U.S. CFPB’s bid to curb late credit card fees faces strong opposition

March 06 (Reuters) – A US consumer watchdog’s proposal to slash late fees on credit cards faces a rocky road ahead as lenders prepare for what could turn into a pitched battle with the agency, industry experts and analysts said.

Last month, the Bureau of Consumer Financial Protection said it was looking to curb “excessive” costs, which cost American consumers about $12 billion each year, according to agency estimates.

Credit card issuers with greater exposure to subprime customers or private label cards, which can only be used with certain brands, could be hardest hit, with revenue expected to decline by high single-digit percentage points, Fitch estimates.

Fitch identified Discover Financial Services (DFS.N), Capital One Financial (COF.N), Synchrony Financial (SYF.N) and Bread Financial Holdings (BFH.N) among those at risk.

Discover declined to comment. Others did not respond to requests for comment.

The American Bankers Association (ABA), which represents Wall Street banks as well as regional lenders, has warned that the CFPB proposal “blatantly violates federal law”, according to a statement shared with Reuters.

“If the proposal goes into effect, credit card issuers will be forced to adjust to the new risks by reducing credit limits, tightening standards for new accounts and raising the APR (annual percentage rate) for all consumers, including the millions who pay on time,” ABA President and Chief Executive Officer Rob Nichols said.

Credit card companies typically rely on late fees to act as a bulwark against reduced spending volumes when the economic environment is tough.

If the CFPB rules were implemented in their current form, it could reduce those costs by as much as 75% annually, the agency said.

“It ignores administrative law,” said advocacy group the Bank Policy Institute, adding the CFPB did not provide a “reasonable basis” for the move.

Analysts also expect tough pushback from the industry. Michael Taiano, senior analyst at Fitch Ratings, said card companies could potentially take legal action to delay enforcement of this regulation.

“They may also respond by introducing other fees, such as a statement fee, which customers will charge each time they request a statement,” Taiano said.

The CFPB will seek public comment on the proposed rules until April 3, he said.

Reporting by Niket Nishant in Bengaluru; Editing by Krishna Chandra Eluri

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