[Federal Register Volume 89, Number 52 (Friday, March 15, 2024)]
[Rules and Regulations]
[Pages 19128-19223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05011]



[[Page 19127]]

Vol. 89

Friday,

No. 52

March 15, 2024

Part III





Consumer Financial Protection Bureau





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12 CFR Part 1026





Credit Card Penalty Fees (Regulation Z); Final Rule

  Federal Register / Vol. 89 , No. 52 / Friday, March 15, 2024 / Rules 
and Regulations  

[[Page 19128]]


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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1026

[Docket No. CFPB-2023-0010]
RIN 3170-AB15


Credit Card Penalty Fees (Regulation Z)

AGENCY: Consumer Financial Protection Bureau.

ACTION: Final rule; official interpretation.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) 
amends Regulation Z, which implements the Truth in Lending Act (TILA), 
to address late fees charged by card issuers that together with their 
affiliates have one million or more open credit card accounts (referred 
to as ``Larger Card Issuers'' herein). This final rule adopts a late 
fee safe harbor threshold of $8 for those issuers and provides that the 
annual adjustments to reflect changes in the Consumer Price Index (CPI) 
do not apply to this $8 amount.

DATES: Effective date: May 14, 2024.

FOR FURTHER INFORMATION CONTACT: Adrien Fernandez, Counsel; Krista 
Ayoub and Steve Wrone, Senior Counsels, Office of Regulations, at 202-
435-7700. If you require this document in an alternative electronic 
format, please contact [email protected].

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule

    The CFPB is amending provisions in Regulation Z, Sec.  1026.52(b) 
and its accompanying commentary as they relate to credit card penalty 
fees.\1\ Currently, under Sec.  1026.52(b)(1), a card issuer must not 
impose a fee for violating the terms or other requirements of a credit 
card account under an open-end (not home-secured) consumer credit plan, 
such as a late payment, exceeding the credit limit, or a returned 
payment, unless the issuer has determined that the dollar amount of the 
fee represents a reasonable proportion of the total costs incurred by 
the issuer for that type of violation as set forth in Sec.  
1026.52(b)(1)(i) (so-called cost analysis provisions) or complies with 
the safe harbor provisions set forth in Sec.  1026.52(b)(1)(ii). 
Section 1026.52(b)(1)(ii)(A) and (B) currently sets forth a safe harbor 
of $30 generally for penalty fees, except that it sets forth a safe 
harbor of $41 for each subsequent violation of the same type that 
occurs during the same billing cycle or in one of the next six billing 
cycles.\2\ The CFPB has determined that for Larger Card Issuers (i.e., 
card issuers that together with their affiliates have one million or 
more open credit card accounts),\3\ the discretionary safe harbor 
dollar amounts for late fees, as currently set forth in Sec.  
1026.52(b)(1)(ii)(A) and (B), are too high and, therefore, are not 
consistent with TILA's statutory requirement that such fees be 
reasonable and proportional to the omission or violation to which the 
fee relates. With respect to the current higher safe harbor threshold 
for late fees for certain subsequent violations, the CFPB also is 
concerned based on data from certain Larger Card Issuers that this 
amount is higher than is justified based on consumer conduct and to 
deter future violations and, indeed, a late fee that is too high could 
interfere with a consumer's ability to make future payments on the 
account.
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    \1\ When amending commentary, the Office of the Federal Register 
(OFR) requires reprinting of certain subsections being amended in 
their entirety rather than providing more targeted amendatory 
instructions. The sections of regulatory text and commentary 
included in this document show the language of those sections as 
amended by this final rule. In addition, the CFPB is releasing an 
unofficial, informal redline to assist industry and other 
stakeholders in reviewing the revisions by this final rule to the 
regulatory text and commentary of Regulation Z. This redline can be 
found on the CFPB's website, https://files.consumerfinance.gov/f/documents/cfpb_unofficial-redline_credit-card-penalty-fees_final-rule_2024-01.pdf. If any conflicts exist between the redline and the 
text of Regulation Z, its commentary, or this final rule, the 
documents published in the Federal Register are the controlling 
documents.
    \2\ Although the safe harbors discussed above apply to charge 
card accounts, Sec.  1026.52(b)(1)(ii)(C) provides an additional 
safe harbor when a charge card account becomes seriously delinquent.
    \3\ This final rule does not define the term ``Larger Card 
Issuer'' in the regulatory or commentary text, but this document 
uses this term to aid understanding of the changes in this final 
rule and readability of the document. This document uses the term 
``Larger Card Issuers'' to refer to card issuers that are not 
Smaller Card Issuers as defined in Sec.  1026.52(b)(3) and thus are 
card issuers that together with their affiliates have one million or 
more open credit card accounts.
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    To address these concerns, this final rule amends Sec.  1026.52(b) 
and its accompanying commentary to help ensure that the safe harbor 
sets late fees imposed by Larger Card Issuers at amounts that are 
consistent with the TILA's requirement that such fees be reasonable and 
proportional to the cost from an omission or violation. First, with 
respect to Larger Card Issuers, this final rule repeals the current 
safe harbor threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and (B), 
adopts in Sec.  1026.52(b)(1)(ii) a late fee safe harbor dollar amount 
of $8, and eliminates for late fees a higher safe harbor dollar amount 
for subsequent violations of the same type that occur during the same 
billing cycle or in one of the next six billing cycles.\4\ Second, with 
respect to late fees imposed by Larger Card Issuers, this final rule 
provides that the current provision in Sec.  1026.52(b)(1)(ii)(D) that 
provides for annual adjustments for the safe harbor dollar amounts to 
reflect changes in the CPI will not apply to the $8 safe harbor amount 
for those late fees. This final rule also amends comments 7(b)(11)-4, 
52(a)(1)-1.i and iv, 60(a)(2)-5.ii, and sample forms in appendix G to 
revise current examples of late fee amounts to be consistent with the 
$8 safe harbor late fee amount discussed above.
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    \4\ This final rule does not amend the safe harbor set forth in 
Sec.  1026.52(b)(1)(ii)(C) applicable to charge card accounts.
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    This final rule does not adopt the following revisions for Smaller 
Card Issuers as defined in new Sec.  1026.52(b)(3): (1) repeal of the 
current safe harbor threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and 
(B), adoption of $8 late fee safe harbor threshold amount, and 
elimination of a higher late fee safe harbor dollar amount for 
subsequent violations; and (2) the elimination of the annual 
adjustments for the safe harbor threshold dollar amounts. This final 
rule defines the term ``Smaller Card Issuer'' in Sec.  1026.52(b)(3) to 
mean a card issuer that together with its affiliates had fewer than one 
million open credit card accounts for the entire preceding calendar 
year.\5\ For purposes of defining ``Smaller Card Issuer,'' this final 
rule incorporates the definition of ``open credit card account'' from 
Sec.  1026.58(b)(6), which defines the term to mean a credit card 
account under an open-end (not home-secured) consumer credit plan and 
either: (1) The cardholder can obtain extensions of credit on the 
account; or (2) There is an outstanding balance on the account that has 
not been charged off. As discussed below, the safe harbors in Sec.  
1026.52(b)(1)(ii)(A) and (B), as revised in this final rule pursuant to 
the annual adjustments in Sec.  1026.52(b)(1)(ii)(D), will continue to 
apply to late fees imposed by Smaller Card Issuers.
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    \5\ This final rule contains an exception if a card issuer 
together with its affiliates had fewer than one million open credit 
card accounts for the entire preceding calendar year but meets or 
exceeds that number of open credit card accounts in the current 
calendar year. In this case, this final rule provides that the card 
issuer will no longer be a Smaller Card Issuer as of 60 days after 
meeting or exceeding that number of open credit card accounts. See 
Sec.  1026.52(b)(3)(ii).

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[[Page 19129]]

    Pursuant to the annual adjustments for safe harbor dollar amounts 
in Sec.  1026.52(b)(1)(ii)(D), this final rule revises the safe harbor 
threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) to $32, except 
that it sets forth a safe harbor of $43 for each subsequent violation 
of the same type that occurs during the same billing cycle or in one of 
the next six billing cycles. These revised safe harbor threshold 
amounts of $32 and $43 apply to penalty fees other than late fees for 
all card issuers (i.e., Smaller Card Issuers and Larger Card Issuers) 
as well as late fees imposed by Smaller Card Issuers, as noted above.
    This final rule also amends comment 52(b)(1)(i)-2.i to make it 
explicitly clear that costs for purposes of the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) for determining penalty fee 
amounts do not include any collection costs that are incurred after an 
account is charged off pursuant to loan loss provisions. This 
clarification applies to all card issuers that use the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) for determining penalty fee 
amounts, including late fees.

II. Background

A. The CARD Act

    The Credit Card Accountability Responsibility and Disclosure Act of 
2009 (CARD Act) was signed into law on May 22, 2009.\6\ The CARD Act 
primarily amended TILA \7\ and instituted new substantive and 
disclosure requirements to establish fair and transparent practices for 
open-end consumer credit plans. The CARD Act added TILA section 149, 
which provides, among other things, that the amount of any penalty fee 
with respect to a credit card account under an open-end consumer credit 
plan in connection with any omission with respect to, or violation of, 
the cardholder agreement, including any late payment fee or any other 
penalty fee or charge, must be ``reasonable and proportional'' to such 
omission or violation.\8\
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    \6\ Public Law 111-24, 123 Stat. 1734 (2009).
    \7\ 15 U.S.C. 1601 et seq.
    \8\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(a)).
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    At the time of its passage, the CARD Act required the Board of 
Governors of the Federal Reserve System (Board) to issue rules 
establishing standards for assessing the reasonableness and 
proportionality of such penalty fees.\9\ In issuing these rules, the 
CARD Act required the Board to consider (1) the cost incurred by the 
creditor from an omission or violation; (2) the deterrence of omissions 
or violations by the cardholder; (3) the conduct of the cardholder; and 
(4) such other factors deemed necessary or appropriate by the 
Board.\10\ The CARD Act authorized the Board to establish different 
standards for different types of fees and charges, as appropriate.\11\ 
The CARD Act also granted the Board discretion to provide an amount for 
any penalty fee or charge that is presumed to be reasonable and 
proportional to the omission or violation to which the fee or charge 
relates.\12\ As discussed in more detail below, the authority to 
implement TILA, including TILA section 149, transferred from the Board 
to the CFPB in 2011.
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    \9\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(b)).
    \10\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(c)).
    \11\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. (1665d(d)).
    \12\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. (1665d(e)).
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B. The Board's Implementing Rule

    On June 29, 2010, the Board issued a final rule implementing new 
TILA section 149 in its Regulation Z, 12 CFR 226.52(b) (2010 Final 
Rule).\13\ The Board's Regulation Z, Sec.  226.52(b) provided that a 
card issuer must not impose a fee for violating the terms or other 
requirements of a credit card account, such as a late payment, 
exceeding the credit limit, or returned payments, unless the issuer has 
determined that the dollar amount of the fee represents a reasonable 
proportion of the total costs incurred by the issuer for that type of 
violation as set forth in Sec.  226.52(b)(1)(i). Alternatively, if the 
card issuer did not want to use the cost analysis provisions in Sec.  
226.52(b)(1)(i) to determine the late fee amount, the issuer could use 
the safe harbors set forth in Sec.  226.52(b)(1)(ii).\14\ The Board set 
the safe harbor amounts in Sec.  226.52(b)(1)(ii) at $25 generally for 
penalty fees, except that it set forth a safe harbor of $35 for each 
subsequent violation of the same type that occurs during the same 
billing cycle or in one of the next six billing cycles.\15\ Although 
the safe harbors discussed above applied to charge card accounts, the 
Board's Regulation Z, Sec.  226.52(b)(1)(ii) also provided an 
additional safe harbor when a charge card account becomes seriously 
delinquent.\16\ The Board's Regulation Z, Sec.  226.52(b)(1)(ii)(D) 
provided that the safe harbor dollar amounts would be adjusted annually 
to the extent that changes in the CPI would result in an increase or 
decrease of $1.\17\
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    \13\ 75 FR 37526 (June 29, 2010).
    \14\ 12 CFR 226.52(b)(1).
    \15\ 12 CFR 226.52(b)(1)(ii)(A) and (B).
    \16\ 12 CFR 226.52(b)(1)(ii)(C).
    \17\ 12 CFR 226.52(b)(1)(ii)(D).
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    The Board's Regulation Z, Sec.  226.52(b)(2) also contained other 
restrictions on card issuers for imposing penalty fees. Specifically, 
Sec.  226.52(b)(2)(i) prohibited issuers from imposing penalty fees 
that exceed the dollar amount associated with the violation.\18\ In 
addition, Sec.  226.52(b)(2)(ii) prohibited issuers from imposing 
multiple penalty fees based on a single event or transaction.\19\
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    \18\ 12 CFR 226.52(b)(2)(i).
    \19\ 12 CFR 226.52(b)(2)(ii).
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C. Transfer of Authority for TILA to the CFPB and the CFPB's Rule

    The Board's 2010 Final Rule implementing TILA section 149 took 
effect on August 22, 2010.\20\ Nearly one year later, on July 21, 2011, 
the Board's rulemaking authority to implement the provisions of TILA, 
including TILA section 149, transferred to the CFPB pursuant to 
sections 1061 and 1100A of the Consumer Financial Protection Act of 
2010 (CFPA).\21\
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    \20\ 75 FR 37526 at 37526.
    \21\ Public Law 111-203, 124 Stat. 1376, 1955-2113 (2010).
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    On December 22, 2011, the CFPB issued an interim final rule issuing 
its Regulation Z, 12 CFR part 1026, to reflect its assumption of 
rulemaking authority over TILA.\22\ As set forth in the interim final 
rule, the CFPB's Regulation Z, Sec.  1026.52(b) contained the same 
restrictions on penalty fees as set forth in the Board's Regulation Z, 
Sec.  226.52(b).\23\
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    \22\ 76 FR 79768 (Dec. 22, 2011); see also 81 FR 25323 (Apr. 28, 
2016).
    \23\ 76 FR 79768 at 79822.
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    The dollar safe harbor amounts adopted by the Board in 2010 have 
been adjusted pursuant to Sec.  1026.52(b)(1)(ii)(D).\24\ Section 
1026.52(b)(1)(ii) currently sets forth a safe harbor of $30 generally 
for penalty fees, except that it sets forth a safe harbor of $41 for 
each subsequent violation of the same type that occur during the same 
billing cycle or in one of the next six billing cycles.\25\
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    \24\ Comment 52(b)(1)(ii)-2.
    \25\ Although the safe harbors discussed above apply to charge 
card accounts, Sec.  1026.52(b)(1)(ii)(C) provides an additional 
safe harbor when a charge card account becomes seriously delinquent. 
Specifically, Sec.  1026.52(b)(1)(ii)(C) provides that, when a card 
issuer has not received the required payment for two or more 
consecutive billing cycles on a charge card account that requires 
payment of outstanding balances in full at the end of each billing 
cycle, it may impose a late payment fee that does not exceed 3 
percent of the delinquent balance.
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D. A Decade of the Late Fee Safe Harbor

