CFPB Final Rule on Credit Card Late Fees

Introduction

Hi, I’m Shubhra Sharma and I am a commercial and transactional attorney with Global Legal Law Firm. I primarily advise clients on corporate and commercial transactional matters. Prior to joining Global Legal Law Firm, I have been a corporate attorney in three different jurisdictions, including New York, California, and India.

The Consumer Financial Protection Bureau (CFPB) is an independent arm of the US Federal Reserve, which was enacted by the Dodd-Frank Act after the oh eight financial crisis. And the primary goal of the CFPB is to protect consumers, families in America from banks and other financial companies. The CFPB recently passed a new final rule relating to late payment of credit card fees. This rule, amends the or rather, will amend the Regulation Z, which is currently in place, which allows credit card companies to charge around $32 for late payment of fees or $42 for any repeated violations in terms of late payments of fees.

The New Rule

The new final rule, which applies only to large credit card companies, allows only an imposition of an $8 fee on late payment of fees. Now, what is the difference between a larger credit card company versus a smaller credit card company? This is a very important thing to note because the new final rule only applies to a larger credit card company. A large credit card company is any company or any issuer, which has more than a million accounts. Any credit card issuer lesser than a million accounts is a smaller credit card company, and the rule does not apply to a smaller credit card issuer.

Whether the $40 in late fees versus an $8 late fees in the new rule is a good or a bad thing, is a two part answer. Now, the first part is, let’s talk about the people who benefit from this $8 fees a month. They’re obviously the individual consumers or the card account holders. Instead of being charged 30 or $40 for late payment fees, they’re only going to be charged $8, which drastically changes how much fees they’re paying to credit card companies. Now let’s take for example, as a credit card holder. Myself, I incur medical bills and I am not able to pay it on time. Instead of being in charge exorbitant $32 fees or $42. If I’m a repeated violator

Of late fees, I would only be charged $8. Let’s talk about the second part of things. For larger card companies, since they can only charge $8 in fees versus the previous $32 or $43 for repeated violations, they would probably reassess how they issue these cards to new consumers. I am expecting, and this is purely my opinion, I’m expecting more screening to be done by such companies just so that they can protect themselves. If they find themselves with many card holders who are repeated violators of the late fees, and since there’s only an $8 fee, they’re able to not make payments each month for these late fees.

Closing

So it would be interesting to note how large credit card companies reassess their new consumers who they issue cards to. Now, let’s talk about smaller credit card companies that have under a million accounts with them. The new final rule does not apply to them if they have under a million accounts, so that obviously means that they’re going to think about whether they want to have too many accounts, which exceeds this million threshold, which kind of limits them in how many accounts they can really open with consumers.

Shubhra Sharma
Commercial and Transactional Attorney
Global Legal Law Firm