The Clearing House Real-Time Payments Tracker May 2024 Banner

Credit Card Late Fee Cap Has Winding Path Ahead In Congress

credit cards, late fees

Out of committee…and now the path is a winding one for the proposed repeal of the Consumer Financial Protection Bureau’s (CFPB) rule that would cap credit card late fees as soon as next month.

On Wednesday (April 17), the House Financial Services Committee (HSFC) voted to approve a joint resolution from Rep. Andy Barr, R-Ky., that would block the rule from taking effect.

“The credit card late fee rule fails to acknowledge the role certain fees play in encouraging timely payments. It will harm consumers by shifting costs to responsible consumers who pay on time in the form of higher annual fees and higher interest rates,” said HSFC Chairman Patrick McHenry, R-N.C., in a statement. 

Activity in the Senate, Too 

The vote comes in the wake of activity elsewhere in Congress — as detailed here, in the Senate — as Sen. Tim Scott, R-S.C., unveiled a joint resolution that would short-circuit the CFPB’s efforts.

In terms of what’s next, the Congressional Review Act (CRA) resolution now moves to the full House of Representatives. We note that, with a slim majority, the Republican-led House seems pre-disposed to approve the measure.

Joint resolutions require both houses of Congress and the president’s signature to take effect, so what happens after the House vote is a bit more clouded. Congress can override a presidential veto.

In the meantime, there are other challenges to the CFPB’s cap.

As PYMNTS reported in March, the U.S. Chamber of Commerce filed a lawsuit against the CFPB.

The trade association said in its suit that the CFPB violated the law by preventing issuers from collecting late fees that are “reasonable and proportional,” promulgating a rule that is “arbitrary and capricious.” The legal argument also stated that the CFPB’s moving ahead through the use of funds drawn is in violation of the Appropriations Clause. 

McHenry’s statements, as noted above, contending that negative ripple effects may come with the late fee caps have been similar to the U.S. Chamber’s contentions. The Chamber said at the time that its suit was filed that costs associated with late payments will be passed on to all credit card users. The CFPB in turn has said that the banks rake in $14 billion in fees tied to late card payments each year.

In a statement provided to PYMNTS, the Consumer Bankers Association, through President and CEO Lindsey Johnson, said that the “rule will increase the costs of credit cards for the vast majority of consumers who pay their credit cards on time, and it will significantly impact the long-term financial health of American cardholders who frequently pay late.” 

The CBA added: “The CFPB’s rule will force consumers on the margins facing expense shocks to turn to non-bank credit alternatives like payday loans and buy-now pay later products. Non-bank credit alternatives lack many of the important consumer protections built into credit cards.”

PYMNTS Intelligence data shows that 45% of consumers revolve their balances, at least occasionally. Additionally, 30% of high-debt consumers are more likely than other consumers to make late payments than the average consumer (33%).