Reaction to the CFPB’s proposed rule limiting credit card late fees to a maximum of $8 has been sharply divided along political and business-interest lines.
Democrats so far appear to be supporting the effort, while Republicans are opposing it and business groups are contending that it would hurt their members’ bottom lines.
The CFPB announced the proposed rule Wednesday, with Director Rohit Chopra saying that companies would still be permitted to charge higher fees if they can demonstrate that the fee is needed to cover incurred costs.
Credit union trade groups announced their opposition to the proposal shortly after it was unveiled during a meeting of the White House Competition Council.
Split political response to the rule
On Thursday, new House Financial Services Chairman Rep. Patrick McHenry, R-N.C., said the proposal would force borrowers in good standing to cover the costs of those who may be late on their payments.
“In fact, Director Chopra is attacking the same tool—fees—that the IRS uses to deter late tax payments,” he stated, adding that it was also troubling that this “supposedly” independent agency coordinated its announcement with the White House.
The chairman further delivered a stern warning to the CFPB, saying, “Under my leadership, the House Financial Services Committee will not allow Director Chopra to punish consumers solely to placate progressive activists.”
On the other hand, Senate Banking Committee member Sen. Jack Reed, D-R.I., praised the rule.
“Hardworking families are getting unfairly squeezed by excessive, deceptive junk fees,” he said. “It’s time to stop companies from exploiting consumers and return fairness and competition to the marketplace.”
Reaction from banking groups
Banking trade groups joined credit union associations in blasting the proposal.
“As relationship bankers, community banks offer credit cards as a service to their customers under contracts voluntarily entered into by these consumers,” said Rebeca Romero Rainey, president/CEO of the Independent Community Bankers of America. “Credit card late fees—which are clearly disclosed and represent a small portion of the cost of credit cards to customers—deter late payments and help offset the significant costs to issuers.”
Rob Nichols, president/CEO of the American Bankers Association, said the rule would harm—rather than help—consumers, and ultimately result in more late payments, higher debt and lower credit scores.
Further, he warned, “If the proposal is enacted, credit card issuers will be forced to adjust to the new risks by reducing credit lines, tightening standards for new accounts and raising APRs for all consumers, including the millions who pay on time.”
Nichols added that the ABA will continue to challenge what he views as the CFPB’s efforts to “unfairly demonize an industry critical to the U.S. economy.”