US consumer watchdog releases review of excessive credit card charges

A customer signs the credit card pad while paying for a purchase at Macy’s in New York November 26, 2010. REUTERS/Jessica Rinaldi/File Photo

Join now for FREE unlimited access to


WASHINGTON, June 22 (Reuters) – The top U.S. consumer watchdog on Wednesday unveiled a measure that would look into excessive credit card fees and require card issuers to disclose more income and spending data in an effort to eradicate abuses and stimulate competition.

The advance notice of proposed rulemaking issued by the Consumer Financial Protection Bureau (CFPB) confirms a Reuters report from April that the agency would step up a broader crackdown on what it calls “junk fees,” a scam – everything for overdrafts, late payment credit card fees, NSF check fees and other fees. Read more

The review, which is the first of a number of related restrictions on unwanted charges, would specifically assess whether credit card late fees are “reasonable and proportionate”, the CFPB said.

Join now for FREE unlimited access to


It will also assess the potential deterrent effect of late fees and the role they play in the profitability of credit card companies, the agency said.

“Credit card late fees are major revenue generators for card issuers. We are asking card issuers, consumer groups and the public to provide us with data on late fees, their necessity and the role late fees play in the profitability of credit card companies,” said the director of the CFPB, Rohit Chopra.

“As we review this, our findings will inform rulemaking and help us ensure that we make the credit card market work better for all consumers.”

Card issuers typically charge late payment fees when a customer exceeds the minimum payment term. The current rules contain a legal safe harbor that allows lenders to charge late fees provided they do not exceed a “reasonable and proportionate” regulatory cap that is set annually by the CFPB.

Banks and credit unions took in more than $15 billion in overdraft and related fees in 2019 and $12 billion in late credit card fees in 2020, according to CFPB estimates.

Wednesday’s review, which is subject to public consultation before it can go into effect, would likely not result in a rule before the end of the year, a CFPB official told reporters.

The deadline for comments is July 22.

The decision is the first step in a broader initiative to examine unwanted fees with the aim of improving the financial market and stimulating fair competition, the agency said.


While consumer advocates argue that lenders have become overly reliant on these fees, industry groups say most lenders are not overly reliant on fee revenue and that the CFPB is wrong to suggest that lenders hide fees or that the fees show that the banks do not offer competitive services.

The banking industry has already launched a united defense against the scrutiny of Chopra’s “unwanted fees”, analysts told Reuters, showing that a slew of existing rules already require banks to disclose such fees.

But Chopra said Wednesday that the CFPB hopes the advance notice of proposed rulemaking will help determine whether, in addition to the new rules, the CFPB should clarify some existing rules that leave consumers “beset” with multiple penalties related to the same transaction or late payment. .

One of those items is a provision that allows credit card companies to receive immunity if they increase the cost of credit card late fees each year based on the rate of inflation.

“Does the cost of processing late payments really increase with inflation, or is it more reasonable to expect costs to decrease with advances in technology every year?” Chopra said.

“We are not looking for opinions, but rather empirical evidence.”

Join now for FREE unlimited access to


Reporting by Katanga Johnson in Washington Editing by Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

Previous Declare your income to lenders, it could increase your credit score
Next Attention credit and debit card holders! Big RBI announcement, here's how you're affected