The CFPB has taken the primary formal step in direction of a brand new rulemaking on bank card late charges by issuing an Advance Discover of Proposed Rulemaking (ANPR). Feedback on the ANPR have to be obtained by July 22, 2022.

The issuance of the ANPR follows the CFPB’s launch of a report on late charges in March 2022. Each the CFPB’s press launch in regards to the report and its press launch in regards to the ANPR comprise feedback from Director Chopra concerning the quantity of revenues that bank card issuers generate from late charges and considerations about price “hikes” based mostly on inflation. In a weblog put up concerning a “new strategy” to rulemaking by the CFPB, Director Chopra recognized the Credit score Card Accountability Duty and Disclosure Act of 2009 (CARD Act) guidelines on bank card late charges as one of many long-standing guidelines at which the CFPB wanted to take “a contemporary look.”

The CARD Act, which is applied by Regulation Z, requires that late charges imposed by bank card issuers be “affordable and proportional” to the violation of the account phrases. It additionally licensed the Federal Reserve Board (which then had the Reg. Z rulemaking authority that was transferred to the CFPB by Dodd-Frank), in session with different companies, to ascertain a “secure harbor” for particular price quantities which might be deemed to be “affordable and proportional” to the violation. Pursuant to that authority, the Federal Reserve Board initially set secure harbor quantities in 2010 of $25 for a primary late cost and $35 for subsequent late funds and made these quantities topic to an annual inflation adjustment. The latest inflation changes to the secure harbor quantities made by the CFPB for 2022 permit a card issuer to impose a price of $30 for a primary late cost and $41 for subsequent late funds. (Reg. Z additionally permits an issuer to evaluate a late price that’s increased than the secure harbor quantities if it could show {that a} increased price is justified as an affordable proportion of its inner prices.)

The questions on which the CFPB seeks feedback within the ANPR are divided into the next classes:

• Components utilized by card issuers to set present ranges of late charges
• Prices and losses related to late funds
• Deterrent impact of late charges
• Cardholder conduct (classes used to categorise cardholders based mostly on late cost conduct and timing of late funds relative to due date)
• Use of autopay
• Practices concerning notifications of upcoming due dates
• Courtesy durations and waivers
• Use of the Reg. Z secure harbor and value evaluation provisions
• Revenues and total bills from bank card operations, and late price revenues.

When the Federal Reserve Board initially set the secure harbor quantities in 2010, it indicated that it believed these quantities had been usually enough to cowl issuers’ prices and to discourage future violations and likewise acknowledged the necessity to yearly alter these quantities for inflation to cowl will increase in issuers’ prices. Ought to the CFPB now search to desert the secure harbor quantities (by rescinding the Reg. Z secure harbor provision or resetting the secure harbor quantities and/or eliminating annual inflation changes), it might want to show with empirical proof why a card issuer charging the secure harbor quantities at the moment permitted by Reg. Z will not be charging late charges which might be “affordable and proportional” to the violation.

The Shopper Bankers Affiliation instantly responded to the issuance of the ANPR with a press release through which it known as the CFPB’s announcement “one other reminder the Bureau seems extra all in favour of advancing a selected agenda than creating fact-based insurance policies that enhance the lives of hardworking households.” The CBA commented that “[m]issing from this announcement is the truth that banks – greater than another business – have taken concrete steps to make their merchandise extra inexpensive and accessible for thousands and thousands of Individuals.”

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