According to the CFPB, “major credit card issuers continue to profit off late fees that are protected by an expansive immunity provision. Credit card companies have also relied on this provision to hike fees with inflation, even if they face no additional collection costs.”
Credit card companies currently charge individuals up to $41 for each late payment. Late fees have resulted in billions of dollars in annual junk fee revenue, the CFPB said.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” said CFPB Director Rohit Chopra.
Regulation Z, which implements the Truth in Lending Act (TILA), requires that late fees charged on credit card accounts are “reasonable and proportional” to the late payment. The CFPB said its proposed changes would ensure that late fees meet those requirements.
Proposed Changes
If finalized, the CFPB’s proposed changes would:
Lower the immunity provision dollar amount for late fees to $8: According to the CFPB, “income generated by the largest issuers from late fees is approximately five times greater than the collection costs that the companies incur for late payment violations.” The proposed rule would lower the immunity provision for late fees to $8 for any missed payment. “Companies would be able to charge above the immunity provision so long as they could prove the higher fee is necessary to cover their incurred collection costs,” the CFPB said.
End the automatic annual inflation adjustment: The CFPB’s proposal would eliminate the automatic annual inflation adjustment for the immunity provision amount. “This adjustment is not required by law, nor is it necessarily reflective of how collection costs change over time,” the CFPB said. “The CFPB would instead monitor market conditions and the immunity provision amount for potential adjustments as necessary.”
Cap late fees at 25% of the required minimum payment: Current rules allow card issuers to potentially charge a late fee that is 100% of the minimum payment owed by the cardholder. The CFPB proposes to restrict any late fee charge to 25% of the minimum payment to better align with Congress’s intent to authorize only “reasonable and proportional” late fee amounts.
Request for Comment
The CFPB proposed rule follows a request for comment on junk fees, a research report, and an advance notice of proposed rulemaking on credit card late fees that the CFPB issued last year.
The proposal also seeks comment on “whether the CFPB’s proposed changes should apply to all credit card penalty fees, whether the immunity provision should be eliminated altogether, whether consumers should be granted a 15-day courtesy period, after the due date, before late fees can be assessed, and whether issuers should be required to offer autopay in order to make use of the immunity provision.”
Comments must be received by April 3, or within 30 days after the Notice of Proposed Rulemaking is published in the Federal Register, whichever is later. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.