CFPB Signals It May Revisit Credit Card Late Fee Regulation

Although the Consumer Financial Protection Bureau under Acting Director Russell Vought has withdrawn from defending a number of Biden-era regulatory initiatives, the Bureau appears poised to revisit one of the most controversial issues in consumer credit regulation—credit card late fees.

According to the Office of Information and Regulatory Affairs (OIRA), the CFPB has submitted for interagency review a Request for Information (RFI) regarding “Credit Card Late Fees and Late Payments.” At this point, the document itself has not been publicly released, so it is impossible to know precisely what information the Bureau intends to solicit or what regulatory path it ultimately may pursue. Nevertheless, the submission is noteworthy because an RFI is frequently the first formal step in a rulemaking process.

Background

The CFPB has been examining credit card late fees for several years. In 2022, the Bureau issued an Advance Notice of Proposed Rulemaking seeking extensive information about late fees, issuer costs, consumer payment behavior, and whether the Regulation Z safe harbor amounts permitted issuers to collect fees that exceeded their actual costs.

That inquiry ultimately led to the Bureau’s March 2024 final rule amending Regulation Z to dramatically reduce the safe harbor for credit card late fees charged by larger issuers. The final rule would have:

• Reduced the safe harbor amount from $30 for a first violation and $41 for subsequent violations to $8;
• Eliminated annual inflation adjustments to the safe harbor amount; and
• Limited late fees so that they could not exceed 25% of the required minimum payment.

The CFPB estimated that the rule would save consumers approximately $10 billion annually by reducing what it characterized as excessive penalty fees. 

Litigation Ends the 2024 Rule

The rule immediately faced a legal challenge from banking industry trade associations, which argued that the CFPB had exceeded its statutory authority under the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) and had effectively imposed an unlawful price control. The associations also argued that the rule was procedurally defective.

The litigation prevented the rule from taking effect. Following the change in Administrations, and while the case was on appeal to the Fifth Circuit, the CFPB ceased defending the rule, and the parties ultimately agreed to vacate it as part of a settlement, leaving the prior late-fee framework in place.

Why Is the CFPB Reopening the Issue?

Because the RFI has not yet been released, any explanation necessarily is speculative.

Several possibilities come to mind.

First, the Bureau may simply wish to update the factual record. The credit card market has evolved considerably since the CFPB’s 2022 ANPR, with changes in delinquency rates, consumer borrowing, interest rates, and issuer costs.

Second, the Bureau may be exploring whether there are narrower regulatory approaches that would be less vulnerable to the legal criticisms directed at the 2024 rule.

Third, the Bureau may be responding to broader policy concerns about the affordability of consumer credit. President Trump has publicly expressed concern about high credit card borrowing costs and earlier this year suggested temporarily capping credit card interest rates at 10%, although that proposal generated substantial criticism from the banking industry. While interest-rate caps and late-fee regulation are distinct issues, both reflect continuing attention to the overall cost of revolving credit. 

What to Watch

Once the RFI is released, several questions will deserve close attention:

• Does the Bureau continue to question whether existing Regulation Z safe harbor amounts appropriately reflect issuer collection costs?
• Is the Bureau seeking empirical evidence regarding consumer payment behavior or issuer economics?
• Does the Bureau signal an intention to propose another rule, or is it merely conducting additional market research?
• Does the Bureau acknowledge the legal arguments that ultimately resulted in the 2024 rule being vacated?

The answers to these questions will provide important clues regarding whether the CFPB intends to pursue another substantive rulemaking or simply reassess the current regulatory framework, including the provisions for annual adjustments to the safe harbor amounts to reflect changes in the Consumer Price Index.

Our Take

The OIRA submission should not be interpreted as signaling that another late-fee rule is imminent. At this stage, the Bureau has merely initiated what appears to be another information-gathering effort.

Nevertheless, the development is significant. Credit card late fees have remained a high-profile policy issue since the CFPB first launched its 2022 inquiry, and the Bureau’s decision to revisit the subject—despite abandoning the Biden Administration’s 2024 rule—suggests that regulation of late-payment practices remains on the agency’s docket, even though it doesn’t appear on the agency’s recent regulatory agenda.

We will monitor the release of the RFI and provide a more detailed analysis once the CFPB publishes the document.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.