    In the wake of the Board's and the CFPB's implementation of TILA 
section 149, late fees represent almost all

[[Page 19130]]

penalty fee volume on credit cards. Over-the-limit fees are now 
practically nonexistent and fees for returned payments account for less 
than one percent of total fee volume based on Y-14+ data collected from 
a group of mass market and specialized issuers.\26\
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    \26\ Consumer Fin. Prot. Bureau (CFPB), The Consumer Credit Card 
Market, at 62-67 (Oct. 2023) (2023 Report), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2023.pdf. See part V for a description of the Y-14+ 
data.
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    Prior to the passage of the CARD Act in 2009, the average late fee 
was $33 for issuers in the CFPB's Credit Card Database (CCDB) which 
includes information on the full consumer and small business credit 
card portfolios of large credit card lenders, covering approximately 85 
percent of all credit card accounts in the U.S. between April 2008 and 
April 2016.\27\ With the effective date of the safe harbor threshold 
amounts in 2010, the average late fee in the CCDB declined by over $10 
to $23 in the fourth quarter of 2010.\28\
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    \27\ CFPB, Card Act Report, at 23 (Oct. 2013) (2013 Report), 
https://files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf. 
From 2008 to 2015, the CFPB used the CCDB to measure the amount of 
average late fees to include in the CARD Act reports that the CFPB 
releases every two years. In its 2017 report, the CFPB started using 
the Y-14 data to measure the amount of average late fees to include 
in its CARD Act reports and began using the Y-14+ data to calculate 
metrics including average late fee beginning with its 2019 report. 
See part V for a description of the Y-14 and Y-14+ data.
    \28\ Id.
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    However, from 2010 through the onset of the COVID-19 pandemic, 
issuers had steadily been charging consumers more in credit card late 
fees each year--growing to over $14 billion in total late fee volume 
for issuers contained in the Y-14+ data in 2019.\29\ At the end of 
2012, the average late fee for major issuers in the CCDB reached about 
$27.\30\ It remained at about that level until rising to $28 in 2018 
for issuers in the Y-14+, consistent with the first safe harbor 
adjustment to reflect changes in the CPI in 2014.\31\ In 2019, the 
average late fee charged by credit card issuers in the Y-14+ rose to 
$31, approaching nominal pre-CARD Act levels.\32\ In 2020, the average 
late fee for issuers in the Y-14+ data stayed at $31.\33\
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    \29\ CFPB, Credit Card Late Fees, at 4 (Mar. 2022) (Late Fee 
Report), https://files.consumerfinance.gov/f/documents/cfpb_credit-card-late-fees_report_2022-03.pdf.
    \30\ 2013 Report, at 23.
    \31\ CFPB, The Consumer Credit Card Market, at 69 (Dec. 2019) 
(2019 Report), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2019.pdf.
    \32\ Late Fee Report, at 6.
    \33\ Late Fee Report, at 5; CFPB, The Consumer Credit Card 
Market, at 55 (Sept. 2021) (2021 Report), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2021.pdf.
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    Total late fee volume for issuers contained in the Y-14+ exceeded 
pre-pandemic levels in 2022, following declines in both 2020 and 2021 
given record-high payment rates and public and private relief efforts, 
as discussed in the 2023 Proposal (88 FR 18906 (Mar. 29, 2023)).\34\ 
Data published after the 2023 Proposal found issuers in the Y-14+ 
reported $14.5 billion in late fees in 2022, up from $11.3 billion in 
2021, $11.9 billion in 2020, and slightly above $14.2 billion in 
2019.\35\ The average late fee increased from $31 in 2021 to $32 in 
2022 across both first-time and repeat incidents of late payment, 
explaining part of the increase in total volume in 2022.\36\
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    \34\ 2021 Report, at 117; 2023 Report, at 65.
    \35\ 2023 Report, at 65.
    \36\ Id.
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E. Credit Card Issuers' Use of the Late Fee Safe Harbor

    Currently, Sec.  1026.52(b)(1)(ii) sets forth a safe harbor of $30 
generally for a late payment, except that it sets forth a safe harbor 
of $41 for each subsequent late payment within the next six billing 
cycles. A card issuer is not required to use the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) to determine the amount of late 
fees if it complies with these safe harbor amounts.\37\
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    \37\ See comment 52(b)(1)-1.i.A.
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    As noted in the 2023 Proposal, an analysis by the CFPB in 2022 of 
credit card agreements submitted to the CFPB's Credit Card Agreement 
Database in the fourth quarter of 2020 found no evidence of any issuers 
using the cost analysis provisions to charge an amount higher than the 
safe harbor.\38\ Most top issuers by outstanding balances have taken 
advantage of the increased safe harbors as annually adjusted to reflect 
changes in the CPI by increasing their fee amounts.\39\ Eighteen of the 
top 20 issuers by outstanding balances contracted a maximum late fee at 
or near the higher safe harbor amount of $40 in 2020 based on analysis 
of the maximum late fee disclosed by an institution in agreements 
submitted to the CFPB's Credit Card Agreement Database in the fourth 
quarter of that year.\40\ Yet, the most common maximum late fee 
disclosed in agreements submitted to the CFPB was $25, as driven by the 
practices of smaller banks and credit unions not in the top 20 issuers 
by asset size.\41\ Finally, a small but growing number of issuers offer 
credit card products with no late fees.\42\
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    \38\ Late Fee Report, at 14.
    \39\ Id.
    \40\ Id. The Credit Card Agreement Database is available at 
https://www.consumerfinance.gov/credit-cards/agreements.
    \41\ Late Fee Report, at 14.
    \42\ Id. at 15.
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    An analysis by the CFPB in 2023 of credit card agreements submitted 
to the CFPB's Credit Card Agreement Database in the second quarter of 
2023 was consistent with the 2022 results. The CFPB did not find 
evidence of issuers using the cost analysis provision to charge an 
amount higher than the safe harbor. Of the approximately 30 to 35 
submitters that the CFPB would expect to be Larger Card Issuers, most 
of those issuers continued to contract at a maximum late fee at or near 
the higher safe harbor amount of $41 in 2023 with all Larger Card 
Issuers in the Y-14+ data charging a maximum late fee between $38 and 
$41. For Larger Card Issuers, the maximum late fee in their submitted 
agreements ranged from $20 to $41 with 13 issuers charging $40 and 11 
charging $41. Smaller Card Issuers with more than 10,000 accounts 
submitting agreements to the CPFB's Credit Card Database continue to 
charge far below the late fee safe harbor. Only six Smaller Card 
Issuers for whom the CFPB has data charged a maximum late fee of $41. 
Over two-thirds of the sample of Smaller Issuers charge $25 or less per 
late payment and 10 already charge $8 or less.
    Some Larger Card Issuers may be disincentivized to lower late fee 
amounts below the safe harbor, given that the industry as a whole 
continues to rely on late fees as a source of revenue and many 
consumers may not shop for credit cards based on the amount of the late 
fee. For the Larger Card Issuers in the Y-14+ data, late fees 
represented 10 percent of charges to consumers in 2020, but individual 
card issuers' revenue from late fees varied.\43\ The share of late fees 
for Larger Card Issuers in the Y-14+ data ranged from approximately 
five to 30 percent of total consumer charges in 2019. Among issuers 
there is a strong correlation between reliance on late fees and 
concentration of subprime accounts. Yet, the industry as a whole 
continues to rely on late fees as a source of revenue.\44\
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    \43\ Id. at 13.
    \44\ Id. at 14.
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    As noted in the 2023 Proposal, many consumers may not shop for 
credit cards based on the amount of late fees, which also may lessen 
card issuers incentive to charge late fees lower than the safe harbor 
amount. Survey data suggest that other factors, such as rewards, annual 
fees, and annual percentage rate(s)

[[Page 19131]]

(APR), drive credit card usage.\45\ In addition, recent academic work 
\46\ directly observed that credit card offers highlight rewards, 
annual fees, and APRs more than late fees based on the position of the 
information and the size of the font.\47\ Only 6.06 percent of the 
611,797 card offers in their data spanning from 1999 to 2007 mentioned 
late fees on the front page, with an average font size of 9.56. In 
contrast, (1) rewards were displayed on the front page 93.68 to 100 
percent of the time (depending on the type of rewards) with an average 
font size of 12.12 to 16.56; (2) the annual fee was disclosed on the 
front page 78.02 percent of the time with an average font size of 
13.39; and (3) APRs were displayed on the front page 27.95 percent of 
the time with an average font size of 13.02. The CFPB notes that the 
authors of the study explained that most of the analysis reported in 
the paper excludes the post-2007 data to abstract from the impact of 
the 2008 financial crisis and the CARD Act.\48\ However, the authors 
also stated that ``the main results are qualitatively and 
quantitatively very similar if we include data until 2016.'' \49\ Since 
the CFPB issued the 2023 Proposal, other survey data indicate that late 
fee amounts are less impactful to consumers than annual fees, rewards, 
intro sign-up bonuses, credit limits, other benefits, and promotional 
or ongoing interest rates when deciding whether to apply for a new 
credit card or choosing whether to use an existing credit card.\50\
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    \45\ Karen Augustine, U.S. Consumers and Credit: Rising Usage, 
Mercator Advisory Group, at 40 (2018).
    \46\ Hong Ru & Antoinette Schoar, Do Credit Card Companies 
Screen for Behavioural Biases? (Feb. 21, 2023), BIS Working Paper 
No. 842, https://ssrn.com/abstract=3549532.
    \47\ Id. This survey used detailed information from Comperemedia 
on more than 1.3 million individual credit card offers that were 
sent to a set of representative households in the United States 
between 1999 and 2016. Thus, the CFPB expects that this survey 
likely focused on Larger Card Issuers, which represent the bulk of 
the credit card market in terms of outstanding balances. Id. at 3.
    \48\ Id. at 12.
    \49\ Id.
    \50\ Auriemma Consulting Group, Impact of Late Fee and 
Interchange Regulation, Variable Rates, and Credit Card Value 
Proposition Preferences (Oct. 2023).
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F. Consumer Impact of Late Fees

    As noted in the 2023 Proposal, late fees represented over one-tenth 
of the $120 billion issuers in the Y-14+ charged to consumers in 
interest and fees in 2019, totaling over $14 billion in that year.\51\ 
Since the CPFB issued the 2023 Proposal, this remains true as late fees 
represented over one-tenth of the more than $130 billion issuers in the 
Y-14+ charged to consumers in interest and fees in 2022, totaling over 
$14 billion that year.\52\ A small share of accounts in low credit 
score tiers incur a high proportion of late fees.\53\ Overall, the 
average deep subprime account in the Y-14 data \54\ was charged $138 in 
late fees in 2019, compared with $11 for the average superprime 
account.\55\ The higher incidence of late fees for accounts in lower 
tiers, combined with higher average charges for repeat late fees within 
six billing cycles of the initial late fee, drives this disparity.\56\
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    \51\ Late Fee Report, at 4.
    \52\ 2023 Report, at 65.
    \53\ Late Fee Report, at 7; 2023 Report, at 65.
    \54\ The Y-14 data are discussed in more detail in part V.
    \55\ Late Fee Report, at 8.
    \56\ Id.
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    Credit card accounts in the Y-14 data held by cardholders living in 
the U.S.' poorest neighborhoods paid twice as much on average in total 
late fees than those in the richest areas.\57\ Cardholders in majority-
Black areas paid more in late fees for each card they held with major 
credit card issuers in 2019 than majority white areas.\58\ And people 
in areas with the lowest rates of economic mobility paid nearly $10 
more in late fee charges per account compared to people in areas with 
the highest rates of economic mobility.\59\
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    \57\ Id. at 9.
    \58\ Id. at 10.
    \59\ Id. at 11.
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G. Other Consequences to Consumers of Late Payment

    When a consumer does not make at least the minimum payment by the 
periodic statement due date, a late fee may not be the only 
consequence. However, the effect of a missed payment depends on 
cardholder conduct both prior to and after the due date.
    For cardholders who typically pay their balance in full every month 
(so-called transactors), a late payment generally means both a late fee 
and new interest incurred for carrying or revolving a balance. For the 
cardholders who do not roll over a balance in the month before or after 
a late fee is assessed, the loss of a grace period \60\ and coinciding 
interest charges may pose a similar or even greater burden than the 
late fee itself. For cardholders who regularly revolve a balance from 
one month to the next, a late fee is the main financial consequence of 
a missed payment if the payment is made prior to the next statement due 
date, as the additional interest charges on the unpaid minimum amount 
due for a limited number of days will likely be minimal.
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    \60\ A grace period is a period within which credit extended may 
be repaid without incurring a finance charge due to a periodic 
interest rate. See, e.g., Sec.  1026.6(b)(2)(v) and comments 
5(b)(2)(ii)-3.i and 54(a)(1)-2.
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    However, if a consumer does not make at least the minimum payment 
due for more than one billing cycle, non-payment may carry more severe 
consequences. After approximately 30 days, consumers' credit scores may 
decline after issuers report the delinquency to credit bureaus. A card 
issuer also may take actions to reprice new transactions on the account 
according to a penalty rate, if permitted under Sec.  
1026.55(b)(3).\61\ After 60 days, issuers may take action to reprice 
the entire outstanding balance on the account according to a penalty 
rate, if permitted under Sec.  1026.55(b)(4). At any point as an 
account becomes more delinquent, an issuer may take steps to reduce a 
cardholder's credit line or suspend use of the card, limit their 
earning or redemption of rewards, or increase outreach to collect the 
outstanding debt. After 180 days of delinquency, an issuer will 
typically close and charge off the credit card account which may carry 
a large and long-term financial penalty for a consumer.
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    \61\ If a consumer does not make the required payment by the due 
date, Sec.  1026.55(b)(3) permits a card issuer to take actions to 
reprice new transactions on the account according to a penalty rate 
in certain circumstances. The CFPB understands, however, that most 
card issuers do not take actions to reprice new transactions to the 
penalty rate until the consumer is more than 60 days late. 2021 
Report, at 51.
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III. Summary of Rulemaking Process

A. Advance Notice of Proposed Rulemaking

    On June 22, 2022, the CFPB issued an advance notice of proposed 
rulemaking (ANPR) seeking information from credit card issuers, 
consumer groups, and the public regarding credit card late fees and 
late payments, and card issuers' revenue and expenses.\62\ The CFPB 
received 43 comments in response to the ANPR.
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    \62\ 87 FR 38679 (June 29, 2022).
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    Consumer group commenters generally made a number of 
recommendations with respect to restrictions on late fees, including 
that the CFPB should more closely tailor the late fee safe harbor to 
the amount of the debt owed by the cardholder, such as by establishing 
a sliding scale for the safe harbor amount so that late fees are 
proportional to the account balance.
    Card issuers and their trade associations that commented on the 
ANPR generally opposed revisions to

[[Page 19132]]

Regulation Z's safe harbor provisions related to late fees, including 
lowering the safe harbor amounts. Several industry trade association 
commenters also asserted that because lowering the safe harbor would 
have a significant impact on small financial institutions, the CFPB 
must comply with the Small Business Regulatory Enforcement Fairness Act 
(SBREFA) by convening a SBREFA panel in any late fee rulemaking.

