by Amy Kleinschmit, Chief Compliance Officer
CFPB Proposed Rule – Credit Card Late Fees The Consumer Financial Protection Bureau (CFPB) has issued a proposed rule that would significantly impact the credit card “safe harbor” late payment fees. The proposed rule can be found here and comments are due April 3, 2023. An unofficial redline version of the proposed rulemaking can be found here. Briefly, the proposal would (1) adjust the safe harbor dollar amount for late fees to $8 and eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type; (2) provide that the current provision that provides for annual inflation adjustments for the safe harbor dollar amounts would not apply to the late fee safe harbor amount; and (3) provide that late fee amounts must not exceed 25 percent of the required payment. The impacted sections stem from the CARD Act that was signed into law on May 22, 2009, which amended Truth in Lending and subsequently Regulation Z, which implements TILA, by adding section 149. Section 149 provides, among other things, that the amount of any penalty fee with respect to a credit card account under an open-end consumer credit plan in connection with any omission with respect to, or violation of, the cardholder agreement, including any late payment fee or any other penalty fee or charge, must be “reasonable and proportional” to such omission or violation. Under existing regulations, section 1026.52(b) states that, “A card issuer must not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan unless the dollar amount of the fee is consistent with paragraphs (b)(1) and (b)(2) of this section.” It goes on to provide to discuss “fees based on costs” or the “safe harbors.” This proposed rule does not amend language related to “fees based on cost” under 1026.52(b)(1)(i), however, it would make changes to the commentary of this section to clarify that the costs that card issuers can consider for purposes of determining the amount of a penalty fee under the cost analysis provisions in § 1026.52(b)(1)(i) do not include collection costs that are incurred after an account is charged off in accordance with loan loss provisions. With regard to safe harbor provisions, currently § 1026.52(b)(1)(ii) provides a “safe harbor” and states that “a card issuer may impose a fee for violating the terms or other requirements of an account if the dollar amount of the fee does not exceed, as applicable: “(A) $30; (B) $41 if the card issuer previously imposed a fee pursuant to paragraph (b)(1)(ii)(A) of this section for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles; or (C) Three percent of the delinquent balance on a charge card account that requires payment of outstanding balances in full at the end of each billing cycle if the card issuer has not received the required payment for two or more consecutive billing cycles.” These “safe harbor” amounts are currently adjusted annually by the CFPB to reflect changes in the Consumer Price Index. As noted above, the safe harbor amount for late payment fee in 1026.52(b)(1)(ii) would be reduced to $8.00. The proposed rule would then provide – “A card issuer may impose a fee for a late payment on an account if the dollar amount of the fee does not exceed $8. Other than a fee for a late payment, a card issuer may impose a fee for violating the terms or other requirements of an account if the dollar amount of the fee does not exceed, as applicable: (A) $30; (B) $41 if the card issuer previously imposed a fee pursuant to paragraph (b)(1)(ii)(A) of this section for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles; or three percent of the delinquent balance on a charge card account that requires payment of outstanding balances in full at the end of each billing cycle if the card issuer has not received the required payment for two or more consecutive billing cycles, notwithstanding the limitation on the amount of a late payment fee in paragraph (b)(1)(ii) of this section.” The $8 for the late payment fee would not be adjusted annually, but the other safe harbor figure would continue to adjust. Section 1026.52(b)(2)(i)(A) addresses prohibited fees. Currently, this section provides, “A card issuer must not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan that exceeds the dollar amount associated with the violation.” Under the proposed rule, this section would be revised to read, “A card issuer must not impose a fee for a late payment on a credit card account under an open-end (not home-secured) consumer credit plan that exceeds 25 percent of the amount of the required minimum periodic payment due immediately prior to assessment of the late payment fee. For fees other than a fee for a late payment, a card issuer must not impose a fee for violating the terms or other requirements of a credit card account described above that exceeds the dollar amount associated with the violation.” As discussed in the proposed rule, the CFPB is concerned that the safe harbor dollar amounts for late fees currently set forth in § 1026.52(b)(1)(ii) are not reasonable and proportional to the omission or violation to which the fee relates. The CFPB also noted concern with the current higher safe harbor threshold for late fees for subsequent violations of the same type in the same billing cycle or in one of the next six billing cycles is higher than is justified based on consumer conduct and to deter future violations and, indeed, a late fee that is too high could interfere with the consumers’ ability to make future payments on the account. They conclude that additional restrictions on late fees may be needed to ensure that late fees are reasonable and proportional. The CFPB is not proposing at this time to similarly amend the safe harbor provisions in § 1026.52(b)(1)(ii) as they apply to other types of penalty fees, including returned-payment fees, fees for over-the-limit transactions, and declined access check fees. The CFPB is limiting the proposed amendments to late fees because the $14 billion in late fees charged in 2019 account for nearly 99 percent of all penalty fees imposed by major card issuers and, as such, pose far greater consumer protection concerns than do other penalty fees totaling less than $0.2 billion that year. CU PolicyPro Update CU PolicyPro continues to update content to separate out required policies and associated procedures/resources. In this update, they have reviewed the content and made corresponding changes within the 3000 Accounting Chapter. 10 policies were revised, and 3 policies were archived as part of a recent update to CU Policy Pro. A video tutorial, which reviews best practices for reviewing the updates and incorporating and documenting the changes in your own policies, is available in the Support area of CU PolicyPro on the Training Videos page. To highlight the changes: 1500.14 – Payroll **PREVIOUSLY POLICY 3145** What was previously Policy 3145, has been changed to be a resource under the Staffing and Human Resources policy. Since this is not a required policy, the document will be used to build the credit union’s personnel policies. 2112 – Bank Secrecy Act: Servicing Marijuana-Related Accounts. Revised to include a section specifically related to the credit union’s exit strategy for marijuana-related accounts. 3105 – Accounts Payable. Revised to include additional language on controls and record retention. 3115 – Credit Union-Owned Credit Cards. Updated to include prohibited transactions and document potential violations of policy. 3125 – Financial Institution Reconciliations. Updated with minor housekeeping changes. 3155 – Travel Reimbursement. Updated with minor housekeeping changes. 3160 – Unclaimed Property. Updated to include a responsible employee. There were other minor housekeeping changes to the policy, including referencing the applicability of state law. 3170 – Troubled Debt Restructure. Credit unions that are complying with the new CECL standard are no longer required to account for Troubled Debt Restructurings (TDRs). This policy is being maintained for credit unions under $10 million who do not need to comply with the CECL standard. 5500 – Ownership of Fixed Assets. This policy was updated to include the content from Policy 3130, which was specifically related to the account treatment for the ownership of fixed assets. The policy was also updated to include content related to the NCUA’s Incidental Powers for Excess Capacity, which would permit leasing in certain situations. 7213 – Military Personnel Loans. Normally, CU PolicyPro does not include state-specific laws within model policies. However, after the passage of California Senate Bill (SB) 1311 – Military and Veteran Consumer Protection Act of 2022, they felt it was important to create content to address the law in model policy. This particular state law will apply to residents of California and transactions being conducted in California. As always, DakCU members may contact Amy Kleinschmit with any compliance related questions. Comments are closed.
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