In 2009, Congress enacted the Credit score Card Accountability Accountability and Disclosure Act of 2009 (CARD Act). Amongst different issues, the CARD Act curtailed a spread of junk charges, coercive contract clauses, and different suspicious practices. In 2010, the Federal Reserve Board of Governors’ (Fed) voted to implement provisions of the CARD Act that required penalties to be “cheap and proportional to the omission or violation.” Whereas the Fed prohibited gathering extreme late charge penalties, the Fed additionally included a provision that allowed bank card issuers to flee enforcement scrutiny in the event that they set charges at or under a selected degree, which can be adjusted yearly for inflation (immunity provision). At the moment, Regulation Z, which implements the CARD Act, units forth a protected harbor of $30 for charges usually, with exceptions and options for particular situations.

On June 22, 2022, the CFPB initiated a Discover of Proposed Rulemaking (NPRM) in search of data relating to the Fed’s 2010 immunity provision for extreme late charges that enables bank card firms to flee enforcement scrutiny. On this NPRM, the CFPB is assessing whether or not these late charges are “cheap and proportional” as they’ve costed shoppers $12 billion annually, making up 10 % of the entire price of bank cards to prospects.

The NPRM asks the general public:

• How do bank card issuers set late charge quantities? How is the charge decided to be thought of cheap or proportionate or no less than associated to the precise prices to the cardboard issuer? How is the charge associated to the assertion stability?
• Are income objectives a consider figuring out late charges? How do they determine into profitability for the cardboard issuers?
• What are card issuers’ prices and losses related to late funds?
• Do late charges have a deterrent impact? Does the quantity have a deterrent impact? Do card issuers impose different penalties apart from late charges when funds are late?
• What strategies are card issuers utilizing to encourage well timed funds, together with autopay and notifications?
• What number of calendar days after the due date do shoppers make the late fee? For instance, what share of accounts is lower than 24 hours late versus 30 days late?
• For card issuers, what annual revenue is coming from curiosity and costs? What are annual bills?

Feedback are due July 22, 2022.

Placing It Into Observe: In observe, the CFPB contends that income collected from these late charges comes disproportionately from folks dwelling in low-income neighborhoods. Moreover, 18 of the highest 20 bank card issuers set late charges at or close to the established most degree. The income generated from late charges make up a noteworthy portion of the entire revenue for these bank card firms. CFPB Director Rohit Chopra commented, “[t]his [NPRM] is especially well timed since present guidelines may give firms the motivation to impose huge hikes based mostly on inflation.”