B. 2023 Proposal

    On February 1, 2023, the CFPB issued a notice of proposed 
rulemaking containing several proposed amendments to Regulation Z, 
which implements TILA, to better ensure that the late fees charged on 
credit card accounts are ``reasonable and proportional'' to the late 
payment as required under TILA. This notice of proposed rulemaking was 
published in the Federal Register on March 29, 2023 (2023 
Proposal).\63\ The CFPB generally proposed that the final rule, if 
adopted, would take effect 60 days after publication in the Federal 
Register.
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    \63\ 88 FR 18906 (Mar. 29, 2023).
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    As described more fully below, the CFPB proposed to amend 
provisions in Sec.  1026.52(b) and its accompanying commentary as they 
relate to credit card late fees. Because late fees are by far the most 
prevalent penalty fees charged by card issuers and the CFPB's current 
data primarily relate to late fees, the CFPB's proposed changes to the 
restrictions in Sec.  1026.52(b) were limited to late fees, although 
the CFPB solicited comments on whether the proposed amendments should 
apply to other penalty fees.
    The proposal would have amended Sec.  1026.52(b) and its 
accompanying commentary to help ensure that late fees are reasonable 
and proportional. First, the proposal would have amended Sec.  
1026.52(b)(1)(ii) to lower the safe harbor dollar amount for late fees 
to $8 and to no longer apply to late fees a higher safe harbor dollar 
amount for subsequent violations of the same type that occur during the 
same billing cycle or in one of the next six billing cycles.\64\ 
Second, the proposal would have provided that the current provision in 
Sec.  1026.52(b)(1)(ii)(D) that provides for annual adjustments to 
reflect changes in the CPI for the safe harbor dollar amounts would not 
apply to the safe harbor amount for late fees. Third, the proposal 
would have amended Sec.  1026.52(b)(2)(i)(A) to provide that late fee 
amounts must not exceed 25 percent of the required payment; currently, 
late fee amounts must not exceed 100 percent. The proposal also would 
have amended comments 7(b)(11)-4, 52(a)(1)-1.i and iv, and 60(a)(2)-
5.ii to revise current examples of late fee amounts to be consistent 
with the proposed $8 safe harbor late fee amount. The CFPB also 
solicited comment on whether card issuers should be prohibited from 
imposing late fees on consumers that make the required payment within 
15 calendar days following the due date. In addition, the CFPB 
solicited comment on whether, as a condition of using the safe harbor 
for late fees, it may be appropriate to require card issuers to offer 
automatic payment options (such as for the minimum payment amount), or 
to provide notification of the payment due date within a certain number 
of days prior to the due date, or both.
---------------------------------------------------------------------------

    \64\ The proposal would not have amended the safe harbor set 
forth in Sec.  1026.52(b)(1)(ii)(C) applicable to charge card 
accounts.
---------------------------------------------------------------------------

    The CFPB proposed one clarification that would have applied to 
penalty fees generally. Specifically, the proposal would have amended 
comment 52(b)(1)(i)-2.i to make it explicitly clear that costs for 
purposes of the cost analysis provisions in Sec.  1026.52(b)(1)(i) for 
determining penalty fee amounts do not include any collection costs 
that are incurred after an account is charged off pursuant to loan loss 
provisions. In addition, the CFPB solicited comment on several issues 
related to penalty fees generally. First, the CFPB solicited comment on 
whether the same or similar changes described above should be applied 
to other penalty fees, such as over-the-limit fees, returned-payment 
fees, and declined access check fees, or in the alternative, whether 
the CFPB should finalize the proposed safe harbor for late fees and 
eliminate the safe harbors for other penalty fees. Second, the CFPB 
solicited comment on whether instead of revising the safe harbor 
provisions set forth in Sec.  1026.52(b)(1)(ii) as they apply to late 
fees as discussed above, the CFPB should instead eliminate the safe 
harbor provisions in Sec.  1026.52(b)(1)(ii) for late fees or should 
instead eliminate the safe harbor for all penalty fees, including late 
fees, over-the-limit fees, returned-payment fees, and declined access 
check fees. If the safe harbor provisions were eliminated, card issuers 
would need to use the cost analysis provisions set forth in Sec.  
1026.52(b)(1)(i) to determine the amount of the penalty fees (subject 
to the limitations in Sec.  1026.52(b)(2)). The CFPB also solicited 
comment on whether, in that event, the cost analysis provisions would 
need to be amended and, if so, how.
    The CFPB received approximately 57,900 responses to the 2023 
Proposal. Of those responses, around 56,800 were from consumers that 
generally supported the 2023 Proposal. The vast majority of these 
consumer letters had the same content, and specifically supported the 
proposed $8 safe harbor threshold amount for late fees. In certain 
consumer letters, consumers who supported the proposal included 
additional information, such as their experiences with late fees. Some 
consumers who supported the proposal indicated they had limited income 
and that even a small late fee can impact consumers on a tight budget. 
Some consumers who supported the proposal indicated that they were 
charged a late fee in the past because (1) their mailed payment was not 
received by the card issuer by the due date because of slower postal 
service; (2) they paid on the due date but after the cut off time on 
the due date; (3) they forgot to pay on time because of vacations, 
medical issues, or family issues; or (4) they experienced cash flow 
issues because of unexpected expenses, such as an illness, and in some 
cases were not able to change the due date for their payments.
    Around 350 individual consumers, including approximately 170 
individuals who identified themselves as ``bankers'' who submitted the 
same letter, opposed the proposed $8 safe harbor amount. The 
individuals who identified themselves as bankers asserted that the CFPB 
should withdraw the proposal and restart the rulemaking process after 
taking into consideration small business' input through the SBREFA 
process.
    Consumer group commenters generally supported the 2023 Proposal. 
These consumer group commenters expressed strong support for: (1) the 
CFPB's proposed safe harbor of $8 for credit card late fees; and (2) 
the CFPB's proposal to limit the dollar amount associated with a late 
payment to 25 percent of the required minimum periodic payment due 
immediately prior to assessment of the late payment.
    The CFPB received around 100 comment letters from industry 
commenters. Industry commenters generally opposed the proposal, 
including the following proposed changes: (1) lowering the late fee 
safe harbor amount to $8 and eliminating the higher safe harbor amount 
for subsequent late payments; (2) eliminating the annual adjustment 
provisions for late fee amounts; (3) limiting late fee amounts to 25 
percent of the require minimum payment; and (4) clarifying that costs 
for purposes of the cost analysis provisions in Sec.  1026.52(b)(1)(i) 
for determining penalty fee amounts do not include any

[[Page 19133]]

collection costs that are incurred after an account is charged off 
pursuant to loan loss provisions.
    One Member of Congress was concerned about the impact of the 2023 
Proposal on small issuers. This commenter advised that the CFPB either 
work to ensure that the cost analysis provisions--an alternative to the 
safe harbor--would not impose undue burdens on small issuers or that 
the CFPB consider a separate safe harbor for small issuers that more 
accurately reflects their unique costs.
    The Office of Advocacy, an independent office within the Small 
Business Administration (SBA), expressed concern that the CFPB's 
analysis of pre-charge-off costs from the Y-14 issuers does not 
accurately represent the collection costs for late payments of smaller 
issuers. The agency also criticized the CFPB for insufficiently 
considering the extent to which the proposed $8 safe harbor amount 
would cover the collection costs of smaller issuers.
    The CFPB also received comments from other types of entities, 
namely several academics, law firms, and financial regulatory advocacy 
groups. The comments from these entities varied, with some of these 
entities generally supporting the 2023 Proposal, and some of them 
generally opposing it. These comments, as well as the other comments 
received by the CFPB on the 2023 Proposal, are discussed in more detail 
below in part VII.

C. CARD Act Consultation With Certain Federal Agencies

    Consistent with the CARD Act, the CFPB consulted with the following 
agencies regarding rules that implement TILA section 149, both before 
issuing the 2023 Proposal and before issuing this final rule: (1) the 
Comptroller of the Currency; (2) the Board of Directors of the Federal 
Deposit Insurance Corporation (FDIC); and (3) the National Credit Union 
Administration Board.\65\ The CFPB also consulted with the Board and 
several other Federal agencies, before issuing the 2023 Proposal and 
before issuing this final rule, as discussed in part IX.
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    \65\ 15 U.S.C. 1665d(b) and 1665d(e).
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IV. Legal Authority

A. Section 1022 of the CFPA

    Section 1022(b)(1) of the CFPA authorizes the CFPB to prescribe 
rules ``as may be necessary or appropriate to enable the CFPB to 
administer and carry out the purposes and objectives of the Federal 
consumer financial laws, and to prevent evasions thereof.'' \66\ Among 
other statutes, the CFPA and TILA are Federal consumer financial 
laws.\67\ Accordingly, in issuing this final rule, the CFPB exercises 
its authority under the CFPA section 1022(b)(1) to prescribe rules 
under TILA and the CFPA that carry out the purposes and objectives and 
prevent evasion of those laws.
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    \66\ 12 U.S.C. 5512(b)(1).
    \67\ CFPA section 1002(14); codified at 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws'' and the provisions of the CFPA); CFPA 
section 1002(12); codified at 12 U.S.C. 5481(12) (defining 
``enumerated consumer laws'' to include TILA).
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B. The Truth in Lending Act

    As amended by the CFPA, TILA section 105(a) \68\ directs the CFPB 
to prescribe regulations to carry out the purposes of TILA, and 
provides that such regulations may contain additional requirements, 
classifications, differentiations, or other provisions, and may provide 
for such adjustments and exceptions for all or any class of 
transactions, that, in the judgment of the CFPB, are necessary or 
proper to effectuate the purposes of TILA, to prevent circumvention or 
evasion thereof, or to facilitate compliance. Pursuant to TILA section 
102(a), a purpose of TILA is to assure a meaningful disclosure of 
credit terms to enable the consumer to avoid the uninformed use of 
credit and compare more readily the various credit terms available to 
the consumer. This stated purpose is tied to Congress' finding that 
economic stabilization would be enhanced and competition among the 
various financial institutions and other firms engaged in the extension 
of consumer credit would be strengthened by the informed use of 
credit.\69\ Thus, strengthened competition among financial institutions 
is a goal of TILA, achieved through the effectuation of TILA's 
purposes.
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    \68\ 15 U.S.C. 1604(a).
    \69\ TILA section 102(a), codified at 15 U.S.C. 1601(a).
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    As described above, the CARD Act was signed into law on May 22, 
2009,\70\ and the Act amended TILA \71\ by adding section 149, which 
provides, among other things, that the amount of any penalty fee with 
respect to a credit card account under an open-end consumer credit plan 
in connection with any omission with respect to, or violation of, the 
cardholder agreement, including any late payment fee or any other 
penalty fee or charge, must be ``reasonable and proportional'' to such 
omission or violation.\72\
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    \70\ Public Law 111-24, 123 Stat. 1734 (2009).
    \71\ 15 U.S.C. 1601 et seq.
    \72\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(a)).
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    At the time of its passage, the CARD Act added section 149(b) to 
TILA, which required the Board to issue rules establishing standards 
for assessing the reasonableness and proportionality of such penalty 
fees, with a statutory deadline of February 22, 2010, for issuing this 
required rule.\73\ Section 149(d) also authorized the Board to 
establish different standards for different types of fees and charges, 
as appropriate.\74\ The CARD Act also allowed, but did not require, the 
Board to issue rules to provide for a safe harbor amount for any such 
penalty fee that is presumed to be reasonable and proportional to such 
omissions or violations.\75\ This grant of discretionary authority did 
not include a deadline. The Board issued a rule on June 29, 2010, 
completing the required rulemaking (now contained in the CFPB's 
Regulation Z, 12 CFR 1026.52(b)(1)(i)). That required rulemaking 
included cost analysis provisions that enabled issuers to determine the 
late fee amount that were reasonable and appropriate under the statute. 
In addition, the Board exercised its discretionary power to include 
optional safe harbor provisions that issuers could elect to use as an 
alternative to the cost analysis provisions (now contained in the 
CFPB's Regulation Z, 12 CFR 1026.52(b)(1)(ii)).
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    \73\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(b)).
    \74\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(d)).
    \75\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(e)).
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    On July 21, 2011, the Board's rulemaking authority to implement the 
provisions of TILA, including the discretionary authority to issue 
rules regarding penalty fee safe harbors in TILA section 149(e), 
transferred to the CFPB pursuant to sections 1061 and 1100A of the 
CFPA.\76\
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    \76\ Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------

    For the reasons discussed in this final rule, the CFPB is amending 
certain provisions in Regulation Z that impact the amount of late fees 
that Larger Card Issuers can charge.
    With respect to late fees charged, pursuant to section 149(e), the 
CFPB has analyzed whether the current safe harbor threshold amounts for 
late fees should be presumed to be reasonable and proportional to a 
cardholder's omission or violation. In considering whether and what is 
the appropriate amount for the safe harbor, the CFPB

[[Page 19134]]

looked to whether the safe harbor is a ``reasonable and proportional'' 
fee, as originally prescribed by the Board, such that any fee under the 
safe harbor amount should be presumed to have met that standard. In 
addition, the CFPB is guided by, but was not required to consider, the 
four statutory factors applicable to the Board's 2010 Final Rule: (1) 
the cost incurred by the creditor from an omission or violation; (2) 
the deterrence of omissions or violations by the cardholder; (3) the 
conduct of the cardholder; and (4) such other factors deemed necessary 
or appropriate.
    As described below and pursuant to its rulemaking authority under 
TILA sections 105(a) and 149(e),\77\ the CFPB has determined that the 
current safe harbor thresholds are too high with respect to late fees 
charged by Larger Card Issuers, and therefore, repeals the safe harbor 
provisions with respect to late fees charged by those issuers. The CFPB 
then establishes a new safe harbor of $8 applicable to late fees 
charged by Larger Card Issuers. Separately, at this time and as 
described below, the CFPB is not exercising its discretionary authority 
to impose the new $8 threshold amount on Smaller Card Issuers.
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 1604(a).
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V. Data Considered for This Rulemaking

