CFPB proposes rule to slash maximum credit card late fees to $8

The Consumer Financial Protection Bureau on Feb. 1 proposed a rule to drastically slash credit card late fees — a highly anticipated rule that industry experts expect to put pressure on the industry's fee income.

The CFPB proposed cutting the immunity provision for late fees to $8 for a missed payment and ending the automatic annual inflation adjustment. It also seeks to ban late fee amounts above 25% of the consumer's required payments. The agency estimates the proposed rule could reduce late fees by about $9 billion per year.

The proposed $8 late fee cap marks a drastic reduction from the current safe harbor late fee of $30 and the subsequent late payment safe harbor fee of $41. Under the proposal, the $8 proposal would apply to any missed payment, both initial and subsequent, according to the agency's press release.

The proposed 25% cap on the consumer's required payment also marks a large reduction from current rules which allow companies to charge 100% of the minimum payment owed by the cardholder, according to the agency.

Comments must be received on or before April 3 or within 30 days after publication of the notice of proposed rulemaking in the Federal Register, whichever is later.

Compass Point analyst Ed Groshans wrote in a Feb. 1 note that the $8 proposal was below his estimated range of $15 to $25 and is a negative for all credit card issuers, namely Synchrony Financial, Bread Financial Holdings Inc., Capital One Financial Corp., Discover Financial Services and American Express Co.

The analyst estimates the change could reduce late fee revenue by more than 50%.