Register.

The final rule was highlighted in the White House’s Fact Sheet entitled, “President Biden Announces New Actions to Lower Costs for Americans by Fighting Corporate Rip-Offs,” which announced a new “Strike Force on Unfair and Illegal Pricing” co-chaired by the DOJ and the FTC to strengthen interagency efforts to combat high prices through anti-competitive, unfair, deceptive, or fraudulent business practices.