The banking industry is opposed to the CFPB rule and says that the move will end up raising the cost of credit for all consumers as banks seek to recoup costs that lower late fees don’t cover.

In a media statement, Rob Nichols, president of the American Bankers Association (ABA), a banking industry trade group, said that the CFPB’s “misguided decision to cap credit card late fees at a level far below banks’ actual costs” will cause card issuers to cut credit lines, toughen standards for new accounts and raise interest rates for all consumers, including for those who pay on time.”

He added, “Just days before the State of the Union, this supposedly independent agency is clearly choosing to put politics over sound public policy.”

Consumer Bankers Association (CBA), another banking industry trade group also weighed in against the rule. In a media statement, Lindsey Johnson, CBA’s president and CEO, said that as credit card interest rates rise, “this final rule will benefit a small minority of frequent late-payers by offsetting the costs of their late payments by increasing costs amongst the 74% of cardholders that pay their bills on time.”

Johnson also added, “The CFPB has skipped important legal requirements in its haste to finalize the rulemaking, raising concerns about the sufficiency of the rulemaking process under the Administrative Procedures Act.”

Is the CFPB inviting litigation and reducing market transparency?

David Gossett, a partner with the law firm of Davis Wright Tremaine (who previously served as the CFPB’s initial assistant general counsel for litigation) said in an email that he expects a lawsuit to challenge the agency’s rule on both procedural and substantive bases. On procedural grounds, the data the CFPB used to support the rulemaking is incomplete and secret, according to Gossett.

Gossett added, “Substantively, the agency excludes relevant expenses and costs from its calculation of the appropriate level of late fees; largely ignores the deterrent effect of late fees; and is based on the fallacy that late fees are a type of ‘junk fee’ and thus should be part of President Biden’s war against junk fees.”

James Mann, another Davis Wright Tremaine partner, noted in the same email that if the big cuts to the safe harbor late fees cause issuers to set different late fees that are higher than the safe harbor, that will make it difficult for consumers to comparison shop.

Also, according to Mann, the rule, as written, does away with an issuer’s right to recover costs beyond the safe harbor amount since it doesn’t allow it to recover collection charges incurred once a debt is charged off. As a result, Mann said, “The Rule encourages issuers to price transparently but also envisions that issuers will raise their APRs. This makes no sense since raising the APR to compensate for late-payment costs along with receivables funding costs actually reduces transparency.”

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