A. The CFPB's Proposal

    The CFPB considered four primary data sources in developing the 
2023 Proposal, as described below: (1) Y-14; (2) Y-14+; (3) credit card 
debt collection data received from an information order made pursuant 
to section 1022(c)(4) of the CFPA; and (4) the CFPB's Credit Card 
Agreement Database.
Y-14 Data
    First, as explained in the 2023 Proposal, the CFPB relied upon data 
that the Board collects as part of its Y-14M (Y-14) data.\78\ Since 
June 2012, the Board has collected these data monthly from bank holding 
companies with total consolidated assets exceeding $50 billion (from 
June 2012 to November 2019) and exceeding $100 billion (from December 
2019 to present).\79\ For this collection, surveyed financial 
institutions report comprehensive data on their assets on the last 
business day of each calendar month. These data are used to support the 
Board's supervisory stress test models and provide one source of data 
for the CFPB's biennial report to Congress on the consumer credit card 
market.
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    \78\ See Bd. of Governors of the Fed. Rsrv. Sys., Report Forms 
FR Y-14M, https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDYnbIw+U9pka3sMtCMopzoV (for more 
information on the Y-14M collection). The CFPB is one of several 
government agencies with whom the Board shares the data. Information 
in the Y-14 data do not include any personal identifiers. 
Additionally, accounts associated with the same consumer are not 
linked across or within issuers. The Y-14 data also do not include 
transaction-level data pertaining to consumer purchases.
    \79\ In the 2023 Proposal, the CFPB incorrectly indicated that 
the Y-14 data from June 2012 to the present is collected from bank 
holding companies with total consolidated assets exceeding $50 
billion. In fact, in December 2019, the Board adjusted the cutoff 
threshold from $50 million to $100 billion. This difference in the 
threshold to submit Y-14 data does not impact the CFPB's analysis 
because the CFPB was merely describing the issuers covered by that 
data, which the CFPB still used in its totality. The increased 
threshold did not impact the analysis of pre-charge-off collection 
costs set forth in the section-by-section of Sec.  1026.52(b)(1)(ii) 
because that analysis focused on periods after 2019.
---------------------------------------------------------------------------

    The Y-14 data contain confidential supervisory information.\80\ 
Given this and as detailed in the 2023 Proposal, the CFPB could not 
release the raw data, but did provide the data in summary form and 
explained the source of the data, the analysis, and the metrics used in 
its analysis. The 2023 Proposal began by explaining that these data 
contain reported information on the following four metrics used in 
developing the 2023 Proposal:
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    \80\ The Board's instructions to Y-14 issuers provide: As these 
data will be collected as part of the supervisory process, they are 
subject to confidential treatment under exemption 8 of the Freedom 
of Information Act. 5 U.S.C. 552(b)(8). In addition, commercial and 
financial information contained in these information collections may 
be exempt from disclosure under Exemption 4. 5 U.S.C. 552(b)(4). 
Disclosure determinations would be made on a case-by-case basis. 
https://www.federalreserve.gov/apps/reportingforms/Download/DownloadAttachment?guid=dce3da6a-55b4-4fb4-8730-3fec04d32627.
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    Late Fee Income: Reported net fee income assessed for late or 
nonpayment accounts in a given domestic credit card portfolio by card 
type (e.g., general purpose or private label). This is late fee income 
for the CFPB's purposes in developing the 2023 Proposal.
    Collection Costs: Reported costs incurred to collect problem 
credits that include the total collection cost of delinquent, recovery, 
and bankrupt accounts. Issuers report these aggregate costs monthly for 
their domestic credit card portfolios and separately by credit card 
type.\81\ These reported costs do not include projected losses, and the 
dollar amount of charge-offs and any associated recoveries.\82\
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    \81\ Types include General Purpose, Private Label, Business, and 
Corporate cards.
    \82\ Issuers report projected losses, the dollar amount of 
charge-offs and any associated recoveries, interest expense, and 
loan loss provisions separately.
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    Late Fee Amount: Reported amount of the late fee charged on a 
particular account in a particular month.
    Total Required Payments: Reported total payment amount on a 
particular account in a particular month, including any missed payments 
or fees that were required to be paid in a particular billing cycle. 
This typically includes the minimum payment due, past due payments, and 
any amount reported as over the credit limit.
    As described in the 2023 Proposal, the Y-14 data received by the 
CFPB covered the period from the middle of 2012 through September 2022 
and are provided by certain Larger Card Issuers that account for just 
under 70 percent of outstanding balances on U.S. consumer credit cards 
as of year-end 2020. With respect to credit card data, the 2023 
Proposal explained that, for purposes of its analysis, the CFPB 
generally used the complete portfolio data (including late fee income 
and collection costs) for all the Y-14 issuers included in the data 
collection. The 2023 Proposal also explained that the analysis 
generally used a random 40 percent subsample of account information 
(including late fee amounts and total required payments) reported by 
card issuers included in the data collection. For the purposes of the 
analysis using these data in the 2023 Proposal, the CFPB only 
considered account- and portfolio-level data for issuers in a given 
month for consumer general purpose and private label credit cards for 
which there existed data on late fee income, collection costs, late fee 
amounts, and total required payments in the Y-14 data.
Determination of Post-Charge-Off Collection Costs Using Credit Card 
Debt Collection Data Received From an Information Order Made Pursuant 
to Section 1022(c)(4) of the CFPA
    In the 2023 Proposal, the CFPB stated its understanding that 
collection costs in the Y-14 data are total collection costs, therefore 
include both pre-charge-off and post-charge-off collection costs 
because, as described in the 2023 Proposal, the Board requires that 
issuers report in the Y-14 data ``costs incurred to collect problem 
credits that include the total collection cost of delinquent, recovery, 
and bankrupt accounts'' (emphasis added). While the line item reported 
to the Board for the Y-14 data relates to total collection costs, the 
Board's 2010 Final Rule generally explains that the collection costs 
used for determining late fees under the cost analysis provisions in 
Sec.  1026.52(b)(1)(i) are limited to the use of pre-charge off 
collection costs. As explained in the 2023 Proposal and as the Board 
noted in

[[Page 19135]]

that 2010 Final Rule ``it would be inconsistent with the purpose of the 
[CARD Act] to permit card issuers to begin recovering losses and 
associated costs through penalty fees rather than through upfront 
rates.'' \83\ The Board further noted that ``it would be inconsistent 
with TILA section 149(c)(1) to permit the costs of the loss to be 
included as `costs incurred by the creditor from [an] omission or 
violation,' which could be construed to mean that it is appropriate to 
exclude losses where--as here--card issuers do not incur losses as a 
result of the overwhelming majority of violations.'' \84\
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    \83\ 75 FR 37526 at 37538.
    \84\ Id.
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    The CFPB did not propose to amend the Board's rule in this respect 
and further noted that this limitation was appropriate given that card 
issuers write accounts off as a loss when an account has been charged 
off; therefore, any cost in collecting amounts owed to a card issuer 
that incurred post-charge-off is related to mitigating a loss as 
opposed to the cost of a violation of the account terms.\85\
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    \85\ In the 2023 Proposal, the CFPB proposed to amend comment 
52(b)(1)(i)-2.i to make it explicitly clear that costs for purposes 
of the cost analysis provisions in Sec.  1026.52(b)(1)(i) for 
determining penalty fee amounts do not include any collection costs 
that are incurred after an account is charged off pursuant to loan 
loss provisions.
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    Given that the rule's cost analysis provisions in Sec.  
1026.52(b)(1)(i) limit the collection costs to costs that are incurred 
pre-charge off, consistent with the statute, the CFPB similarly limited 
its calculation of the appropriate safe harbor to this pre-charge off 
cost in the Y-14 data by excluding the post-charge-off collection 
costs. As explained in the 2023 Proposal, to do this, the CFPB 
estimated the percentage of collection costs that may occur after 
charge-off so that they could be excluded from the collection costs in 
the Y-14 data.
    To determine what percentage of Y-14 data were pre-charge off, the 
CFPB examined confidential information gathered in the course of its 
statutory functions \86\ on commissions paid to third-party debt 
collectors for charged-off accounts that six major card issuers paid in 
2019 and 2020, representing 91 percent of balances and 93 percent of 
collection costs among portfolios with positive collection expenses 
reported in the Y-14 data in the twelve months leading up to August 
2022.\87\ In the 2023 Proposal, the CFPB noted that the most 
significant post-charge-off collection costs are likely to be 
commissions paid to third-party debt collectors for charged-off 
accounts. The CFPB stated its understanding that such commission 
payments, made to third-party debt collection companies, would be made 
almost exclusively in connection with accounts that have been charged 
off, and represent a conservative estimate of post-charge-off 
collection costs, as there may be other costs associated with 
collections post-charge-off beyond such commission payments.
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    \86\ The CFPB collected these confidential data through an 
information order pursuant to section 1022(c)(4) of the CFPA.
    \87\ As part of its review of the practices of credit card 
issuers for its biennial review of the consumer credit card market, 
the CFPB surveys several large issuers to better understand 
practices and trends in credit card debt collection. These data 
provided in response to data filing orders served as the basis of 
this calculation. For more information on these data, see 2021 
Report, at 17.
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    As explained in the 2023 Proposal, the methodology for estimating 
post-charge-off commissions considered the amount of charged-off 
balances and then estimated the commission on the volume of recovered 
balances by using the recovery and commission rates. For example, if an 
issuer had a total of $1 million in newly charged-off balances in a 
given year, a cumulative recovery rate for that year of five percent, 
and a post-charge-off commission rate of 20 percent, the CFPB estimated 
the post-charge-off commission costs to be $10,000. As noted in the 
proposal, to calculate the post-charge-off collection costs as a share 
of total cost of collections, the CFPB then divided the estimated post-
charge-off commission costs by the total collection costs the bank 
reported in the Y-14 data. For issuers who sell debt, the cost of 
collections calculation used charge-off balances net of asset sales. 
The commission rate for each issuer is an average weighted by the share 
of post-charge-off balances in each tier placement (e.g., primary, 
secondary, and tertiary placements).
    Based on these commission expenses that these six major card 
issuers paid in 2019 and 2020 to third-party debt collectors for 
charged-off accounts, the CFPB explained in the 2023 Proposal that it 
estimated that these post-charge-off costs are around 25 percent of 
total collection costs for these issuers; the average ratio was 27 
percent in 2019 and 21 percent in 2020. In 2019, the median ratio of 
estimated post-charge-off commission costs to annual collection costs 
in the Y-14 for individual issuers was 28 percent; in 2020, it was 23 
percent. Based on these data, in the 2023 Proposal, the CFPB estimated 
that pre-charge-off collection costs were equal to 75 percent of the 
collection costs included in the Y-14 data for purposes of its analysis 
related to the proposed changes to the safe harbor thresholds for late 
fees in Sec.  1026.52(b)(1)(ii).
Y-14+ Data
    As discussed in the 2023 Proposal, the CFPB also considered Y-14+ 
data in developing the proposal. The Y-14+ data include confidential 
information gathered in the course of statutory functions from the 
Board's Y-14 data and a diverse group of specialized issuers.\88\ The 
additional data that included specialized issuers were used to 
calculate the average late fee charged by Y-14+ issuers in 2019 and 
2020. As explained in the proposal, in 2019, the average late fee 
charged by issuers in the Y-14+ data was $31. In the proposal, the CFPB 
noted that because the average late fee charged by the Y-14+ issuers is 
lower than the current maximum safe harbor of $41 and yet issuers still 
generate late fee income that is more than five times the ensuing 
(estimated) pre-charge-off collection costs since August 2021, the CFPB 
preliminarily concluded that $8 is likely to recover the average 
issuer's pre-charge-off collection costs. In addition, in the proposal, 
the CFPB used the average late fee charged by Y-14+ issuers in 2020 in 
forming its expectation that the proposed $8 amount would have a 
proportionately smaller impact on smaller issuers' late fee income, due 
to smaller issuers' having lower late fee amounts. In 2020, the average 
late fee for issuers in the Y-14+ data was $31. The CFPB noted that it 
collects card agreements from more smaller issuers than issuers for 
which the CFPB has financial data. Based on the CFPB's 2022 review of 
agreements from over 500 credit card issuers having more than 10,000 
credit card accounts, the CFPB established that issuers outside the top 
20 by outstanding credit card balances charged smaller late fees in 
2020 than issuers within the top 20.
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    \88\ The CFPB received the information from the specialized 
issuers through an information order pursuant to section 1022(c)(4) 
of the CFPA which provides that the CFPB will treat the information 
received in response to the order in accordance with its 
confidentiality regulations at 12 CFR 1070.40 through 1070.48.
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CFPB's Credit Card Agreement Database
    In the 2023 Proposal, the CFPB discussed a 2022 review conducted by 
the CFPB of credit card agreements submitted to the CFPB's Credit Card 
Agreement Database in the fourth quarter of 2020 to determine the 
maximum late fee amount charged across agreements by issuers submitting 
to that database. As discussed above, the 2023 Proposal relied on these 
data in

[[Page 19136]]

developing preliminary conclusions about the potential impact the 
proposed $8 late fee safe harbor threshold amount would have on card 
issuers, including smaller issuers.

B. CFPB Revenue and Collection Costs Report

    At the time it issued the 2023 Proposal, the CFPB also published a 
related report, ``Credit Card Late Fees: Revenue and Collection Costs 
at Large Bank Holding Companies'' (Revenue-Costs Report).\89\ Although 
the CFPB recognized that it could not publish the confidential Y-14 
data, as discussed above, the Revenue-Costs Report provides additional 
information on the monthly values for the aggregate late fee revenue 
and collection costs for general purpose and private label credit cards 
in the Y-14 data since 2016. The Revenue-Costs Report includes the 
total number of accounts in these portfolios, aggregate interest 
revenue for these accounts, the CFPB's estimate of pre-charge-off 
collection costs, total account balances, and the weighted ratio of 
late fee income to estimated pre-charge-off collection costs.\90\ The 
CFPB provided this information in order to enable commenters to better 
understand how the CFPB determined the relationship between late fee 
revenue and pre-charge-off collection costs for Y-14 issuers for 
purposes of the 2023 Proposal. The Revenue-Costs Report shows that 
revenue from late fees has consistently far exceeded pre-charge-off 
collection costs over the last several years.
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    \89\ CFPB, Credit Card Late Fees: Revenue and Collection Costs 
at Large Bank Holding Companies (Revenue-Costs Report) (Feb. 2023), 
https://files.consumerfinance.gov/f/documents/cfpb_credit-card-late-fees-revenue-collection-costs-large-bank_2023-01.pdf.
    \90\ Since not every issuer in the Y-14 data reports values for 
every month, the Revenue-Costs Report also included the number of 
portfolios that are included in the aggregate for the applicable 
month.
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C. Comments Received Related to Data and Analysis

