On February 1st the Consumer Financial Protection Bureau (“CFPB”) announced a proposed rule limiting the amount that could be charged for credit card late fees.
Currently, a creditor could charge as much as $41 dollars for a late payment and be immune from scrutiny. The new rule proposes to lower this immunity threshold amount to $8. The proposed rule would allow for a creditor to charge more than the $8 limit, but the creditor would need to be able to prove that any excess charge is required to cover actual collection costs of the late amounts.
Currently, the late charge immunity limit is automatically adjusted upward yearly with inflation. It was originally set at $30 and has been upward adjusted to the current $41 limit. In the rule, the CFPB proposes that inflation doesn’t affect the cost of collections in such a direct way and proposes to sever the automatic inflation adjustment from the limit. Under the proposed rule the CFPB would periodically review the late charge limit and market conditions and make any adjustments to the limit accordingly.
Lastly, the new rule also proposes a hard limit for a late payment fee to be 25% of the amount of the minimum payment. Currently, a creditor could charge up to 100% of the minimum payment as a late payment fee. The CFPB believes this results in more reasonable and proportional late fee amounts.
In summary, the proposed rule would limit the amount of a late payment fee to either $8 unless a creditor can show the actual cost of collections exceeded $8 or 25% of the minimum payment. The rule would also remove the annual inflation increase for the fee limit and vest the CFPB with the authority to decide if and when the fee limit should increase.
The CFPB is seeking public comment on the proposed rule. Comments must be received on or before April 3rd, 2023, or at least 30 days after the rule is published in the Federal Register.
To read the CFPB’s announcement, please click this link.