The banks and the credit card companies can’t say they weren’t warned. Only six weeks after the CFPB made it known that it wasn’t happy with the late fees they were charging consumers, it has officially lowered the boom.
The agency is finalizing a rule that will reduce typical late fees from a $32 average to, in most cases, $8. If things go the way the CFPB postures the move, American families who’ve been subjected to these fees will save an average of $220 a year.
Crawling from the wreckage
The genesis of this issue goes back more than a decade ago when Congress voted to pass the CARD Act to clean up widespread abuses in the credit card industry – one of those abuses being excessive penalties like late fees.
In the law, Congress allowed credit card companies to charge “reasonable and proportional” fees to incentivize on-time payment and cover the costs associated with late payments.
But the responsibility of regulating the law was squarely on the shoulders of the Federal Reserve Board of Governors and it failed miserably when it gave financial institutions some wiggle room on what was “reasonable and proportional” as long as they stayed below a certain threshold. It was that loophole that got us here and the one the CFPB decided to close.
One big loophole equals tens of thousands of complaints
The spillage was over the top, to say the least. In ConsumerAffairs' analysis of CFPB complaints, there have been 12,330 about credit card or prepaid card fees over the last three years.
Consumers paid for that dearly, too -- on average, charges of $138 per year per card, and many consumers have multiple credit cards.
The status quo makes late fees an irresistible revenue stream. Just ask Mandora of Mt. Vernon N.Y., who claimed in a review of Credit One Bank on ConsumerAffairs that when their payment was due on the 28th, they did what seems fair -- they paid it on the 28th.
But Mandora says paying on time wasn't good enough for Credit One.
"They charged me a $30 late fee because they said I did not pay it before 5 o'clock p.m., I paid an early payment on July 3rd of 130.00. My payments are only 30.00. They said it didn't count for July because the billing cycle starts after the 5th of July and that I would still owe July 28th payments. How can they do this to people and get away with it?"
'What's in your wallet -- more fees?'
What credit card providers chalk up the most fee-related complaints at the CFPB? Topping the list is Capital One.
Next is Bread Financial Holdings, Inc. You might not recognize that name, but it provides card programs for retail brands such as Ulta, Victoria’s Secret, the NFL, AAA, Academy Sports, Ann Taylor, Arhuas, Big O Tires, Bealls, Burlington, BuyBuyBaby, DSW, Dell, Forever 21, J. Crew, IKEA, Eddie Bauer, Lexus, Lane Bryant, Land's End, Petco, Toyota, Wayfair, and Zales.
Coming in third is Synchrony Financial, another sort of anonymous lender, but like Bread, it has partner cards in place with lots of big brands: Ashley Furniture, MattressFirm, Dick's Sporting Goods, Walgreens, Rheem, HSN, Crate & Barrell, and others.
When will all of this officially be in the consumer’s favor?
The effective date of the final rule will be 60 days after publication of the rule in the Federal Register. However, the CFPB encourages consumers not to wait if they sense their bank or credit card company is overstepping their bounds, especially when it comes to fees.
If that’s you, your chances are good that you'll receive either a full explanation from the bank/credit card company, which happens 67% of the time, or monetary relief, which 27% of complaining consumers receive.
You can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).