November 30, 2023

At Hearing, Warren Applauds CFPB’s Proposal to Rein in Unreasonable Credit Card Card Late Fees

“Companies make five times more from late fees than it costs them to collect late payments. So I guess it's no surprise that the industry lobbyists are out there going hard against this rule. They want to keep that money.”

Warren Commends CFPB for Putting $140 Million Back in Consumers Pockets through Junk Fee Refunds

Hearing Exchange (YouTube)

Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) applauded the Consumer Financial Protection Bureau’s (CFPB) proposed rule to rein in credit card late fees, which are currently as high as $41, even for payments that are just a few hours late. The rule would cap late fees at $8 unless a bank can show it needs to charge more than that to collect late payments. 

CFPB Director Rohit Chopra debunked bank lobbyists’ claims that sky-high credit card late fees are necessary to punish or deter borrowers – rather, they are another  junk fee that credit card companies use to pad their profits. Last year, credit card companies made $14 billion in late fees. 

Senator Warren reiterated her support for the CFPB’s proposed rule and urged the agency to finalize the rule as soon as possible. 

Transcript: The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress
U.S. Senate Committee on Banking, Housing, and Urban Affairs 
Thursday, November 30, 2023

Senator Elizabeth Warren: Thank you Mr. Chairman. I want to talk about junk fees. You know, Americans are getting hit with junk fees over and over and over: try to book a flight, or rent an apartment, or buy a home, or pay a phone bill, or even pay off a loan, and the consumer can get hit with junk fees. 

I'm really glad that the Biden administration has made eliminating junk fees a central part of its agenda to try to lower costs for working families. And the CFPB is on it. You have already forced big financial institutions to cough up $140 million in refunds on junk fees, mostly on overdraft charges. 

And now the CFPB is taking on credit card late fees. Now, nobody picks a credit card because they know how much the company will charge if you're two hours late getting your payment in. But those junk fees can really add up. 

Credit card late fees run as much as $41 for being even two hours late. And it gives big payoffs to these credit card companies. Last year, the junk fees scooped up more than $14 billion in late fees. 

Now the CFPB says it's fine for credit card companies to make customers pay additional collection costs on late payments. But they can't use late fees just to boost company profits – that's gouging. CFPB says that if a credit card company is charging more than $8 in late fees, the company is actually going to have to show its work. That is, show that it costs the bank more than $8 to deal with these late fees, otherwise $8 is the most that they can charge. 

Now the banks have responded to this proposed rule with their usual approach, howling about regulation and unleashing an army of lobbyists to swarm Congress. And why not? After all, there's $14 billion in late fees at stake, fees that are either all going to go to the banks or some of which might be saved by the families. 

So Director Chopra, industry lobbyists claim that these sky high late fees are necessary –and here's what they say – to punish and deter borrowers so they will pay on time. Does your analysis support the lobbyists’ view? Or does it show that this is just one more junk fee that is mostly used to boost bank profits? 

Rohit Chopra, Director, Consumer Financial Protection Bureau: Our analysis shows that they have many ways to punish borrowers. They can jack up their rates, they can send them to put a bad mark on their credit report, they can even sue them. 

So there's plenty of ways. And honestly, if it was not a major part of their profit model, our proposal allows them to collect back their costs, they should be supportive of that if it's not a core part of their profit model. 

Senator Warren: Thank you. So in fact, the data show that companies make five times more from late fees than it costs them to collect late payments. So I guess it's no surprise that the industry lobbyists are out there going hard against this rule. They want to keep that money. 

Now, earlier this year, I wrote to ten of the largest credit card companies, and I asked why their late fees were so high. Not one single company provided any evidence that they needed to charge $41 to deter late payments. In fact, Wells Fargo provided data showing that the late fees it collected exceeded the cost of collections by tens of millions of dollars. 

Now meanwhile, we're also seeing record high interest rates for credit cards. Director Chopra, how much did credit card companies make an interest last year? Do you know?

Director Chopra: It’s roughly $105 billion. 

Senator Warren: Wow. And did credit card companies generally hike up their interest rates last year? 

Director Chopra: So we found that credit card companies increased rates far beyond the increase in the Fed funds rate even as charge-offs declined. 

Senator Warren: So the Fed raised its rates but the credit card companies raised their rates far higher? 

Director Chopra: Even as their performance was doing okay. 

Senator Warren: Okay, so here we are. We've got credit card companies that are raking in record profits, and they are determined to keep junk fees as one more way to make money, more than $14 billion here.

I support the CFPB’s proposed rule on credit card late fees, and I urge the CFPB to finalize this as quickly as possible. You know, getting rid of junk fees is just one more example of the CFPB working for the American people. So thank you Director Chopra for your work protecting older Americans, thank you for your work protecting our veterans, thank you for your work protecting active duty servicemembers, student borrowers, and families all across this country. Thank you.