Goldman: CFPB Late Fee Rules Will Hurt Citigroup the Most

What will the loss of credit card late fees mean for America’s biggest banks?

A report Tuesday (March 5) by Goldman Sachs Equity Research examines the impact of lost revenue for these banks in the wake of the Consumer Financial Protection Bureau’s (CFPB) new rule that lowers those fees from as high as $32 to an average of $8.

“We expect large cap banks to take actions to mitigate the impact of lost revenue from late fee reduction that could include 1) an increase in APRs on new balances, 2) changes to sharing arrangements with retailers, and 3) the potential introduction of account maintenance fees, amongst others,” Goldman analyst Richard Ramsden wrote, per a report by Seeking Alpha.

The research estimated that the changes to late fees would have an average impact on earnings per share (EPS) of -2.4% in 2025. Citigroup would be hit hardest, Ramsden wrote, with a 6.4% estimated 2025 EPS impact, while PNC’s EPS impact would be just 0.7%.

Goldman’s findings came in the wake of the CFPB’s announcement Tuesday that it had finalized the rule change for credit card late fees. The rule applies to the largest issuers, those with more than 1 million open accounts.

“Today, the credit card industry hauls in more than $14 billion in late fee revenue each year, which our research shows is more than five times the companies’ associated costs,” CFPB Director Rohit Chopra said in a news release announcing the change.

“They charge these fees to consumers even when their payment is only a little bit late or when it’s out of their control.”

The American Banks Association has criticized the rule change, arguing that the CFPB would end up preventing competition, reduce credit access and lead to higher debt.

Last month, the CFPB issued a report showing that the largest credit card issuers charged consumers interest rates that were 8 to 10 points higher than those found at small- to medium-sized banks and credit unions.

Meanwhile, PYMNTS wrote Tuesday that the CFPB’s rule change could negatively affect banks’ ability to invest in innovation.

“The dwindling, capped pool of fees may give the regulators grist for the headline mill, but eventually, the move may have unintended consequences as banks look to cut costs elsewhere to offset the impact by trimming some services and product features,” the report said.