After the Consumer Financial Protection Bureau issued
The pushback on Tuesday was palpable and also expected given the
Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, said the bureau exceeded its authority by setting a price cap on late fees for the largest credit card issuers.
"The Chamber will be filing a lawsuit against the agency imminently to prevent this misguided and harmful rule from going into effect," said Bradley, who is also the Chamber's head of strategic advocacy, in a statement.
The Chamber is likely to sue the CFPB by arguing that the rule violates a provision of the Administrative Procedure Act that allows courts to invalidate agency rules that are considered to be "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law."
Many industry experts said Chopra was putting politics ahead of public policy because the CFPB
"This final rule makes clear that the CFPB's mind was made up from the beginning — the very definition of an arbitrary agency action," said Rob Nichols, president and CEO of the American Bankers Association. "This rule should not be allowed to go into effect."
Chopra is ending an automatic annual inflation adjustment that the Federal Reserve Board created in 2010, lowering an immunity provision for late payments on credit cards to $8. Chopra claims credit card issuers have used the inflation adjustment to hike late fees dramatically in the last decade. Large issuers have set late fees at $32 for a first missed payment and $41 for subsequent late payments, which Chopra claims is more than five times the cost to collect.
Sen. Tim Scott, R-South Carolina, and the ranking member of the Senate Banking Committee,
"I will be using the Congressional Review Act process to fight the implementation of this rule," Scott said in a statement. "Lawful and contractually agreed upon payment incentives promote financial discipline and responsibility. Ultimately, these common sense practices protect consumers' access to credit and enable a wider range of services."
But some experts said the CFPB, by releasing the rule early this year, may beat the window of opportunity that Congress has to use the little-known Congressional Review Act to overturn rules issued by federal agencies. A joint resolution to invoke the CRA must be introduced in a specific 60-day time frame and calculating the continuous legislative sessions can involve some tricky math, experts said.
Greg Baer, president and CEO of the Bank Policy Institute, said banks incur substantial costs in collecting late, delinquent or charged off credit card balances. Late fees incentivize consumers to make timely payments and issuers may be required to increase reserves which would reduce funds available to extend credit to consumers.
"Given the rule's multiple deficiencies and shortcomings, its fate is likely to be resolved in federal court," Baer said in a statement.
Some experts suggested that the CFPB made a calculated change from its proposed rule on late fees by having the final rule apply only to large issuers with 1 million open credit card accounts, eliminating a key legal argument that the bureau did not address the concerns of small issuers. The bureau said it did not find evidence that small credit card issuers employed what it called a "fee-churning business model," given that they charge, on average, $23 for late fees.
"It's a very savvy political move to limit the rule's impact to the 35 largest credit card issuers," said Kelvin Chen, senior executive vice president and head of policy at the Consumer Bankers Association.
Bank trade groups said the CFPB's late fee rule will hurt consumers that pay their balances on time every month. This includes the 50 percent of subprime borrowers that pay on time each month.
"For the one quarter of consumers that do pay late, the rule makes it easier for them to miss a bill payment, but that could create bigger, longer term harm," Chen said. "Missed bill payments result in higher balances and interest — and damaged credit makes it harder and more expensive for them to get a car loan or a mortgage."
CBA's President and CEO Lindsey Johnson said the final rule would benefit "a small minority of frequent late payers," by increasing costs among the 75% of cardholders that pay their bills on time. She said the CFPB conceded that the majority of card holders will likely see credit card interest rates rise and credit availability fall due to the rule.
The CFPB under Chopra has focused primarily on large banks. In January, the CFPB also
Chen said the rule will hurt consumers that pay their balances on time every month while impacting the cost of credit mostly for subprime borrowers.
Bank trade groups have been effective in suing the agency. For example, the bureau's payday lending rule was gutted under the Trump administration, and the effective date of the rule halted after bank trade groups in Texas sued the bureau by arguing that its funding is unconstitutional. The payday rule
Republicans also used the Congressional Review Act to overturn the CFPB's
Nichols said the CFPB disregarded industry data about the true cost of late payments. He claims the $8 cap on late fees is set at a level far below banks' actual costs and will force card issuers to reduce credit lines, tighten standards for new accounts and raise APRs for all consumers — even for those who pay on time.
"In creating today's final rule, the CFPB relied on flawed assumptions and a mischaracterization of the important role late fees play in promoting responsible consumer behavior," Nichols said.
The credit card late fee is expected to go into effect 60 days after it is published in the Federal Register. A lawsuit would delay the effective date.
