March 31, 2022
Paving the Payments Future
CFPB Finds Credit Card Companies Charged $12 Billion in Late Fee Penalties in 2020

Largest credit card issuers expected to hike fees further

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) issued a report today showing that credit card issuers charged $12 billion in late fees in 2020. Late fee penalties are charged in addition to interest when a cardholder does not make the minimum payment by the due date.

“Many credit card issuers have made late fee penalties a core part of their profit model. Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost.” said CFPB Director Rohit Chopra. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.”

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) created a range of protections for cardholders, including limiting how much credit card companies could charge for penalties such as over-the-limit fees and late fees, as well as limits on interest rate increases. Many of these protections have been effective in reducing the total cost of credit for consumers, improving competition, and creating transparency on pricing. Nevertheless, today’s report highlights that late fees continue to negatively affect millions of families.

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New NYS regulations ban lawsuits on old debts

ALBANY, N.Y. (NEWS10) — New York Attorney General Letitia James sent letters to the biggest credit card companies and debt collectors operating in the state, warning them of new state regulations that prohibit lawsuits for old debts. The Consumer Credit Fairness act of 2021 will go into effect next month and will reduce the statute of limitations for consumer debt collections from six years to just three years.

The new state regulations come as similar nationwide regulations from the Consumer Financial Protection Bureau went into effect in late 2021. Attorney General James’ letters made it clear that her office stands ready to enforce these regulations to protect vulnerable New Yorkers. “For too long, debt collectors used unfair and abusive tactics to improperly collect debts,” said Attorney General James. “Abusive debt collection practices of the past hurt low- and moderate-income New Yorkers the most and buried them deeper into financial struggles. These new regulations will give us stronger tools to protect the most vulnerable New Yorkers from predatory debt collectors.

The Consumer Credit Fairness Act of 2021 requires debt collectors to be more transparent and honest in their communications. In her letter to the industry, Attorney General James warned debt collectors of their duties under federal and state law.

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America’s Largest Banks Make Major Overdraft Changes That Will Help Consumers

These 5 institutions all offer or plan to offer small loans to better meet customers’ needs

January 2022 turned into a watershed month for boosting consumer protections in the nation’s banking industry and making sure that more Americans can get access to safe and affordable credit. Over the course of just nine days, five of the country’s largest banks—Bank of America, Wells Fargo, U.S. Bank, Truist, and Regions Bank—announced that they are eliminating what are known as nonsufficient funds (NSF) fees and certain overdraft charges while adding some safeguards to their overdraft programs.

Historically, overdraft programs were marketed as helping people who live paycheck to paycheck prevent important transactions from being declined, but this high-cost option does not effectively address the needs of most consumers who need time to repay in installments. This is especially true for the millions who turn to overdraft as a way to borrow small amounts of money.

Encouragingly, U.S. Bank and Bank of America already offer affordable small loans, and the other three banks announced plans to launch such programs with limits of $500, $750, or $1,000, depending on the bank. The total savings to consumers from the overdraft changes at these five banks alone could top $2 billion annually. And borrowers’ annual savings from gaining access to affordable small loans—compared with the payday and other high-cost loans they often use today—could exceed that amount.

Comparing overdraft fees and policies across banks

The CFPB recently published research on banks’ continued reliance on overdraft fees and the lack of competition on overdraft terms, highlighting our ongoing and growing concern about the impact of bank overdraft fees on families. Recent weeks have seen an uptick in changes banks are making to their overdraft programs. While millions of Americans are familiar with overdraft fees, nearly all banks also charge non-sufficient fund fees (NSF) for rejected transactions. Overdraft and NSF fees cost Americans an estimated $15.5 billion in 2019. And while these fees dropped during the pandemic, they’ve still cost people billions during this crisis – and were climbing through the third quarter of 2021.

As the CFPB has been focusing on this issue again, there has been a notable trend of banks announcing changes to their overdraft programs. These announced changes vary widely and include:
  • eliminating NSF fees charged when transactions bounce;
  • reducing the size of the overdraft fee;
  • reducing the number of overdraft/NSF fees the bank can charge you each day;
  • providing or increasing the amount your account can go negative before charging an overdraft fee;

CFPB chief pushes harsher penalties for repeat offenders

  • Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra advocated for harsher penalties for banks that repeatedly violate consumer protection laws in a speech Monday at the University of Pennsylvania's Carey Law School. 
  • A bank’s penalty for repeatedly breaching the law, under the status quo, is usually a hefty fine or callout by officials, Chopra said. The CFPB chief, however, called for the bureau to work in concert with other regulators to give banks new punishments, such as stripping operating licenses and special government privileges from repeat offenders. 
  • Chopra specifically named Wells Fargo, Citi, JPMorgan Chase, American Express and Discover as repeat corporate lawbreakers.

