Back in the old days of 2023, regulators were calling late fees “junk.” We kept calling them “contractual commitments,” as you can read here.
Today, the American Banker notes that regulators have backed down from their attempt to mandate that credit card late fees be reduced from an average of $32 to $8, in a turnaround that will close outstanding litigation, as they report on the latest change. The CFPB has asked a Texas Court to Vacate Credit Card Late Fee Rule, the American Banker says, adding:
- The Consumer Financial Protection Bureau has sided with bank trade groups in asking a federal court to dismiss the credit card late fee rule.
- The CFPB’s chief legal officer claimed in court documents that the bureau under the Biden administration violated the law by refusing to allow banks to collect penalty fees on credit cards.
- Industry-watchers expected the bureau to settle the litigation.
- The rule would have cut credit card late fees to $8 from their current $32. Ending the lawsuit and getting rid of the rule saves the credit card industry an estimated $10 billion a year.
Humble in Victory, Proud in Defeat
So said Churchill, but this is not a time for bankers to gloat. The timing is probably bad for consumers, who face tariff-related threats to their 401(k) accounts and still sting from inflation.
But for credit card lenders, $10 billion back in the revenue line is important. It is also a sign of a more favorable regulatory environment.
Squirrel those big bucks away, you’ll need them!
Consumer credit risk is looming. Read our latest report about it here. We look at revolving debt, consumer confidence, lending sentiment, unemployment, inflation, delinquencies, and charge-offs, and prescribe actions credit managers can undertake to moderate matters. In Q4 of 2024, credit card charge-offs were 4.48%, up from a historic low of 1.57% in 2021.
Now we see the charge-off indicator hitting the 5% mark in a relatively short term, and for smaller banks, we expect it to break into double digits. Revolving debt held flat in the short month of February, at $1.3 trillion, and consumers are waiting for their tax refunds, which will help. But 2025 looks like it will be a long, risky year.
That $10 billion will not offset the risk. But it will help.