Federal: Comment Letter to CFPB on Proposed Credit Card Late Fees Rulemaking

Comment Intake
2023 NPRM Credit Card Late Fees
c/o Legal Division Docket Manager
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

Re: Comment - Credit Card Penalty Fees, Docket No. CFPB-2023-0010

On behalf of the American Fintech Council and its members, we thank the Consumer Financial Protection Bureau (CFPB or Bureau) for the opportunity to comment on its proposed rulemaking (Proposed Rule) regarding credit card late fees.

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting the responsible growth of lending, fostering innovation in financial technology (Fintech), and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. AFC has publicly supported 36 percent rate caps at state and federal levels, which is a key component of our advocacy and of addressing responsible lending. Our members are also lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable products. We welcome the opportunity to address practical ways to curb excessive fees as this is an important issue for our members. Consumers deserve access to affordable and tailored credit card services without predatory and/or hidden fees.

The AFC supports federal policymakers, regulators, and other stakeholders on market-based solutions to issues that regulators and others have emphasized throughout the public discussion around excessive fees. Our members are improving products that help advance consumer financial health and financial capacity, and we are working on better understanding the outcomes. AFC members are interested in providing more innovative products that address consumer demand for more affordable and lower-fee products, including credit card products.

AFC members are focused on products that are responsible, fair, safe, and sound, and want to work in partnership with federal and state regulators to scale responsible options in the marketplace. The AFC supports the elimination of predatory, deceptive, unfair, and/or junk fees from the market and we urge the Bureau to consider alternative caps or tiers to the current structure in the Proposed Rule given the unintended consequences for both businesses and consumers if the rule is finalized as proposed.

I. AFC members are leading the financial services industry in creating market competition to lower prices and eliminate unfair or excessive fees with their credit card products.

As demonstrated in recent studies by the Federal Reserve Bank of Philadelphia, the Federal Reserve Bank of San Francisco, and small business focused studies by New York University and the US Government Accountability Office, Fintechs play an essential role in providing access to financial services to borrowers that would have otherwise been unfairly excluded, both before and during the global COVID-19 pandemic. The structural exclusion of too many Americans, including communities of color from traditional banking services and products makes it essential that other providers responsibly fill those gaps, including Fintechs. Competitive pressure from Fintechs including AFC members have changed the industry.

AFC members offer credit card products that are reasonably priced and serve a wide range of consumers. One member for instance offers credit cards to people with “fair” credit scores, with an annual fee that ranges from $0 to $75, with no monthly or initial fee, no deposit required, and late fees in line with the existing safe harbor. This member also offers credit limits starting at $300, which allows for those with lower credit profiles to build one and build a better credit standing. Another member’s credit card product is also useful to those with “fair” credit scores and offers financial literacy information along with the card. This credit card has no annual fee, no foreign transaction fees, no overlimit fees, and late fees in line with safe harbor.

The above-mentioned credit card products’ late fees are within the current statutory requirements but would be highly impacted by the $8 caps and lower safe harbor in the Proposed Rule. AFC member products allow those with good and fair credit profiles to build upon their scores with better rates, better incentives, and minimal fees. This supports the work of the Bureau and other regulators to reduce excessive fee practices, create competitive products that benefit consumers, and increase access to credit. The Proposed Rule would make it extremely difficult for our member companies and others to be able to offer these products to those not in the prime market given the cost of implementation.

II. AFC urges the Bureau to strongly consider the inadvertent consequences that the Proposed Rule if finalized as proposed will have on both consumers and responsible businesses.‍

AFC supports transparent regulatory frameworks that foster responsible innovation in the banking industry, while avoiding unintentional stifling of the efficiencies and advancements that our members are able to provide. Clear and congruent rules and/or guidance from regulators will help augment existing frameworks for how consumers can be better protected against unfair or deceptive credit card fees. The thresholds for late fees and the safe harbor set by the Proposed Rule will result in the loss of better credit card products from the system. Onerous requirements like these reduce efficiency, raise costs for business and consumers, and likely will not enhance consumer protection. For instance, companies could simply shift the costs of the late fees to other pricing, such as annual percentage rates (APRs), annual membership fees, or reduce other more affordable financial incentives that their credit card products currently have. This means the Proposed Rule will not have a deterrent effect on reducing high-cost products in the market, in fact it will simply shift the costs elsewhere and will not increase responsible access to credit. Moreover, if companies are forced to shift risk-based pricing into either APRs or other product pricing, this will likely have the most negative impact on those with fair and lower credit scores. Even those of nonprime credit score bands that have been paying their credit card bills on time would be negatively impacted and potentially priced out by baked in rising costs of credit cards and other credit products.

