Alterations to late fee safe harbor would have significant impact

The current safe harbor for late fees should remain in place, as any changes would have significant adverse impact on smaller financial institutions and consumers, CUNA wrote to the Consumer Financial Protection Bureau (CFPB) Monday. CUNA filed two letters responding to the CFPB’s request for information on credit card late fees, one with other financial services organizations, and one on its own expanding on credit unions’ role in the marketplace.

“When set appropriately, late fees encourage consumers to pay on time and develop good financial management habits,” the letter reads. “However, if late fees are too low, consumers are more likely to pay late and miss payments, leading to lower consumer credit scores, reduced credit access, and higher credit costs.

“Reducing or eliminating the safe harbor could harm consumers,” it adds.

The letter cites CFPB research that found if late fees are not set at an appropriate level to cover issuers’ costs, effectively deter late payments, and mitigate late payment risks, issuers may have to rebalance risks to their credit portfolios in other ways, including higher rates and tighter account standards.

 

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