Groups deliver nearly 100,000 petition signatures and comment letters to White House calling for a Cap on late fees and other protections for borrowers
WASHINGTON, D.C. – A wide ranging coalition of 47 consumer, civil rights, and economic justice organizations called on the White House today to finalize a proposal by the Consumer Financial Protection Bureau to protect borrowers from excessive credit card late fees. The coalition’s letter to Biden Administration officials includes a petition organized by Consumer Reports with nearly 40,000 signatures urging it to adopt the proposed reforms, which enjoy widespread public support according to a September 2023 nationally representative CR survey of 2,089 US adults.
“Late fees have become a multi-billion-dollar gravy train of extra profit for credit card companies and create a particularly heavy financial burden for low income families and communities of color,” said Chuck Bell, advocacy program director at Consumer Reports. “Borrowers shouldn’t be charged late fees for being a few days late or hit with unreasonably high fees that far exceed the actual cost for credit card companies.”
Bell continued, “The CFPB’s proposed reforms will ensure borrowers are treated fairly and make a real difference for economically vulnerable families working hard to manage their credit card payments and other household expenses.”
In addition to the CR’s petition, Americans for Financial Reform presented White House officials with more than 56,000 comment letters it collected from consumers urging the CFPB to adopt its proposed limits. The coalition’s letter also includes a compilation of stories collected by CR, AFR, and Bold Progressives from consumers who have been charged unfair credit card late fees. Please note: CR can connect reporters with consumers who are willing to be interviewed about their credit card late fee experiences.
“As big banks continue to restrict credit access in low-income communities and communities of color, this proposal would protect consumers from the double impact of limited access and predatory fees,” said Amanda Jackson, director of consumer campaigns at Americans for Financial Reform. “Industry would have consumers believe that this effort by the CFPB would hurt communities but the opposite is true.”
The coalition’s letter points out that the Credit Card Accountability and Disclosure Act of 2009 (CARD Act) required that credit card late fees should be “reasonable and proportional” to the costs incurred by issuers to handle late payments. But over time, fees have been raised by the card issuers to keep pace with inflation, even if they have no additional costs for servicing the late payment. The CFPB estimates that the income generated by the largest issuers from late fees is approximately five times greater than the collection costs that the companies incur for late payments.
As a result, credit card late fees average $30 for the first offense and $41 for subsequent ones. Under the CFPB’s proposed rule, credit card companies could still charge late fees, but the fee would have to be more in line with the true costs. The rule would cap fees at no more than $8 or, at the credit card company’s discretion, up to 25 percent of the minimum balance due, and ban companies from increasing fees by the rate of inflation, as they have been doing. The CFPB estimates that its proposal will help reduce excessive credit card late fees for consumers by approximately $9 billion per year.
Late fees fall hardest on low income consumers and people of color
One in five adult Americans – an estimated 52 million people – paid a credit card late fee in the last 12 months, according to CR’s nationally representative survey. Consumers paid more than $130 billion in interest and fees on their credit cards, including $14.5 billion for late payment fees.
The coalition’s letter notes that the burden of late fees falls most heavily on people living paycheck to paycheck, low- and moderate-income consumers, and people of color. CFPB research has found that people with low incomes pay proportionately bigger fees because they tend to have smaller credit card balances. Borrowers who make $150,000 a year paid an average of $15 when charged a late fee, compared to borrowers who make $32,000 who paid twice that amount, around $32, according to a CFPB analysis. The CFPB also found that in ZIP codes where 90 percent of people are Black, the burden of late fees is felt hardest.
CFPB’s proposed credit card late fee limits enjoy broad public support
In CR’s survey, 82 percent of Americans said they supported lowering the maximum late fee. The proposed rule would also require credit card companies to send consumers a reminder a few days before a payment is due – something 84 percent of Americans in CR’s survey said they support – and provide a 15-day grace period for late payments before a fee is charged. Sixty-eight percent of Americans in the CR survey said they thought a 15-day grace period was more fair than the current system.
Michael McCauley, michael.mccauley@consumer.org