At Hearing, Warren Applauds Consumer Financial Protection Bureau’s Rule Reining in Unreasonable Credit Card Late Fees
“The CFPB is helping root out junk fees, and because of that Americans are going to keep a little bit more money in their pockets. I think of it as like $35 insulin, like student loan debt cancellation, getting rid of junk fees is one more example of putting government on the side of the American people.”
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 cap unreasonable credit card late fees, which could save working families billions of dollars each year.
Senator Warren called out big banks and credit card issuers for rolling out a massive lobbying campaign claiming that this proposed rule would end credit cards as we know them. In response to Senator Warren’s questions, CFPB Director Rohit Chopra clarified that the proposed rule does not ban credit card companies from charging late fees and allows them to charge late fees equivalent to covering their costs of handling late payments, so long as they show their math to justify the higher fees. Director Chopra also clarified that federal law prohibits banks from using late fees as profit centers, saying, “the CARD Act specifically prohibits fees that are not reasonable or proportional, and the fact that you can be charged a massive fee for being a few hours or a day late by a few dollars, that doesn't appear to be proportional.”
Senator Warren noted the importance of the CFPB in rooting out junk fees and reiterated the need to defend the CFPB against politically-motivated attacks seeking to take away its ability to fight for families.
Transcript: The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress
U.S. Senate Committee on Banking, Housing, and Urban Affairs
June 13, 2022
Senator Elizabeth Warren: Each year, credit card companies squeeze billions of dollars in fees out of American consumers. And chief among these are the late fees that you were just discussing. The 20 bucks or 30 bucks or 40 bucks that credit card issuers charge customers whenever they're late on a payment.
Now, some banks demand these fees, even if someone is late only by a few hours, or even if the missed payment is actually less than the late fee itself.
These fees cost families an estimated $12 billion a year. And earlier this year, the CFPB proposed a rule to put a cap on unreasonable fees.
No surprise, the bank lobby is unhappy about this, and in response to the CFPB rule, the big banks and the credit card issuers have unleashed a massive public relations campaign claiming that ending $40 late fees would end credit cards as we know them. So I thought I'd use my time today to talk just a little bit more about this proposed rule.
So Director Chopra, does the CFPB’s proposed rule ban credit card companies from charging late fees?
Rohit Chopra, Director, Consumer Financial Protection Bureau: No, absolutely not.
Senator Warren: Okay, so it's not an end to late fees, the rule just lowers the maximum amount the credit card companies can charge while getting automatic immunity from enforcement actions and that dollar figure right now is proposed at $8.
So let me ask this, if a bank needs to charge more than $8 to cover the actual costs of collecting missed payments, would the proposed rule permit that?
Director Chopra: Yes, they will just have to calculate it.
Senator Warren: Okay. So they can charge more if that's what it costs to actually cover the service. Is that right?
Director Chopra: That's right.
Senator Warren: Okay, that sounds pretty reasonable to me. So if the banks want to charge more than $8, just come and show your math about why you're charging more than $8, and there's not going to be any problem here. But it's clear that the big banks aren't interested in being reasonable under these circumstances. They insist that this rule would force them to pass on costs to all the rest of their customers or stop issuing credit to lower income families.
So let me ask this. Director Chopra, do you know what percentage of revenue late fees represent for the largest credit card issuers?
Director Chopra: I don't know. But I don't believe it's very large.
Senator Warren: Okay. When I asked the biggest credit card issuers for this information, their response was that it was less than 1%, it was only a fraction of 1%. So if there's an $8 cap on credit card late fees, unless the banks can show that their costs are higher, in which case they can charge more, all that will happen, as best I can tell, is that the banks will have slightly lower profit margins. Does that sound about right?
Director Chopra: Well, the law specifies actually, it's not really supposed to be a profit center. So–
Senator Warren: So they don't get to make a profit, in that sense on people who are late. They can certainly cover their costs, but it's not supposed to be a profit center. And that's not the decision of the CFPB. Say that again.
Director Chopra: Yes, that's in the CARD Act, the CARD Act specifically prohibits fees that are not reasonable or proportional, and the fact that you can be charged a massive fee for being a few hours or a day late by a few dollars, that doesn't appear to be proportional.
Senator Warren: Okay. And the CARD Act, as I recall, was passed even before the CFPB came into existence here.
Director Chopra: That's correct.
Senator Warren: So look, the CFPB is helping root out junk fees, and because of that Americans are going to keep a little bit more money in their pockets. I think of it as like the $35 insulin, like student loan debt cancellation. Getting rid of junk fees is one more example of putting government on the side of the American people.
You know, junk fees is just one reason why it is critical that we have a CFPB and that is why I have joined my colleagues in signing the amicus brief supporting the CFPB against attacks that undermine the Bureau's ability to fight on behalf of families. I'm grateful that you're there waging this fight and I hope you keep it up. Thank you. Thank you, Mr. Chairman.
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