Using Y-14 Data Without Releasing Underlying Data
    Several credit unions, industry trade associations, and individuals 
on behalf of a credit union, one law firm representing several card 
issuers, and one academic commenter criticized the CFPB for failure to 
release the underlying Y-14 data. These commenters asserted they did 
not have the ability to understand or evaluate the CFPB's proposal in a 
thorough and meaningful way or to replicate the CFPB's analysis due to 
the lack of insight into the underlying data, methodology used, and 
analyses that form the basis of the 2023 Proposal. Several of these 
commenters asserted that the failure to disclose the raw Y-14 data 
relied upon in the rulemaking conflicts with requirements under section 
553 of the Administrative Procedure Act (APA).\91\
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    \91\ 5 U.S.C. 553(b), (c).
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    One of the credit union commenters urged the CFPB to provide a 
breakdown of the components used to arrive at the proposed $8 late fee 
safe harbor and the source of the data. One of the industry trade 
association commenters noted that the CFPB failed to provide a clearly 
defined list of data inputs that banks provide in reporting collection 
costs on the Y-14 data. The law firm representing several card issuers 
asserted that, although the CFPB compiled and released a set of 
aggregated and anonymized values at the same time as the proposal, it 
did not include an explanation of which Y-14 data fields it used to 
populate the document, how and why the CFPB designated the data for 
inclusion in the categories the document sets forth, or how the CFPB 
ensured that the data categorizations were consistent from bank to 
bank--all of which it claimed prevented commenters from assessing the 
validity and accuracy of the proposal or the conclusions it supports.
    One of the industry trade association commenters also expressed 
concerns that the CFPB did not provide information about the 
distribution of the ratio of late fee income to future collection costs 
for the Y-14 issuers; and about whether the CFPB used all of the 
issuers in the Y-14 data in analyzing the ratio of late fee income to 
future collection costs.
    The academic commenter focused on a narrower set of data related to 
a Y-14 seven-month analysis. These data were used to support analysis 
in the proposal that lower late fees in month seven do not affect the 
late payment rate. This commenter asserted that these claims would 
require further review and validation by industry and urged the CFPB to 
release the underlying Y-14 data used in this seven-month analysis.
    Several of the industry trade association commenters and the 
academic commenter also requested that the CFPB release further 
anonymized or aggregated Y-14 data to the public and postpone the 
rulemaking until it could release these additional data.
    The CFPB disagrees with the commenters that the 2023 Proposal 
failed to provide sufficient data or description of methodology for 
commenters to offer meaningful comment. The CFPB also does not agree 
that it is improper to cite supervisory or other confidential data 
gathered for statutory functions or shared by the Board pursuant to 
those statutory functions in the rulemaking process; this is 
information the CFPB obtains as part of its lawful and authorized 
activities, and it provides insight into the issues addressed here. 
CFPB's published reports were collected through its supervision 
function, and the CFPB's regulations protect confidential supervisory 
information from disclosure. As noted above, the Board's instructions 
to the Y-14 issuers indicates that the Y-14 data are collected as part 
of the supervisory process and are subject to confidential treatment 
under certain exemptions of the Freedom of Information Act.\92\ The 
CFPB was authorized to use this robust dataset if it complied with the 
Board's confidentiality conditions, and it would have been unreasonable 
to burden the industry with duplicative data requests. Also, as noted 
above, the CFPB collects certain information pursuant to information 
orders under section 1022(c)(4) of the CFPA and those orders provide 
that the CFPB will treat the information received in response to the 
order in accordance with its confidentiality regulations at 12 CFR 
1070.40 through 1070.48. Courts have held that an agency can rely on 
confidential information in its rulemaking so long as the agency 
discloses information to allow interested parties to comment on the 
methodology and general data.\93\ The CFPB disclosed how it obtained 
the data, the methodologies used to analyze the data, the number of 
accounts reviewed, characteristics about the accounts reviewed, and the 
results of the various studies.
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    \92\ See supra note 80.
    \93\ See NRDC v. Thomas, 805 F.2d 410, 418 n.13 (D.C. Cir. 
1986); see also Riverkeeper Inc. v. EPA, 475 F.3d 83, 112 (2d Cir. 
2007); rev'd on other grounds, 556 U.S. 208 (2009).
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    As noted above, the 2023 Proposal provides a detailed description 
of each of the four sources of data used in the rulemaking: (1) Y-14; 
(2) Y-14+; (3) credit card debt collection data received from an 
information order made pursuant to section 1022(c)(4) of the CFPA; and 
(4) the CFPB's Credit Card Agreement Database. Although the CFPB did 
not release the raw Y-14 data used in developing the 2023 Proposal, it 
took several steps to release aggregate data, as well as providing 
detailed descriptions of methodology and analysis, so that commenters 
could evaluate and provide meaningful

[[Page 19137]]

comment on the CFPB's data and analysis.
    As noted above, contrary to what some commenters stated, the 2023 
Proposal explained the source of the Y-14 data (from the Board), as 
well as the specific question about estimating collection costs for 
late fees that was used to generate the data. In the 2023 Proposal, the 
CFPB also described the four types of Y-14 data that it used for the 
analysis in the proposal, namely, late fee income, collection costs, 
late fee amount, and total required payments.\94\ The 2023 Proposal 
further detailed the relevant years of data examined, as well as the 
reasons why the CFPB preliminarily determined it was appropriate to 
rely on data from the Y-14 issuers, noting that those issuers 
constituted approximately 70 percent of the market. The CFPB also 
adequately described in the 2023 Proposal how it used the Y-14 data in 
the analysis, including the methodology it used to calculate the ratio 
of collection costs to late fee income.\95\ As described in the 2023 
Proposal, that methodology involved the CFPB comparing each month's 
late fee income for a particular portfolio to the portfolio's average 
estimated pre-charge-off collection costs for that month, where that 
estimate was based on estimated pre-charge-off collection costs that 
occurred two through six months later.\96\ The CFPB developed monthly 
estimates of this late fee income-to-cost ratio for each year from 2013 
up to early 2022. The CFPB also described the methodology for 
conducting the Y-14 seventh-month analysis in relation to the impact of 
higher subsequent late fees on late payment incidence, which included 
conducting statistical analysis on a random subsample from account-
level data available in 2019 from the Y-14 data to investigate whether 
the lower late fee amount in month seven leads to a discontinuous jump 
in late payments in the seventh month after the last late payment.\97\
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    \94\ 88 FR 18906 at 18910-11.
    \95\ Id. at 18916-18.
    \96\ For example, if an issuer were to report late fee income of 
$15 million in January for a portfolio and total collection costs 
for that portfolio of $20 million in March through July, the CFPB 
estimated $15 million in pre-charge-off collection costs in March 
through July and calculated an average monthly collection cost of $3 
million for purposes of this analysis--resulting in a ratio of late 
fee income of $15 million to collection cost of $3 million for this 
portfolio for the month of January. In the 2023 Proposal, the CFPB 
noted that its preliminary findings based on the weighted average of 
this ratio across issuers and market segments were robust to 
shifting, expanding, or shortening the time period of delay in 
collection costs as they relate to late fee income.
    \97\ Id. at 18920. The CFPB observed in the Y-14 data that, 
consistent with the safe harbor provisions of the current rule, 
consumers who paid late again within the six months after a late 
payment paid higher late fees during those six months than they paid 
after the initial late fee.
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    As noted above, the CFPB also issued along with the 2023 Proposal 
the Revenue-Costs Report at the time of the proposal to aid in the 
ability of commenters to examine data from issuers and provide 
additional analysis and methodology, enhancing the ability of 
commenters to offer meaningful comment. The Revenue-Costs Report 
included additional monthly values for the aggregate late fee revenue 
and collection costs for general purpose and private label credit cards 
in the Y-14 data since 2016.\98\ The report also provided (1) the 
number of portfolios that are included in the aggregate for the 
applicable month; (2) the total number of accounts in these portfolios, 
(3) aggregate interest revenue for these accounts, and (4) the CFPB's 
estimate of pre-charge-off collection costs, total account balances, 
and the weighted ratio of late fee income to estimated pre-charge-off 
collection costs. Many credit unions and individuals on behalf of 
credit unions and one industry credit union trade association used the 
information in the Revenue-Costs Report to compare the average pre-
charge-off collection cost and the average late fee income per account 
for the Y-14 issuers to the average pre-charge-off collection cost and 
the average late fee income per account for the credit card industry. 
Specifically, using the information in the Revenue-Costs Report, these 
commenters calculated the annual average pre-charge-off collection cost 
and the annual average late fee income per account for the Y-14 issuers 
($0.22 and $13.80 respectively) using monthly averages for the 12-month 
period ending September 2022 contained in the Revenue-Costs Report and 
compared these data to the annual average pre-charge-off cost per 
account and the annual average late fee income for the credit union 
industry that the commenters collected ($0.33 and $7 respectively).
---------------------------------------------------------------------------

    \98\ See supra note 89.
---------------------------------------------------------------------------

    Throughout the process, the CFPB sought to provide as much 
information as possible to ensure that commenters could themselves 
analyze the CFPB methodology, critique data, and provide feedback. 
Indeed, as described below, the CFPB received approximately 10 comments 
that specifically analyzed the CFPB's use of the Y-14 data, as well as 
the CFPB's methodology and analysis. For example, the CFPB received 
comments that criticized the CFPB's bottom line late fee estimate and 
offered contrary amounts based on issuers' own analysis using the 
CFPB's methodology. Other commenters also provided meaningful feedback 
on the source of the data and data fields. The CFPB has determined this 
feedback further supports the fact that throughout this rulemaking 
(including an ANPR that sought data from issuers), the CFPB has sought 
to share as much information as possible. For comparison, the CFPB's 
rulemaking, unlike the original 2010 rule, analyzed and presented 10 
years of data specifically from card issuers' own reports of collection 
costs. While these raw data could not be disclosed, the CFPB published 
data in an aggregate form, and in both the 2023 Proposal and the 
related Revenue-Costs Report, the CFPB described its methodology and 
analysis to further the ability of commenters to meaningfully examine, 
understand, and comment on the data.
Y-14 Data as Representative of Issuers' Collection Costs and Late Fee 
Income
    As noted in the 2023 Proposal, the Y-14 data provided 10 years of 
information related to total collection costs, which as required by the 
Board is defined to include ``costs incurred to collect problem credits 
that include the total collection cost of delinquent, recovery, and 
bankrupt accounts.''
    Several industry trade associations and one law firm representing 
several card issuers asserted that the CFPB improperly relied on this 
Y-14 data field in developing the proposal because that ``total 
collection cost'' line item may be underinclusive of some issuers' 
collection costs. The law firm representing several card issuers 
asserted that there are expenses caused by late payments that are not 
included in the ``total collection cost'' line item relied on by the 
CFPB in the Y-14 data. For example, this commenter asserted that 
technology-related expenses associated with delinquent customer 
servicing and processing platforms, forms of customer communications 
for consumers in delinquent status, payment-processing expenses 
associated with programs for late payers, and costs associated with 
supporting collection activities such as human resources, risk 
management, and legal may not be reported.
    Several industry trade associations asserted that the CFPB's 
analysis of this line item from the Y-14 data incorrectly excludes 
attributable expenses and overhead, including systems expenses and risk 
department expenses related to consumer credit card accounts. These

[[Page 19138]]

trade association commenters also stated that the amount excluded the 
costs of funding delinquent accounts (i.e., costs to fund the balances 
for longer than expected because of late payments), and these 
commenters asserted that indirect costs represent real and reasonable 
expenses associated with late and delinquent accounts. While these 
commenters did not provide data for the costs associated with all late 
payments, these commenters did provide data for accounts that were late 
for 60 days or more and estimated that these 60-day plus delinquent 
accounts cost issuers $46.30, including $33.00 in direct expenses, 
$9.00 in attributable expenses, and $4.30 in funding costs.
    Another industry trade association asserted that the Y-14 total 
collection cost line item on which the CFPB relied is not a 
sufficiently uniform or defined data set for purposes of assessing card 
issuer collection costs associated with late payments, due to 
variations in the way that the largest banks report their data. 
Specifically, this commenter asserted that Y-14 data are reported for 
stress-testing purposes, and as a result, institutions may not report 
it in a uniform way because for stress-testing purposes, it is less 
important whether an institution reports a particular cost in this line 
item or in another line item for costs, so long as the institution 
reports that particular cost in some way in the reporting forms 
overall. According to this commenter, some banks include certain 
overhead and fixed costs such as real estate and information technology 
(IT) in the total collection cost line item, while others do not. This 
commenter further asserted that the share of total collection costs 
across an institution's divisions may result in variation of how they 
report the Y-14 collection cost line item. In addition, this commenter 
asserted that not all reporting banks include commissions paid to third 
party collections agencies after a loan is charged off, which could 
mean that the reported amount is underinclusive.
    This same industry trade association commenter also asserted that 
the Y-14 data on late fee income may be overstated. This commenter 
asserted that the Y-14 item for late fee income is the sum of fees 
assessed during the month minus fee reversals and refunds applied 
during the month (which included reversals due to charge off). 
According to this commenter, however, in accordance with banks' loss 
mitigation practices, each month some delinquent accounts may be 
modified through re-aging or converted into fixed payment plans, while 
others may be closed in a debt settlement, without explicit reversal of 
late fees but with concessions to the borrower. This commenter asserted 
that these implicit reversals of fee income are not captured in the Y-
14 item for net fees assessed for some issuers, which therefore may 
overstate those issuers' realized late fee income.
    Although several commenters stated that there were potential 
variations in the Y-14 data, the CFPB has determined that such data are 
relevant and an important source of information on total collection 
costs and late fee income. As discussed below, the CFPB notes that the 
Y-14 data contains 10 years of data that is collected directly from 
certain Larger Card Issuers by the Board, using its supervisory powers, 
and these issuers accounted for just under 70 percent of outstanding 
balances on U.S. consumer credit cards as of year-end 2022. The Y-14 
dataset contains data fields that are clearly worded to collect data 
relevant to this rulemaking, such as late fee income and collection 
expenses. The CFPB notes that many of the studies cited by industry 
commenters, and discussed in the section-by-section analysis of Sec.  
1026.52(b)(1)(ii) in part VII, used smaller subsets of the Y-14 data or 
notably similar precursors for their analysis related to late fees and 
late payments. The CFPB recognizes that there may be some potential 
variation in the Y-14 data collected based on the variation of inputs 
from card issuers, but as discussed below, the CFPB has determined that 
some variations in the costs that issuers' consider to be collection 
costs are consistent with the cost analysis provisions in Sec.  
1026.52(b)(1)(i) and are not likely to impact the analysis related to 
the $8 late fee safe harbor threshold for Larger Card Issuers set forth 
in the section-by-section analysis of Sec.  1026.52(b)(2)(ii).
    With respect to the argument that some issuers may exclude post-
charge off amounts from the total collection costs line item, the plain 
definition provided by the Board for such data contains no such 
exclusion. The total collection costs line item instructs issuers to 
report ``costs incurred to collect problem credits that include the 
total collection cost of delinquent, recovery, and bankrupt accounts'' 
(emphasis added). Given that the definition is inclusive of total 
collection costs, the CFPB has determined it appropriately relied upon 
this line item.
    In addition, as explained in the 2023 Proposal and above, this 
total collection costs line-item requests cost data that are generally 
consistent with the collection costs that may appropriately be 
considered under the cost analysis provisions in Sec.  
1026.52(b)(1)(i), except with respect to post-charge-off collection 
costs.
    Current comment 52(b)(1)(i)-6.i provides that for purposes of Sec.  
1026.52(b)(1)(i), the costs incurred by a card issuer as a result of 
late payments include the costs associated with the collection of late 
payments, such as the costs associated with notifying consumers of 
delinquencies and resolving delinquencies (including the establishment 
of workout and temporary hardship arrangements). The Y-14 total 
collection costs line item, therefore, provides a source of data that 
enables the CFPB to examine more than a decade of late fee collection 
cost information that is relevant to the rule.
    The one difference in the data, as discussed in the CFPB's 2023 
Proposal, is that the Board's Y-14 late fee cost information includes 
post-charge off collection costs. As a result, and as described in 
detail in the proposal, the CFPB used a ratio based on debt collection 
agreements to appropriately limit the total collection costs to pre-
charge off collection costs. With respect to the one comment that some 
issuers may not include commissions paid to third party collections 
agencies after a loan is charged off when reporting total collection 
costs in the Y-14 data, the CFPB recognizes that some issuers may not 
report post-charge-off costs but would expect that these issuers are 
outliers since the plain language of the instruction for the Y-14 data 
asks for total collection costs, which would cover both pre-charge-off 
and post-charge-off collection costs. In addition, the comments do not 
suggest that most card issuers exclude post-collection costs from the 
Y-14 data. As such, the CFPB has determined that it is appropriate to 
exclude the estimated ratio of post-charge-off collection costs from 
the Y-14 data for total collection costs when setting the safe harbor 
amount to be consistent with the collection costs that may be 
considered for purposes of the cost analysis provisions in Sec.  
1026.52(b)(1)(i).
    The CFPB also recognizes that there may be some variation in the 
particular costs that issuers report in the Y-14 total collection costs 
line item with respect to late payments. For example, several trade 
association commenters indicated that some banks include certain 
overhead and fixed costs such as real estate and IT in the total 
collection cost line item, while others do not. Nonetheless, the CFPB 
has determined that these variations do not undermine the reliance on 
this data field to help the CFPB determine total collection costs 
related to late payments, particularly given that the total collection 
costs line

