The Center for Capital Markets Competitiveness (“CCMC”) appreciates the opportunity to submit comments to the Consumer Financial Protection Bureau (“CFPB”) regarding its Advance Notice of Proposed Rulemaking (“ANPR”) on credit card late fees and late payments.
Credit cards play an important and valuable role in American consumers’ lives. They allow consumers to manage their budgets across the month, participate fully in the economy, and cover surprise expenses, including necessities. Credit cards also afford consumers an opportunity to build a credit history, which expands their access to other credit products, such as auto loans and mortgages, and non-credit opportunities, such as employment. For decades, credit cards have been a key component of the American consumer credit system.
Regular, periodic payments are a defining feature of consumer credit cards—and timely payment is the hallmark of a customer relationship that is built for long-term success. Late fees apply when a consumer does not submit a required payment on the agreed-upon timeline. These fees are disclosed at the time of account opening, and the consumer is aware of the obligation to repay the credit advanced. Such late fees play an important role in encouraging prudent consumer behavior by incentivizing borrowers to pay their bills on time. By doing so, late fees help consumers establish good repayment history, as well as avoid additional interest accruing on unpaid balances, future default on debt, and negative credit reporting. Conversely, the absence of late fees would remove financial incentives for responsible use of consumer credit cards and lead to negative impacts on consumers. Moreover, it would put credit card debt, already unsecured, in a competitive disadvantage vis-à-vis all other obligations ranging from other unsecured loans to cable subscriptions. While the absence of late fees might provide consumers with a short-term benefit, it would be vastly outweighed by significant long-term negative consequences, including higher default and delinquency rates, higher cost of credit, and reduced credit availability.
