CFPB Seeks Comments on Credit Card Company Sanctions Policies | Cooley LLP

On June 22, 2022, the Consumer Financial Protection Bureau announced a Notice of Proposed Rulemaking (ANPR) seeking comment from credit card issuers, consumer groups and the public regarding late fees and payment delays. payment of credit cards, as well as income and expenses related to the imposition of late fees. In particular, the CFPB assesses credit card penalty policies in relation to the Card Accountability Responsibility and Disclosure (CARD) Act of 2009 and Regulation Z.

Request for information from the CFPB

ANPR focuses on the penalty fee provisions of the CARD Act and Regulation Z. Specifically, section 149(a) of the CARD Act provides that penalty fees or charges associated with a credit card under an open-ended consumer credit plan must be “reasonable and proportionate” to the omission or breach that triggered the charge.1 The CFPB has previously implemented regulations under Section 149(b), which states that the CFPB may “establish standards for evaluating whether the amount of any penalty or charge…is reasonable and commensurate with the omission or violation to which the charge or charge relates.2 These sections are implemented in part by Regulation Z, which requires the amount of the fee to represent a “reasonable proportion of the total costs incurred by the card issuer as a result of this type of breach”.3 Alternatively, a card issuer may impose a penalty fee in an amount consistent with a separate safe harbor provision, often referred to as an immunity provision.4 (currently $30 for the first offense and $41 for a subsequent offense of the same type occurring within six subsequent billing cycles), which imposes a fee cap subject to annual inflation adjustment.

In order to assess these legal provisions and to understand the national credit card market more broadly, the CFPB wishes to obtain answers to 38 questions covering several different categories. The CFPB is interested, among other things, in:

  • Factors used by card issuers to set existing levels of late fees: For example, what factors do card issuers use to determine the amount of late fees to charge per incident for late fees charged to cardholders who have already incurred late fees during at least one of the six previous billing cycles?
  • Costs and losses: For example, what kinds of costs are associated with credit card payment delays, such as losses due to non-payment or the costs of funding delinquent accounts?
  • Deterrence: For example, if late fees discourage future late payments. More generally, the CFPB seeks to understand how card issuers facilitate or encourage on-time payments.
  • Holder behavior: For example, what categories do card issuers use to categorize cardholders based on their late payment behavior?
  • Automatic payment: Do the issuers offer autopay and, if so, what is the current cardholder enrollment rate?
  • Upcoming Due Date Notifications: For example, cardholders can describe the actions and methods by which card issuers contact them about an upcoming due date (other than through periodic statements).
  • Safe Harbor Provisions: For example, how much of the late fee safe harbor would be sufficient to allow card issuers to recover their late payment collection costs through late fees?
  • Cost Analysis Provisions: For example, if and how card issuers use cost analysis provisions as opposed to safe harbor provisions.
  • Other categories: The CFPB also asked for comments on tiered late fees, courtesy periods and fee waivers, as well as income and expenses.

The CFPB asked commenters from card issuers to provide their answers based on information relevant to their national consumer credit card portfolios, while other commenters should base their answers on their knowledge of the national card market. consumer credit. Interested parties may submit comments via the federal electronic rulemaking portal, by email or by direct mail. Comments must be received no later than July 22, 2022.

Focus on fees

The ANPR is the latest in a series of measures that the CFPB has recently taken that demonstrate the CFPB’s particular interest in tackling late fees. In January 2022, the CFPB issued a request for public comment seeking comments on “return fees”. (We covered the CFPB request in a client alert: CFPB requests information about fees for consumer financial products or services). In this request, the CFPB indicated that it would use the information gathered to inform its priorities for rulemaking, guidance and enforcement. Additionally, the CFPB noted that it had identified particular products and services that could impose substantial costs on consumers, including credit cards.

The CFPB went on to say in a March report that credit card issuers charged $12 billion in late fees in 2020. Of particular note, the report’s press release highlighted that fees continued to increase. increase due to the annual inflation adjustment contained in the immunity provision. Finally, in April, Director Rohit Chopra told the House Financial Services Committee that the CFPB would explore late fees “because it’s important that this market be competitive.”

Taking recent ANPR and CFPB activity regarding late fees together, it appears that the CFPB is considering potential changes to the immunity provision. More generally, credit card issuers and other industry stakeholders should take note of CFPB’s continued interest in this area.


Remarks
  1. 15 U.S.C. 1665d(a).
  2. 15 U.S.C. 1665d(b).
  3. § 1026.52(b)(1)(i).
  4. § 1026.52(b)(1)(ii).

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