[[Page 19139]]

item is nearly the same as the definition for collection costs in the 
rule, and that this data field allows the CFPB to examine 10 years of 
data that were not available at the time of the original rule.
    The CFPB notes that the cost analysis provisions in Sec.  
1026.52(b)(1)(i) also would involve a certain amount of variability 
from issuer to issuer in terms of which costs the issuer determines are 
related to collecting late payments for purposes of determining late 
fees amounts. As a general matter, if a card issuer is using the cost 
analysis provisions Sec.  1026.52(b)(1)(i), the card issuer has the 
responsibility to determine whether certain costs it incurs relate to 
the collection of late payments based on all relevant facts and 
circumstances, within the framework set forth in Sec.  1026.52(b)(1)(i) 
and related commentary. For example, while not all overhead costs would 
be costs of collecting late payment, some overhead costs may be 
incurred as a result of collecting late payments, depending on all the 
relevant facts and circumstances. A card issuer, however, must be able 
to demonstrate to the regulator responsible for enforcing compliance 
with TILA and Regulation Z that its determination is consistent with 
Sec.  1026.52(b)(1)(i) and related commentary.\99\ Thus, the CFPB has 
determined that that some variations in the costs that issuers' 
consider to be collection costs are consistent with the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) and are not likely to impact the 
analysis related to the $8 late fee safe harbor threshold for Larger 
Card Issuers set forth in the section-by-section analysis of Sec.  
1026.52(b)(2)(ii). The CFPB also notes that many of the studies cited 
by industry commenters, and discussed in the section-by-section 
analysis of Sec.  1026.52(b)(1)(ii) in part VII, used smaller subsets 
of the Y-14 data or notably similar precursors for their analysis 
related to late fees and late payments. As such, the Y-14 data is more 
than sufficient to make appropriate estimates of (1) the collection 
costs that the Y-14 issuers incur in collecting late payments for 
purposes of guiding the CFPB in determining an appropriate safe harbor 
threshold amount for late fees charged by Larger Card Issuers; and (2) 
how collection costs for Larger Card Issuers change over time in 
relation to changes in the CPI.
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    \99\ The CFPB's determinations are consistent with how the Board 
viewed the costs analysis provisions when it adopted its version of 
these provisions in Sec.  226.52(b)(1)(i). 75 FR 37526 at 37536. See 
also id. at 37540 where the Board discussed whether all overhead 
costs should be excluded from the cost analysis provisions and noted 
that it believes that the determination of whether certain costs are 
incurred as a result of violations of the account terms or other 
requirements should be made based on all the relevant facts and 
circumstances.
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    With respect to the late fee income reported in the Y-14 data, some 
industry commenters suggest that the reported late fee income may be 
overinclusive because it includes late fees where there has not been an 
explicit reversal of late fees, yet there have been concessions to the 
borrower as a result of delinquent accounts being modified through re-
aging or converted into fixed payment plans or closed in a debt 
settlement. Although there may be instances where the late fees are 
waived, subject to a concession, or otherwise removed or reduced, the 
CFPB has determined that some overinclusion based on fee waivers would 
not significantly impact the ratio of pre-charge-off collection costs 
to late fee income discussed in the section-by-section analysis of 
Sec.  1026.52(b)(1)(ii).
    Further, in response to the commenter, the CFPB also notes the fact 
that certain fees may be waived is generally consistent with the fact 
that the cost analysis provisions only permit certain uncollected fees 
to be considered under Sec.  1026.52(b)(1)(i). Specifically, comment 
52(b)(1)(i)-5 provides that for purposes of Sec.  1026.52(b)(1)(i), a 
card issuer may consider fees that it is unable to collect when 
determining the appropriate fee amount under the cost analysis 
provisions. Fees that the card issuer is unable to collect include fees 
imposed on accounts that have been charged off by the card issuer, fees 
that have been discharged in bankruptcy, and fees that the card issuer 
is required to waive in order to comply with a legal requirement (such 
as a requirement imposed by 12 CFR part 1026 or 50 U.S.C. app. 527). 
However, fees that the card issuer chooses not to impose or chooses not 
to collect (such as fees the card issuer chooses to waive at the 
request of the consumer or under a workout or temporary hardship 
arrangement) are not relevant for purposes of determining the late fee 
amount under the cost analysis provisions.
    The CFPB also notes that it has repeatedly provided opportunities 
for issuers to provide specific data about their late fees, including 
in an ANPR, and it has carefully considered all such data that were 
provided, in addition to seeking out and considering additional data on 
its own. The Y-14 data provide the best means for the CFPB to examine 
relevant collections costs and late fee income data in order to 
determine what costs are incurred and to guide its determination of an 
appropriate safe harbor threshold for late fees, except with respect to 
Smaller Card Issuers, as discussed in part VI below. The CFPB is not 
using the Y-14 collection costs and late fee income data to cap the 
late fee amounts that issuers can charge. If the $8 safe harbor amount 
adopted as part of this final rule for those issuers that are subject 
to this safe harbor amount is not sufficient to cover a particular card 
issuer's pre-charge-off costs in collecting late payments, the card 
issuer can charge a higher amount consistent with the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) and the requirements in Sec.  
1026.52(b)(2). In other words, to the extent that an issuer has higher 
costs and determines the safe harbor amount is too low based on its own 
cost analysis calculation, that issuer may charge a higher late fee. 
The Y-14 data, therefore, are not used to create a limit on fees, but 
rather to ensure that the CFPB's discretionary safe harbor is 
appropriate and consistent with the statutory requirement that is 
intended to limit fees to those that are ``reasonable and 
proportional'' to the late payment.
    Thus, for the reasons discussed above, the CFPB has determined that 
it is appropriate to use the Y-14 data for total collection costs and 
late fee income in this final rule to estimate (1) the collection costs 
that the Y-14 issuers incur in collecting late payments and the late 
fee income they collect for purposes of guiding the CFPB in determining 
an appropriate safe harbor threshold amount for late fees charged by 
Larger Card Issuers; and (2) how collection costs for Larger Card 
Issuers change over time in relation to changes in the CPI.
Y-14 Data Do Not Include Cost Information for Smaller Issuers
    As discussed in part VI below, many smaller issuers and industry 
trade associations, several individual consumers on behalf of credit 
unions, one Member of Congress, and the Office of Advocacy, an 
independent office within the SBA, expressed concern that the CFPB's 
analysis of pre-charge-off costs from the Y-14 issuers does not 
accurately represent the collection costs for late payments of smaller 
issuers. These comments are discussed in more detail in part VI.

D. The Final Rule

    Consistent with the 2023 Proposal, the CFPB considered four primary 
data sources in developing this final rule: (1) Y-14; (2) Y-14+; (3) 
credit card debt collection data received from an information order 
made pursuant to section 1022(c)(4) of the CFPA; and (4)

[[Page 19140]]

the CFPB's Credit Card Agreement Database.
Y-14 Data
    For the reasons discussed above, the CFPB has determined that it is 
appropriate to consider the Y-14 data as one basis for adopting the 
changes to Regulation Z contained in this final rule. Prior to issuing 
the 2023 Proposal, the Y-14 data received by the CFPB covered the 
period from the middle of 2012 through September 2022 and are provided 
by certain Larger Card Issuers that are covered by the $8 amount. These 
issuers accounted for just under 70 percent of outstanding balances on 
U.S. consumer credit cards as of year-end 2022. Consistent with the 
2023 Proposal, with respect to credit card data, in this final rule, 
the CFPB generally uses the complete portfolio data (including late fee 
income and collection costs) for all the card issuers included in the 
data collection. The CFPB also generally uses only a random 40 percent 
subsample of account information (including late fee amounts and total 
required payments) reported by card issuers included in the data 
collection. Consistent with the 2023 Proposal, the CFPB for this final 
rule only considered account- and portfolio-level data for issuers in a 
given month for consumer general purpose and private label credit cards 
for which there existed non-zero data on late fee income, collection 
costs, late fee amounts, and total required payments in the Y-14 data.
    For this final rule, the CFPB relied upon the data in the proposal 
for its analysis. After issuing the 2023 Proposal, the CFPB received 14 
more months of data for the Y-14 issuers (account-level data through 
November 2023, portfolio data up to August 2023). These additional data 
did not change the CFPB's original findings or rationale as set forth 
in 2023 Proposal. Because the data are relevant, however, the CFPB has 
determined that it is appropriate to explain how those new data 
supplement and support its original data and analysis. The CFPB's use 
of the Y-14 data (including the supplemental data received after the 
2023 Proposal was issued) is discussed in more detail in part VII.
Determination of Post-Charge-Off Collection Costs Using Credit Card 
Debt Collection Data Received From an Information Order Made Pursuant 
to Section 1022(c)(4) of the CFPA
    In addition, for the reasons discussed above, and consistent with 
the 2023 Proposal, the CFPB has determined that it is appropriate to 
subtract an estimate of the post-charge-off collection costs from the 
total collection costs Y-14 data. Consistent with the 2023 Proposal, 
for this final rule, the CFPB used commissions paid to third-party debt 
collectors for charged-off accounts to estimate the percentage of 
collection costs that may occur after charge-off. The CFPB understands 
that such commission payments, made to third-party debt collection 
companies, would be made almost exclusively in connection with accounts 
that have been charged off, and represent a conservative estimate of 
post-charge-off collection costs, as there may be other costs 
associated with collections post-charge-off beyond such commission 
payments. Consistent with the 2023 Proposal, the CFPB's methodology for 
estimating post-charge-off commissions considered the amount of 
charged-off balances and then estimated the commission on the volume of 
recovered balances by using the recovery and commission rates.\100\
---------------------------------------------------------------------------

    \100\ For example, if an issuer had a total of $1 million in 
newly charged-off balances in a given year, a cumulative recovery 
rate for that year of five percent, and a post-charge-off commission 
rate of 20 percent, the CFPB would estimate the post-charge-off 
commission costs to be $10,000. To calculate the post-charge-off 
collection costs as a share of total cost of collections, the CFPB 
then divided the estimated post-charge-off commission costs by the 
total collection costs the bank reported in the Y-14 data. For 
issuers who sell debt, the cost of collections calculation uses 
charge-off balances net of asset sales. The commission rate for each 
issuer is an average weighted by the share of post-charge-off 
balances in each tier placement (e.g., primary, secondary, and 
tertiary placements).
---------------------------------------------------------------------------

    As discussed above, for the 2023 Proposal, the CFPB estimated from 
debt collection reports the commission expenses that six major card 
issuers paid in 2019 and 2020 and based on those data, the CFPB 
estimated that these post-charge-off costs are around 25 percent of 
total collection costs for these issuers. Based on those data, for the 
2023 Proposal, the CFPB estimated that pre-charge-off collection costs 
were equal to 75 percent of the collection costs included in the Y-14 
data for purposes of its analysis related to the proposed changes to 
the safe harbor thresholds for late fees in Sec.  1026.52(b)(1)(ii).
    For this final rule, the CFPB relied upon the data in the proposal 
for its analysis. In addition, after the Proposal's release--as part of 
the CFPB's 1022(b)(2) market gathering for purposes of its CARD Market 
Report--the CFPB also obtained updated data for 2021 and 2022 related 
to commission expenses that the CFPB collected for its most recent 
biennial review of the consumer credit card market released in October 
2023. These additional data did not change the CFPB's original findings 
or rationale. Because the data are relevant, however, the CFPB has 
determined it is appropriate to explain how those new data supplement 
and support its original data and analysis. Based on commission 
expenses that six major card issuers paid in 2021 and 2022 to third-
party debt collectors for charged-off accounts, the CFPB estimated that 
these post-charge-off costs are around 20 percent of total collection 
costs for these issuers; the average ratio was 20 percent in 2021 and 
21 percent in 2022. In 2021, the median ratio of estimated post-charge-
off commission costs to annual collection costs for the six major 
issuers surveyed was 19.0 percent; in 2022, it was 23.7 percent. Thus, 
for 2021 and 2022, the CFPB estimated that pre-charge-off collection 
costs were equal to 80 percent of the collection costs. These new data 
indicate pre-charge-off collection costs in 2021 and 2022 that were 
similar, though slightly higher than in the proposal and, therefore, 
supplemented and supported the CFPB's data and analysis. Both the 
estimates of pre-charge-off collection costs for Y-14 issuers used in 
the 2023 Proposal (based on the 75 percent estimate) and developed 
using the supplemental information (based on the 80 percent estimate) 
are discussed in more detail in the section-by-section analysis of 
Sec.  1026.52(b)(1)(ii) for purposes of its analysis related to the 
final changes to the safe harbor thresholds for late fees for Larger 
Card Issuers.
Y-14+ Data
    Consistent with the 2023 Proposal, the CFPB also considered Y-14+ 
data in developing this final rule. As noted above, the Y-14+ data 
include confidential information from the Board's Y-14 data and a 
diverse group of specialized issuers. In the 2023 Proposal, these 
additional data that included specialized issuers were used to 
calculate the average late fee charged by Y-14+ issuers in 2019 and 
2020. As explained in the proposal, in 2019 and 2020, the average late 
fee charged by issuers in the Y-14+ data was $31. The updated data from 
the Y-14+ issuers further support this original analysis because, based 
on the CFPB calculations, they show that the average late fee charged 
by those issuers was $31 in 2021 and $32 in 2022.
    In addition, after issuing the 2023 Proposal, the CFPB obtained 
confidential total collection costs and late fee income data from 
specialized issuers that are included in the Y-14+ data. In particular, 
the CFPB requested from these issuers' data for total

[[Page 19141]]

collections costs and late fee revenue using the same instructions for 
this data request that are used in the Y-14 data collection. These 
additional data did not change the CFPB's original findings or 
rationale. Because the data are relevant, however, the CFPB has 
determined it is appropriate to explain how those new data supplement 
and support its original data and analysis. These additional data are 
consistent with the CFPB's determination in this final rule based on 
the data used for the proposal related to Y-14 issuers that the average 
Larger Card Issuer would recover pre-charge-off collection costs even 
if late fees were reduced to one-fifth of their current level.
    The average late fees charged by the Y-14+ issuers in 2020 and 2022 
and the data on total collections costs and late fee income from the 
specialized issuers in the Y-14+ are discussed in more detail in the 
section-by-section analysis of Sec.  1026.52(b)(1)(ii).
CFPB's Credit Card Agreement Database
    As noted above, in the 2023 Proposal, the CFPB discussed a 2022 
review conducted by the CFPB of credit card agreements submitted to the 
CFPB's Credit Card Agreement Database in the fourth quarter of 2020 to 
determine the maximum late fee amount charged across agreements by 
issuers submitting to that database. Since the 2023 Proposal was 
issued, the CFPB in 2023 conducted a subsequent review of agreements 
submitted to that database as of the second quarter of 2023 to 
determine the maximum late fee amount charged across agreements by 
issuers submitting to that database.
    These additional data did not change the CFPB's original findings 
or rationale. Because the data are relevant, however, the CFPB has 
determined it is appropriate to explain how those new data supplement 
and support its original data and analysis. As discussed in part II.E, 
the results of the 2023 survey of agreements to determine the maximum 
late fee amount charged across agreements by issuers submitting to that 
database are consistent with the results of the 2022 survey of 
agreements with respect to the maximum late fee amount charged across 
agreements by issuers submitting to that database. The data from the 
2022 review of agreements and the 2023 review of agreements are 
discussed in more detail in part II.E and the section-by-section 
analysis of Sec.  1026.52(b)(1)(ii).

