The Consumer Financial Protection Bureau’s “untested and unvalidated assumptions” about credit card late fees are incorrect, particularly about the deterrent effect of late fees, and result in a “flawed policy,” the American Bankers Association and two banking and credit card associations said Wednesday. In a joint letter On the CFPB’s proposal to reduce the safe harbor amount for late fees, the associations said the regulation would increase the cost of credit cards, make cards more difficult to obtain, and reduce the number of institutions that offer the products.

“As with many obligations, late fees provide a significant incentive to pay on time and help cover the costs and risk of people not paying,” the associations said. “Late payment fees are designed to recover at least part of the issuer’s costs associated with late payment, encourage timely payments, minimize defaults and delinquencies, and promote good credit management.”

The letter cited a recent survey commissioned by the ABA that found that late fees are more effective in motivating consumers to pay bills on time than are negative credit scores. They also noted that 68% of consumers surveyed believe it is reasonable for banks to charge late fees.

In addition, the associations argued that the CFPB violated various processes and procedural requirements. The bureau did not consider the effects of the proposal on small banks and credit unions, the groups said, adding that it is engaging in “hasty rulemaking with a predetermined outcome” in violation of the Administrative Procedure Act. . Trade groups also argued that the proposal signals an attempt to circumvent a provision in the Truth in Lending Act that sets the effective dates of regulations containing new or changed TILA disclosure requirements.

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