CU Leaders Don't Hold Back in Comments to CFPB's Proposed Credit Card Rule

Wednesday’s due date for comments concerning the CFPB’s proposed rule to lower current safe harbor limits related to credit card late fees brought out numerous credit union and other industry leaders, who loudly voiced their opposition to such changes.

Since early February, officials with CUNA and NAFCU have consistently raised alarms to its members over the bureau’s proposal to “curb excessive credit card late fees,” warning the changes could severely damage lower-asset-sized credit unions’ ability to provide credit card services, especially to small businesses and lower-income members.

The CFPB’s proposed rule included:

• Lowering the immunity provision dollar amount for late fees to $8 (this amount is down from $30 for a first-time late payment and $41 for subsequent late payments);
• Ending the automatic annual inflation adjustment; and
• Capping late fees at 25% of the required minimum payment.

Wednesday’s letter filed by NAFCU Vice President of Regulatory Affairs Ann Petros said, “This proposal puts credit union products and services at risk and may lead to further consolidation in the industry – reducing consumer choice for credit cards. Slashing the safe harbor limits for late fees to just $8 would drastically reduce credit union fee income – some credit unions estimate the reduction to be in the neighborhood of 56%. This would force institutions to make difficult rate adjustments and potentially add annual fee requirements to recover lost income that is subsequently used to cover pre-charge-off collection costs. In the long term, the viability and competitiveness of many credit unions’ credit card programs would be undermined. Over time, many credit unions would be forced to reevaluate their card programs and some would have to exit the credit card market altogether.”

Petros continued, “In reviewing this proposed rule, credit unions are left wondering what the Bureau’s intended goal is – is it to actually help members make their payments on time and manage their credit responsibly or to simply lower the cost of credit/? If the goal is the latter, this proposed rule would likely have the opposite effect for many Americans as the undeniable result would be reducing the availability of credit and tightening credit criteria to the detriment of those consumers with lower credit scores and thinner credit profiles.”

NAFCU and CUNA both pointed to the devastation the CFPB’s rule would have on those credit unions with asset sizes of $850 million or less. In fact, the letters claimed the CFPB didn’t even consider credit unions when crafting the proposed rule.

“The Bureau did not conduct a traditional cost benefit analysis, instead citing simple back-of-the envelope calculations from the Federal Reserve’s Y-14+ data set of mass market bank data. This data applies to large banks with over $100B in assets and have zero coverage of credit unions,” CUNA Deputy Chief Advocacy Officer & Managing Counsel Alexander Monterrubio wrote. “There is also no systematic economic analysis of a ‘but-for world’ in which the rule is implemented, and effects are forecasted or quantified.”

The U.S. Small Business Administration (SBA) even filed an 8-page letter against the CFPB’s proposed actions. SBA’s Deputy Chief Counsel Office of Advocacy, Major L. Clark, III narrowed the administration’s concerns down to four areas. They are:

1. “Advocacy is concerned that the CFPB does not have the necessary data to develop an adequate factual basis for its certification.

2. “Advocacy is also concerned that the CFPB does not have sufficient information to indicate that small institutions contribute to the problem that is the target of the regulation.

3. “Advocacy is further concerned about the CFPB’s reliance on the reasonableness test as an option for small entities.

4. “Finally, Advocacy is concerned that the rulemaking could be problematic for the small depository institutions and the consumers, including small businesses, which rely on them.”

A letter filed by Virginia Credit Union League Chief Advocacy Officer JT Blau said, “Finally, another consequence of the Rule would be the further tightening of credit standards by issuers. Restrictions like those in the Rule limit the ability of issuers to appropriately price risk into their products. When this happens, products are often not made available to the riskiest users – in this case, subprime consumers. This will drive these consumers to alternative credit channels, such as payday lenders or buy-now-pay-later offerings and will hurt their financial health.”

Cornerstone League Regulatory Compliance Counsel Suzanne Yashewski’s letter filed Wednesday stated, “If credit unions were unable to assess reasonable late fees for non-payment, then credit unions would not only face safety and soundness concerns, but it’s likely the costs of non-payments would be borne by the entire membership in the form of higher interest rates or the tightening of credit standards — even for those consumers that pay their debts in a timely fashion.”

One letter in favor of the CFPB’s proposed rule came from Chi Chi Wu, senior attorney for the National Consumer Law Center. It stated, “We strongly support the proposed safe harbor of $8 for credit card late fees and thank the CFPB for proposing it. Unlike the previous safe harbor amounts of $30 and $41, $8 is a fair amount that is reasonable and proportional to the costs incurred by credit card companies for late payments.”

NAFCU and CUNA officials each stated arguments for the CFPB to simply drop this proposed rule idea or exempt credit unions, at least those $850 million in assets or lower.

Monterrubio added the rule should, at the very least, be delayed until the Supreme Court decides the case that could determine the constitutionality of the CFPB. “The case directly implicates the exercise of the Bureau’s authority and may ultimately put into question the legality of any rulemakings established prior to the Court’s decision,” Monterrubio wrote. “The Bureau itself has argued that the case ‘calls into question virtually every action the CFPB has taken in the 12 years since it was created.’ Given the broad implications of the case, we believe the Bureau should proactively postpone further development of this rulemaking until the legal questions before the Court are resolved.”

The Supreme Court is expected to hear arguments on that case in October and should make a ruling sometime early in 2024.