VI. Certain Provisions Not Applicable to Issuers That Together With 
Their Affiliates Have Less Than One Million Open Credit Card Accounts

A. The CFPB's Proposal

    The 2023 Proposal would have applied the revisions in the proposal 
to all card issuers of credit card accounts under an open-end (not 
home-secured) consumer credit plan. Specifically, the 2023 Proposal 
would have applied the following proposed revisions to all issuers of 
such accounts: (1) the $8 late fee safe harbor threshold and the 
elimination of the higher late fee safe harbor amount for subsequent 
violations; (2) the elimination of the annual adjustments for the 
proposed $8 safe harbor threshold, (3) the restriction on late fee 
amounts to 25 percent of the required minimum payment; and (4) the 
clarification in comment 52(b)(1)(i)-2.i that the collection costs to 
calculate penalty fees under the cost analysis provisions does not 
include post-charge-off collection costs.
    With respect to proposed revisions to the late fee safe harbor 
amounts, in the 2023 Proposal, the CFPB recognized its estimates of 
pre-charge-off collection costs incurred by card issuers were based on 
late fee income and collection cost data from larger issuers that 
report to the Y-14 collection, as well as data from some additional Y-
14+ issuers. The CFPB did not have data equivalent to the Y-14 data for 
smaller issuers' pre-charge-off collection costs, but the CFPB stated 
that it had no reason to expect that smaller issuers would have 
substantially higher pre-charge-off collection costs than larger 
issuers. Based on a 2022 review of about 2,500 credit card agreements 
from over 500 card issuers (as discussed in part II.E), the CFPB also 
noted that smaller issuers appeared to charge lower late fee amounts, 
and therefore, any reduction in late fee amounts would have a 
proportionately smaller impact on their late fee income. Specifically, 
in the 2023 Proposal, the CFPB noted that (1) in 2020, the average late 
fee charged by larger issuers included in the Y-14+ data was $31; \101\ 
(2) the CFPB collects card agreements from more smaller issuers than 
issuers for which the CFPB has financial data; and (3) based on the 
review of agreements, as described above in part II.E, the CFPB 
established that issuers outside the top 20 by outstanding credit card 
balances charged smaller late fees in 2020 than issuers within the top 
20.\102\ In the 2023 Proposal, the CFPB solicited comment on this 
analysis and the potential impact on smaller issuers of the proposed $8 
safe harbor amount, including whether smaller issuers could provide 
data or evidence related to the cost of collecting late payments. The 
CFPB also solicited comment on whether the pre-charge-off collection 
costs for smaller issuers differ from such costs for larger issuers, 
and if so, how the costs differ.
---------------------------------------------------------------------------

    \101\ 2021 Report, at 55. The average late fee charged by 
issuers included in the Y-14+ data is based on the Y-14 data and 
data collected from other specialized card issuers in response to an 
information order pursuant to section 1022(c)(4) of the CFPA.
    \102\ Late Fee Report, at 14.
---------------------------------------------------------------------------

    For the reasons discussed below, including the CFPB's review of the 
comment letters about collection costs, as well as the CFPB's concerns 
about impact on consumers and competition, the CFPB is not adopting at 
this time certain proposed changes for Smaller Card Issuers as defined 
in new Sec.  1026.52(b)(3). The term ``Smaller Card Issuer'' is defined 
to mean a card issuer that together with its affiliates had fewer than 
one million open credit card accounts as defined in Sec.  1026.58(b)(6) 
for the entire preceding calendar year.\103\ Specifically, the 
following proposed changes are not being adopted at this time for 
Smaller Card Issuers (1) the $8 late fee safe harbor threshold and the 
elimination of the higher late fee safe harbor amount for subsequent 
violations; and (2) the elimination of the annual adjustments for the 
safe harbor threshold dollar amounts.
---------------------------------------------------------------------------

    \103\ See supra note 5.
---------------------------------------------------------------------------

    For these Smaller Card Issuers, the safe harbor thresholds in Sec.  
1026.52(b)(1)(ii)(A) through (C) will continue to apply to late fees 
that they charge (as revised in this final rule pursuant to the annual 
adjustment provisions in Sec.  1026.52(b)(1)(ii)(D)). In addition, the 
annual adjustment provisions for the safe harbor dollar amount 
thresholds to reflect changes in the CPI in Sec.  1026.52(b)(1)(ii)(D) 
will continue to apply to late fees imposed by Smaller Card Issuers. 
Also, as discussed in the section-by-section analysis of Sec.  
1026.52(b)(2)(i), the proposed provisions to restrict late fee amounts 
to 25 percent of the required minimum payment are not being finalized 
in this final rule with respect to any card issuers, including Smaller 
Card Issuers. In contrast, the clarification in comment 52(b)(1)(i)-2.i 
that the collection costs for calculating penalty fee amounts under the 
cost analysis provisions in Sec.  1026.52(b)(1)(i) do not include post-
charge-off collection costs is being adopted for all card issuers, 
including Smaller Card Issuers, because this provision is intended to

[[Page 19142]]

clarify the existing rule and commentary.

B. Comments Received

    Impact on credit unions and small card issuers--$8 late fee safe 
harbor amount. Many banks and credit unions, industry trade 
associations, and individual consumers on behalf of credit unions, one 
Member of Congress, and the Office of Advocacy, an independent office 
within the SBA, expressed concern that the CFPB's estimated pre-charge-
off collection costs for Y-14 issuers that the CFPB used in its 
analysis to support the proposed $8 do not accurately represent the 
pre-charge-off collection costs for late payments of smaller issuers.
    Many credit unions and individuals on behalf of credit unions and 
one industry credit union trade association commenter asserted that (1) 
credit union call report data indicate that credit card late fees 
incurred per member per year are only $2.65; (2) annual total pre-
charge-off collection costs per credit card account offered by credit 
unions amounted to $0.33, which is 10 cents higher than the pre-charge-
off collection costs per credit card account for large issuers that the 
CFPB notes in the proposal; (3) and the ratio of monthly late fees to 
total pre-charge-off costs for the credit union industry is 2.8, 
compared to 5.7 for large issuers in 2022. These commenters also 
asserted that credit unions (1) have much lower fee-to-cost ratios than 
big card issuers because credit unions are not-for-profit, community 
focused, relationship-oriented financial institutions; and (2) face 
higher pre-charge-off collection costs as compared to big banks that 
can achieve economies of scale based on their numbers of customers and 
employees.
    Many credit unions and individuals on behalf of credit unions and 
three industry trade association commenters asserted that Federal 
credit unions did not have the same options as larger issuers to 
recover potential lost revenue from late fees, and this could impact 
their ability to offer credit cards to consumers. Specifically, these 
commenters explained that Federal Credit Union Act limits Federal 
credit unions' ability to increase APRs in order to recover revenue 
losses resulting from a lower late fee safe harbor amount. Two of these 
industry trade associations indicated that National Credit Union 
Administration (NCUA) Board's action in January 2023 regarding the 
Federal Credit Union Act currently imposes a cap of 18.0 percent on the 
APR.\104\ The other industry trade association asserted that the 
Federal Credit Union Act makes the credit union business model 
fundamentally different than that of the largest credit card issuers 
and that these limitations should not be ignored by the CFPB.
---------------------------------------------------------------------------

    \104\ The Federal Credit Union Act generally limits Federal 
credit unions to a 15 percent interest rate ceiling on loans. 
However, the NCUA Board may establish a temporary, higher rate for 
up to 18 months after considering certain statutory criteria. 
National Credit Union Administration Letter (23-FCU-02), Permissible 
Loan Interest Rate Ceiling Extended (Mar. 2023), https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/permissible-loan-interest-rate-ceiling-extended-2. A January 2023 
NCUA Board action established a temporary 18 percent interest rate 
ceiling through September 10, 2024. See id.
---------------------------------------------------------------------------

    Many credit unions and individuals on behalf of credit unions and 
one industry credit union trade association commenter asserted that 
credit unions already offer some of the lowest late fees in the market, 
which benefits consumers. One of the credit union commenters asserted 
that its net earnings are returned to members in the form of higher 
annual percentage yields (APYs), lower APRs, and greater servicing.
    More than fifty individual commenters on behalf of credit unions 
asserted that the proposal, if adopted, would have potentially massive 
unintended consequences, including that some credit unions would leave 
the market. They asserted that this, in turn, could limit credit 
availability and increase industry consolidation, and would restrict 
credit unions' ability to offer solutions to consumers experiencing 
real financial hardship. A bank and a community bank trade association 
commenter expressed similar comments and indicated that the 2023 
Proposal, if adopted, ultimately would force many community banks to 
exit the credit card market, leaving consumers, and in particular, 
rural consumers, fewer options for financial services.
    A credit union trade association commenter asserted that the 2023 
Proposal, if adopted, would (1) make it more difficult for credit 
unions to balance safety and soundness considerations with the desire 
to provide credit access to all consumers, especially those building or 
rebuilding their credit; and (2) further consolidate credit card 
issuers, strengthening the largest providers that may compensate lower 
late payment fees with product add-ons and other practices that are not 
consumer friendly. This commenter also asserted that (1) use of the 
cost-analysis provisions are not feasible for credit unions; (2) while 
the risk of operating outside of the safe harbor provision is common 
for the largest credit card issuers with large legal departments, not-
for-profit credit unions are in a different position; (3) even when the 
fee is reasonable, it would be a safety and soundness concern to charge 
more than $8 as the risk of class action lawsuits continues to grow; 
(4) defending a reasonable fee through litigation is cost prohibitive 
for a not-for-profit financial institution and could severely impact 
their operations; and (5) while the safe harbor late fee amount 
proposed would not be a legal cap it may become an effective cap for 
credit unions, once again only benefiting the largest credit card 
issuers.
    Many credit unions and individuals on behalf of credit unions urged 
the CFPB to exempt credit unions from its rulemaking as credit unions 
do not profit from any fees assessed to their members and the data are 
clear that credit unions already offer some of the lowest fees 
available in the market. Some of these commenters indicated that if the 
CFPB is hesitant to exempt just a particular type of financial 
institution, in light of the considerable impact that the 2023 Proposal 
is likely to have on small entities, the CFPB should consider a broader 
exemption for small entities, currently defined by the SBA's size 
standard of $850 million in total assets. These commenters asserted 
this would allow smaller entities to continue to maintain their ability 
to cover the costs of offering credit card accounts and remain 
competitive in the marketplace. An industry credit union trade 
association commenter asserted that one possible way to negate the 
impact of the 2023 Proposal on credit unions is to scale the rule for 
larger and smaller issuers.
    One Member of Congress noted from the Congressional Research 
Service that smaller issuers sometimes serve more subprime cardholders 
who are more likely to make late payments which therefore implies that 
certain smaller issuers would face higher than average collection costs 
from late payments. The commenter noted that although the CFPB's 
proposal asserts that credit cards represent only a small percentage of 
credit unions' assets and revenues, the loss of late fee revenue would 
represent a distinct impact on credit unions because as nonprofits, 
they are unable to raise funds from stockholders. This commenter 
advised that the CFPB either work to ensure that the cost analysis 
provisions--an alternative to the safe harbor--would not impose undue 
burdens on small issuers or that the CFPB consider a separate safe 
harbor for

[[Page 19143]]

smaller issuers that more accurately reflects their unique costs.
    The Office of Advocacy, an independent office within the SBA, 
criticized the CFPB for insufficiently considering the extent to which 
the proposed $8 safe harbor amount would cover the collection costs of 
smaller issuers. This agency asserted that (1) determining a late fee 
amount under the cost analysis provisions may not be feasible for 
smaller institutions; (2) small institutions may not have ready access 
to professional staff or consultants to develop a late fee that 
qualifies under the cost analysis provisions, and also may lack the 
information systems to provide the necessary support to determine the 
late fee amount under those provisions; and (3) for that reason, 
smaller institutions may rely on safe harbors to be certain that they 
are complying with the law. As such, this agency noted that an adequate 
safe harbor amount that reflects the costs that small entities incur in 
processing late payments is necessary to prevent small institutions 
from incurring potential legal fees if they were to use the incorrect 
late fee amount under the cost analysis provisions. The commenter 
further asserted that consumers, including small businesses, may choose 
to obtain their credit cards from small depository institutions that 
offer credit cards for a variety of reasons, including the ability of 
consumers with low credit scores to obtain a credit card that may 
otherwise be unavailable. The commenter also expressed concern that if 
the safe harbor amount does not cover the costs of providing the 
service, small depository institutions may decide to stop issuing 
credit cards.
    Impact on credit unions and small card issuers--elimination of 
annual adjustment. Several banks and credit unions, and a few credit 
union trade associations urged the CFPB to consider the impact 
eliminating the annual adjustments for safe harbor threshold amounts to 
reflect changes in the CPI may have on credit unions and small card 
issuers. For example, one credit union and one credit union trade 
association asserted that credit unions typically have higher than 
average per account collection costs than larger banks. This credit 
union trade association further asserted that credit unions currently 
report that fee revenue does not cover the full cost of delinquency and 
collections. Another credit union trade association asserted that 
credit unions have less diversified revenue streams to make up for 
costs in other areas. A bank commenter indicated that small issuers 
have a smaller credit base by which economic effects may be mitigated. 
Yet another credit union trade association asserted that (1) 
elimination of the annual adjustments would increase credit card losses 
and that Federal credit unions are subject to interest rate caps; and 
(2) credit unions would have a limited ability to recoup credit card 
losses.
    Impact on credit unions and small card issuers--25 percent 
limitation. As discussed in more detail in the section-by-section 
analysis of Sec.  1026.52(b)(2)(i), several banks, credit unions and 
industry trade associations and one individual commenter urged the CFPB 
to consider the disproportionate impact the 25 percent limitation may 
have on credit unions, small card issuers, and private label card 
issuers.
    Lack of SBREFA panel. Many banks and credit unions, industry trade 
associations, and individuals on behalf of credit unions, the Office of 
Advocacy, an independent office within the SBA, and one law firm 
representing several card issuers asserted that the 2023 Proposal, if 
adopted, would have a significant economic impact on a substantial 
number of small entities (SISNOSE) and thus the CFPB is required to 
hold a small business review panel (SBREFA panel) under the Regulatory 
Flexibility Act (RFA) prior to finalizing the rulemaking. These 
comments are discussed in more detail in part X.

