The Consumer Bankers Association has issued the second blog post of its four-part “Facts Matter” blog series.  In the second blog post, CBA “explains how the [CFPB’s] public statements can mislead market observers by painting an inaccurate picture of the credit card marketplace.”  CBA identifies various ways in which the CFPB’s October 2023 report (Report) under the Credit Card Accountability Responsibility and Disclosure Act tells “a different, richer, story about credit card fees” than the story told by the CFPB’s press releases and speechwriters. 

CBA observes that CFPB press releases and statements have consistently repeated the theme that credit card late fees are not fair and competitive and that the CFPB “regularly talks in terms of rising late fees.”  It cites Director Chopra’s assertion that once credit card issuers “discovered that these fees could be a source of easy profits, late fees shot up, with a surge occurring in the 2000s.”  CBA also observes that among the “big headlines” in the CFPB’s press release about the Report was that “Credit card companies charged borrowers the highest amount of interest and fees ever measured by the CFPB’s data.”  CBA indicates that the CFPB “often uses this broad statement as support for an assertion about the growth of a specific type of credit card fee: late fees.”

In the second blog post, the CBA illustrates how the Report actually shows that:

  • Late fees have not meaningfully increased as a proportion of credit card balances for the last several years (excluding the pandemic years, during which consumers received a variety of public and private stimulus benefits that brought down both credit card spending and late payments).
  • To the extent that overall fees have grown in proportion to balances, it appears to be attributable to two factors: an increase in credit card availability for subprime and deep subprime cardholders and growth in credit card annual fees.  CBA comments that card issuers are making significant progress underwriting consumers with the lowest credit scores.  As a result, more people now have access to more highly regulated credit than ever before and can use credit cards instead of turning to what are generally more expensive alternatives such as payday, auto title or pawn loans.
  • Most of the growth in annual fees is paid by prime and super-prime consumers.  Issuers are charging consumers with lower credit scores fewer and lower annual fees and are instead competing and innovating to offer products to prime and super-prime consumers with higher annual fees. In doing so, they are growing revenue by charging larger fees, more frequently, to consumers with the highest credit scores.

To read about the first blog post in CBA’s four-part series, click here