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July 1, 2022

CFPB v the cards and banking sector: this soap opera just got a lot more interesting

Rohit Chopra head of the CFPB is either radical, reckless and out of control or a consumer champion determined to outlaw unfair, deceptive and abusive conduct by financial institutions

By Douglas Blakey

US Consumer Financial Protection Bureau Director Rohit Chopra is not exactly flavour of the month with The American Bankers Association, the Consumer Bankers Association, the Independent Community Bankers Association or the US Chamber of Commerce.

Indeed, it seems that all four lobby groups are united in their opposition to his current strategy.

In summary, Chopra says that he intends to rein in what he views as abuses in the financial industry. He has only been in post since last October. His stated aim is to ensure fair, transparent, and competitive markets for American consumers and honest businesses who play by the rules. In particular, he is exercised about alleged unfair, deceptive or abusive acts or practices or UDAAP for short. He intends to ramp up the CFPB anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.

The lobby groups have fired off a white paper, setting out their reasons for opposing the way Chopra is interpreting his UDAAP remit. It is well worth a read. There is even talk of the lobby groups running advertisements in Washington, attacking Chopra’s strategy.

US credit card late fees peak at over $14bn per year

So, their collective mood will not have been improved by the news that the Consumer Financial Protection Bureau intends to rewrite rules governing fees for late credit card payments. It wants to save cardholders billions of dollars a year in late card fees. More than 175 million Americans hold at least one credit card. Prior to the Covid-19 pandemic, consumers had steadily been paying more in credit card late fees each year—peaking at over $14bn in 2019. Late fees assessed by issuers declined to about $12bn in 2020 given record-high payment rates and public and private relief efforts. Even during the pandemic, late fees accounted for over one-tenth of the $120bn consumers pay in credit card interest and fees annually. In 2021, total late fee volume was on the rise again. In 2019, a consumer with a major issuer’s credit card was charged a $26 late fee on average for each late payment—except for each subsequent late fee within six billing cycles of an earlier late payment.

US credit card late fees: disproportionately hammer low income families

For those, the average fee rose to over $34. Cardholders with subprime and deep subprime scores are far more likely to incur repeat late fees in a given year than those in higher credit score tiers. According to the CFPB, increased incidence coupled with a more expensive fee for repeat late payment resulted in the average deep subprime account being charged $138 in late fees in 2019, compared with $11 for the average superprime account.

And even the lobby groups must recognise that credit card late fees disproportionately burden consumers in low-income and majority-black neighbourhoods. The CFPB head is not going to cave in to lobbying and is unlikely to be scared off by ads attacking him. The only safe forecast as to how this will pan out is that this will run into 2023-there is too much at stake on both sides to expect a quick resolution.

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