Changes to Late Fee Safe Harbor Would Have Significant Impact | 2022-08-01

The current safe harbor for late fees should remain in place, as any change would have a significant negative impact on small financial institutions and consumers, CUNA wrote: at the Consumer Financial Protection Bureau (CFPB) on Monday. CUNA filed two letters in response to the CFPB’s request for information on credit card late fees, one with other financial services organizations and only one expanding on the role of credit unions in the marketplace.

“When set appropriately, late fees encourage consumers to pay on time and develop good money management habits,” the letter states. “However, if late fees are too low, consumers are more likely to pay late and miss payments, leading to lower consumer credit scores, reduced access to credit, and higher credit costs. students.

“Reducing or eliminating the safe harbor could harm consumers,” he adds.

The letter cites CFPB research which found that if late fees are not set at an appropriate level to cover issuers’ costs, effectively deter late payments and mitigate late payment risks, issuers may have to rebalance the risks of their credit portfolios through other means, including stricter tariffs and accounting standards.

“The current Safe Harbor provides legal certainty for issuers, and predictability and consistency for consumers,” the letter states. “If the Bureau proceeds to develop additional rules, any proposed permitted late fees should take into account the costs incurred by issuers related to late payments, the deterrent effect of late fees and the conduct of the cardholder. of the card, as required by the Truth in Lending Act.”

The individual CUNA letter notes that credit unions are the primary protectors of consumers and practice the kind relationship banking recommended by CFPB director Rohit Chopra.

“We strongly advise the Bureau against painting a broad picture of fees in the financial services marketplace,” the letter said. “Many credit unions have specifically designed their fee schedules with their members in mind and as a result there is great diversity in the industry. There are many examples of credit unions exploring and adopting changes to their rate schedules in response to consumer preferences.

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