We are similarly concerned that the rule if finalized as proposed will not deter late payments, but the exact opposite will occur. The Bureau itself notes that other incentives, such as automatic payments and clear advanced notification of bill payment due dates are factors that deter late payments. The Proposed Rule will likely result in increased late payments that would be reported to the credit bureaus, resulting in an unintentional consequence of a drop in consumer credit scores. The Proposed Rule may also de-incentivize financial institutions from granting fee waivers, currently a common practice in the industry, especially for consumers with positive payment history. The purpose of the Proposed Rule is meant to reduce costs and increase access, but the inadvertent consequence of this rule points to higher costs and lower credit scores, which will create even more barriers to underserved and other communities in need of better credit options.

Our members believe that consumers are better served by the Bureau providing more guidance and focus towards the factors stated in the Proposed Rule and other studies that show more successful on-time payment results with clearer payment reminders, autopay incentives, and an emphasis on or incentives for credit card issuers that have successful hardship payment plans. It would also be helpful for the Bureau to further clarify or provide reasonable exemptions to the issue of whether payment notices to delinquent customers are classified as debt collection notices.

As stated above, Fintech companies like our members are leading the path to working with both prime and nonprime consumers safely and responsibly, and our members would like to continue to focus on all the existing ways to prevent late and other penalty fees. On this note, AFC and its members are concerned that the current more affordable credit card incentives offered by a number of our member companies and others will be negatively impacted by this rule. Again, companies will need to afford to offer pricing deals, flexible rates, and other financial incentives to allow more nonprime borrowers to obtain credit cards they can afford. We are therefore concerned that the finalized rule as proposed would result in the scaling back of affordable and competitive credit cards or other financial services product offers due to unsustainably higher company costs of offering affordable credit card products. A system where APRs, annual fees, and other rates skyrocket combined with far fewer affordable payment or incentive options will result in far less inclusion and access. This is not an outcome that the CFPB, nor AFC and our members want to see out of this rulemaking. Given that many AFC member companies work with nonprime or average FICO consumers, the impact of the Proposed Rule could be even more severe on their customers.

The AFC also urges the Bureau to consider a higher dollar amount cap and safe harbor than the proposed. The Bureau proposes that a late fee cap of $8 would be sufficient for entities to recoup the cost of collection. When the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 was first codified, the maximum late fee was set at $25. We respectfully request that if the CFPB determines that $39 is too high for consumers, that it go back to the initial fee set forth in the CARD Act of $25. We also urge the Bureau to reconsider or further clarify what will be established after the removal of the automatic inflation adjustment for the safe harbor. While the Bureau states in the Proposed Rule that it will monitor the market, the current environment of rising rates and inflation concerns calls for the highest consideration of the impact of inflation on costs. We urge the Bureau to reconsider including the automatic annual inflation adjustment or the safe harbor, clarify how it will address inflation in place of the automatic adjustment, or at least provide a sunset date of the automatic adjustment calculation for at least 2 years after final rule implementation.

Conclusion‍

The American Fintech Council supports regulation that will create a fairer and more transparent financial services ecosystem for all actors. AFC members continue to support sustainable access to credit, fostering responsible practices, and fair lending in consumer financial markets which enriches a competitive environment that benefits consumers. We urge the Bureau to re-consider the pricing, safe harbor, and inflation parameters set forth in the Proposed Rule and land on a compromise that will both reduce costs for consumers but allow for companies to continue to offer more affordable credit card and other financial services products that nonprime customers can rely on for sustainable access to credit.