Mayors: Cryptocurrency won’t solve your cities’ problems  

Miami Mayor Francis Suarez wants to make his city the world’s cryptocurrency capital. New York City Mayor Eric Adams’ first paycheck was automatically converted to bitcoin and ethereum. And in Jackson, Tenn., Tampa Bay, Fla., Austin, Texas, and other cities across the country, mayors are embracing cryptocurrencies.  

These mayors want to strike “digital gold” for their cities and boost economic growth by attracting cryptocurrency and blockchain companies. Some even believe cryptocurrencies may be a way to address income inequality or provide alternative payment methods for unbanked and underbanked residents.  

However, regardless of how compelling these opportunities appear, more weight seems to be given to the potential benefits of cryptocurrencies than to the risks. Before embracing cryptocurrencies, local leaders should ask themselves: 

11 House members send 7 questions to CFPB about vehicle repossessions

The American Financial Services Association highlighted that 11 members of the U.S. House sent a letter to the Consumer Financial Protection Bureau containing seven questions triggered by the regulator saying it is “moving to thwart illegal repossessions in the heated auto market.”

The lawmakers began their letter by referencing a post on Twitter by CFPB director Rohit Chopra, who said, “No one ever wants to wake up to find that their car has been stolen. Given today’s high prices for used cars, the CFPB is taking action to thwart illegal auto repossessions by auto lenders, investors, and servicers.”

The representatives asked Chopra respond to the following questions to determine the level of concern members of Congress should have regarding vehicle repossessions mentioned in part by a previous CFPB bulletin. The questions included:

Emergency Savings and Financial Security: Insights from the Making Ends Meet Survey and Consumer Credit Panel

This report examines how consumers’ financial profiles vary by levels of emergency savings. We use a new version of the Making Ends Meet survey and pair it with credit bureau data from our Consumer Credit Panel to provide a unique picture of consumers' financial profiles not available through research outside the CFPB. These rich data reveal much about the current state of consumer finances in the wake of an especially turbulent period, triggered by the COVID-19 pandemic, in which Americans from all walks of life experienced unexpected changes, emergencies, dips in income, and expense shocks. Our analyses show striking differences in consumers’ credit and debt profiles, savings profiles, ability to meet financial obligations, and financial well-being by their level of emergency savings. While savings are a way for consumers to weather unexpected shocks, financial constraint resulting from obligatory expenses and insufficient income can impede consumers’ ability to save for emergencies. The findings highlight the degree to which consumers struggle across multiple dimensions of their financial lives and will serve as a valuable, original resource for other researchers, the policy community, and practitioners who study, advocate for, and serve struggling consumers.

Financial Professionals on Financial Wellness

A recent study examines financial professionals’ views on financial wellness. 

In the study, “What Financial Professionals Think About Financial Wellness,” T. Rowe Price in conjunction with Duke University’s Common Cents behavioral finance lab and financial wellness provider Retiremap look at what financial professionals think about financial wellness, how wellness programs can be applied and what it all means for them and their profession.

Why Offer Financial Wellness Benefits? 

The financial professionals surveyed offered a variety of reasons for offering financial wellness benefits. At their core, they are good for business, says the report. For instance, it says, doing so can help a business to differentiate itself from its competitors and build itself. It is especially important for a business, to differentiate itself, the report says, during a time of fee compression. The top reasons the financial professionals gave for offering financial wellness benefits included that they:

State-sponsored retirement savings programs could be a lifeline for US workers

For millions of Americans, an unexpected expense or a sudden loss of income can severely impact their household’s balance sheet. In fact, each year more than half of U.S. households experience at least one financial shock, such as a major medical bill, and many are unable to cover those expenses. These financial shocks can be even more difficult for low-income families and households of color, who often have fewer resources to cushion against financial adversity. Some people withdraw money from their retirement savings to make up the difference.

Retirement savings, of course, are important not just as a last-resort source of income to pay for unanticipated expenses: Their primary purpose is to help employees prepare for their retirement. Yet millions of workers, and at least one-third of private sector employees, don’t even have access to retirement plans at their jobs. One innovative way to solve this problem: the growing number of state-facilitated retirement savings programs. 

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