C. The Final Rule

    For the reasons discussed below, the CFPB is not adopting at this 
time the following proposed changes for Smaller Card Issuers that are 
defined in Sec.  1026.52(b)(3) as a card issuer that together with its 
affiliates had fewer than one million ``open credit card accounts'' as 
defined in Sec.  1026.58(b)(6) for the entire preceding calendar year: 
\105\ (1) the $8 late fee safe harbor threshold and the elimination of 
the higher late fee safe harbor amount for subsequent violations; and 
(2) the elimination of the annual adjustments for the safe harbor 
threshold. For Smaller Card Issuers, at this time, the safe harbor 
thresholds set forth in Sec.  1026.52(b)(1)(ii)(A) through (C) will 
continue to apply to late fees charged by Smaller Card Issuers (as 
revised in this final rule pursuant to the annual adjustment provisions 
in Sec.  1026.52(b)(1)(ii)(D)). In addition, the annual adjustment 
provisions for the safe harbor thresholds to reflect changes in the CPI 
in Sec.  1026.52(b)(1)(ii)(D) will continue to apply to late fees 
imposed by Smaller Card Issuers. Also, as discussed in the section-by-
section analysis of Sec.  1026.52(b)(2)(i), the proposed provisions to 
restrict late fee amounts to 25 percent of the required minimum payment 
are not being finalized in this final rule with respect to any card 
issuers, including Smaller Card Issuers. In contrast, the clarification 
in comment 52(b)(1)(i)-2.i that the collection costs for calculating 
penalty fee amounts under the cost analysis provisions in Sec.  
1026.52(b)(1)(i) do not include post-charge-off collection costs is 
being adopted for all card issuers, including Smaller Card Issuers, 
because this provision is intended to clarify the existing rule and 
commentary.
---------------------------------------------------------------------------

    \105\ See supra note 5.
---------------------------------------------------------------------------

    The CFPB also explains below that the limit to qualify as a Smaller 
Card Issuers is set at one million open credit card accounts. The CFPB 
has determined that a one million open credit card account limit for 
this final rule is appropriate because comment letters have highlighted 
several concerns specific to these Smaller Card Issuers. The CFPB has 
determined that, based on comment letters from smaller issuers, the 
2023 Proposal's late fee $8 safe harbor threshold would have impacted 
Smaller Card Issuers more significantly than Larger Card Issuers, and 
that Smaller Card Issuers might not have been as capable of responding 
by using the cost analysis provisions to cover their pre-charge-off 
collection costs related to late payments. Taken together, this result 
could harm consumers and the credit card market as a whole.
    The CFPB has determined to act cautiously and ensure that all card 
issuers, large and small, can at least cover pre-charge-off collection 
costs with their late fees. If Smaller Card Issuers have higher pre-
charge-off collections costs than Larger Card Issuers, Smaller Card 
Issuers may need to rely on the cost analysis provisions in Sec.  
1026.52(b)(1)(i) to cover their pre-charge-off collection costs, 
resulting in heightened compliance burden for issuers with less assets 
to cover them. Alternatively, Smaller Card Issuers may choose to forgo 
those compliance burdens by using the safe harbor threshold amount even 
if it does not cover their pre-charge-off collection costs rather than 
use the cost analysis provisions in Sec.  1026.52(b)(1)(i). The CFPB 
anticipates that under this final rule Larger Card Issuers generally 
will recoup their applicable pre-charge-off collection costs using late 
fees, either using the safe harbor (which is more likely to be enough 
for the average Larger Card Issuer) or using the cost-analysis 
provisions (the compliance

[[Page 19144]]

burdens of which Larger Card Issuers are more capable of absorbing). 
Since the CFPB recognizes that Smaller Card Issuers may face additional 
challenges in recouping pre-charge off collection costs using late 
fees, it is exercising caution and not finalizing the proposal with 
regard to Smaller Card Issuers.
    Smaller Card Issuer commenters indicated that if the 2023 Proposal 
were adopted, they might leave the market or cease offering credit 
cards to certain consumers, particularly those with lower credit 
scores. It is unclear to the CFPB whether Smaller Card Issuers would 
actually leave the market entirely because they could not cover their 
pre-charge-off collection costs through the proposed $8 late fee safe 
harbor threshold. However, if they did, the CFPB is concerned about the 
potential detriment of these actions to consumers. Based on comments, 
the CFPB recognizes that consumers may choose to obtain their credit 
cards from small depository institutions that offer credit cards for a 
variety of reasons, including the access to credit cards issued by 
small credit unions with substantially lower annual percentage rates 
\106\ and the ability of consumers with low credit scores to obtain a 
credit card that may otherwise be unavailable. Further, the top 10 
issuers by average credit card outstandings represented 83 percent of 
credit card loans in 2022,\107\ and a further reduction in competition 
could be detrimental to all consumers in the credit card market.
---------------------------------------------------------------------------

    \106\ For Y-14+ issuers, the average APR was 22.7 percent for 
general purpose cards at the end of 2022, while Federal credit 
unions are limited to charging an APR of 18 percent. See supra note 
104; 2023 Report, at 53.
    \107\ 2023 Report, at 19.
---------------------------------------------------------------------------

    Based on its review of comment letters, data from the proposal, and 
market expertise, the CFPB has determined that the appropriate 
definition of ``Smaller Card Issuer'' is issuers that together with 
their affiliates had fewer than one million open credit card accounts 
for the entire preceding calendar year.\108\ By using the one million 
open credit card account limit to qualify as a Smaller Card Issuers, 
based on its review of both public and confidential data, the CFPB 
expects the new $8 safe harbor amounts would apply to approximately the 
largest 30 to 35 issuers by outstanding balances (out of around 4,000 
financial institutions that offer credit cards). This would cover over 
95 percent of the of the total outstanding balances in the credit card 
market as of the end of 2022.
---------------------------------------------------------------------------

    \108\ See supra note 5.
---------------------------------------------------------------------------

    The new safe harbor limit for Larger Card Issuers, which covers 
issuers that together with their affiliates have one million or more 
open credit card accounts, is consistent with the Y-14 data used in the 
CFPB's proposal to determine pre-charge off collection costs, as it 
would cover the Y-14 issuers for which the CFPB had total collections 
and late fee revenue data prior to the 2023 Proposal, the specialized 
issuers in the Y-14+ for which the CFPB obtained total collections and 
late fee revenue data after issuing the 2023 Proposal, and about a 
dozen other similarly sized issuers with large credit card portfolios. 
In choosing this threshold, the CFPB has determined it is appropriate 
to limit the rule at this time to the larger issuers that either 
submitted data to or had economies of scale similar to those issuers 
that provided Y-14 and Y-14+ data because those data support the CFPB's 
conclusion that the 2010 Final Rule's safe harbor amounts as to those 
Larger Card Issuers were not reasonable and proportional to the costs 
of the omission or violation, as required by the statute. For similar 
reasons and administrability, the CFPB has determined that it is 
appropriate at this time to only eliminate the annual adjustment 
provisions in Sec.  1026.52(b)(1)(ii)(D) to the late fees charged by 
Larger Card Issuers. As discussed in the section-by-section analysis of 
Sec.  1026.52(b)(1)(ii)(D), the data the CFPB uses to compare 
collections costs to changes in the CPI relate to certain Larger Card 
Issuers (namely, the Y-14 issuers).
    The CFPB recognizes that the new $8 safe harbor amount will apply 
to about one dozen issuers for which the CFPB does not have total 
collections data and late fee revenue data. Based on the CFPB's market 
expertise and analysis of comment letters, the CFPB has determined that 
it is appropriate to apply this new safe harbor amount to those issuers 
because they have substantial credit card portfolios and, therefore, 
the CFPB expects they will have economies of scale similar to the Y-14+ 
issuers in collecting late payments and the resources to use the cost 
analysis provisions in Sec.  1026.52(b)(1)(i) to determine the late fee 
if the $8 safe harbor threshold amount fails to cover pre-charge off 
collections costs.
    The CFPB has determined that basing the limitation on the number of 
open credit card accounts, rather than total asset size for the 
institution or bank holding company (such as the $100 billion threshold 
for inclusion in the Y-14 data), or on the amount of credit card 
outstanding balances held by the issuer, better captures card issuers 
with larger credit card portfolios that may have similar economies of 
scale to the Y-14 issuers but may not meet a threshold based on total 
asset size or outstanding balances. The CFPB recognizes that some banks 
or credit unions with smaller total assets than Y-14 issuers, 
nonetheless, still may have significant credit card portfolios and 
would benefit from economies of scales of larger card operations with 
the resources to reasonably use the cost analysis provisions in Sec.  
1026.52(b)(1)(i) to determine the late fee if the $8 safe harbor 
threshold amount fails to cover pre-charge off collections costs, even 
without other lines of business that could provide additional assets. 
The CFPB also notes that its focus on the number of open credit card 
accounts as opposed to total asset size or the amount of credit card 
outstanding balances for purposes of this final rule is consistent with 
the CFPB's focus on an issuers' number of open credit card accounts for 
purposes of an exception to obligations of issuers to submit credit 
card agreements to the CFPB under Sec.  1026.58.\109\
---------------------------------------------------------------------------

    \109\ See Sec.  1026.58(c)(5).
---------------------------------------------------------------------------

VII. Section-by-Section Analysis

Section 1026.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans

7(b)(11) Due Date; Late Payment Costs

    Section 1026.7(b) sets forth the disclosure requirements for 
periodic statements that apply to open-end (not home-secured) plans. 
Section 1026.7(b)(11) generally requires that for a credit card account 
under an open-end (not home-secured) consumer credit plan, a card 
issuer must provide on each periodic statement: (1) the due date for a 
payment and the due date must be the same day of the month for each 
billing cycle; and (2) the amount of any late payment fee and any 
increased periodic rate(s) (expressed as APRs) that may be imposed on 
the account as a result of a late payment.
    Currently, comment 7(b)(11)-4 provides that for purposes of 
disclosing the amount of any late payment fee and any increased APR 
that may be imposed on the account as a result of a late payment under 
Sec.  1026.7(b)(11), a card issuer that imposes a range of late payment 
fees or rates on a credit card account under an open-end (not home-
secured) consumer credit plan may state the highest fee or rate along 
with an indication lower fees or rates could be imposed. Current 
comment 7(b)(11)-4 also provides an example to illustrate how a card 
issuer may meet the

[[Page 19145]]

standard set forth above, stating that a phrase indicating the late 
payment fee could be ``up to $29'' complies with this standard.
The CFPB's Proposal
    The 2023 Proposal would have amended comment 7(b)(11)-4 to read 
``up to $8'' so that the late fee amount in the example would be 
consistent with the proposed $8 late fee safe harbor amount set forth 
in proposed Sec.  1026.52(b)(1)(ii).
Comments Received and the Final Rule
    The CFPB received no comments on the proposed revisions to comment 
7(b)(11)-4. This final rule adopts comment 7(b)(11)-4 as proposed. Even 
though Smaller Card Issuers as defined in new Sec.  1026.52(b)(3) are 
not subject to the new $8 late fee safe harbor threshold amount adopted 
in Sec.  1026.52(b)(1)(ii) in this final rule, the CFPB has determined 
it is useful to revise the late fee amount in the example to be $8, 
consistent with the new $8 late fee safe harbor threshold amount that 
applies to Larger Card Issuers.

Section 1026.52 Limitations on Fees

52(a) Limitations During First Year After Account Opening

52(a)(1) General Rule

    Section 1026.52(a)(1) generally provides that the total amount of 
fees a consumer is required to pay with respect to a credit card 
account under an open-end (not home-secured) consumer credit plan 
during the first year after account opening must not exceed 25 percent 
of the credit limit in effect when the account is opened. Section 
1026.52(a)(2) provides that late payment fees, over-the-limit fees, and 
returned-payment fees; or other fees that the consumer is not required 
to pay with respect to the account are excluded from the fee limitation 
set forth in Sec.  1026.52(a)(1).
    Current comment 52(a)(1)-1 provides that the 25 percent limit in 
Sec.  1026.52(a)(1) applies to fees that the card issuer charges to the 
account as well as to fees that the card issuer requires the consumer 
to pay with respect to the account through other means (such as through 
a payment from the consumer's asset account to the card issuer or from 
another credit account provided by the card issuer). Current comment 
52(a)(1)-1 also provides four examples to illustrate the provision set 
forth above. The two examples in current comment 52(a)(1)-1.i and iv 
contain late fee amounts of $15.
The CFPB's Proposal
    The 2023 Proposal would have amended the two examples in comment 
52(a)(1)-1.i and iv to use a late fee amount of $8, so that the late 
fee amounts in the examples would be consistent with the proposed $8 
late fee safe harbor amount set forth in proposed Sec.  
1026.52(b)(1)(ii).
Comments Received and the Final Rule
    The CFPB received no comments on the proposed revisions to comment 
52(a)(1)-1.i and iv. This final rule adopts comment 52(a)(1)-1.i and iv 
substantially as proposed, with minor changes to make clear that the 
card issuer in the examples is not a Smaller Card Issuer as defined in 
Sec.  1026.52(b)(3). Even though Smaller Card Issuers as defined in new 
Sec.  1026.52(b)(3) are not subject to the new $8 late fee safe harbor 
threshold adopted in Sec.  1026.52(b)(1)(ii) in this final rule, the 
CFPB has determined it is useful to revise the late fee amounts in the 
examples to be $8, consistent with the new $8 late fee safe harbor 
threshold amount that applies to Larger Card Issuers. This final rule 
also makes technical changes to cross references in comments 52(a)(1)-2 
and 52(a)(1)-4.ii.C to conform to OFR style requirements.

52(b) Limitations on Penalty Fees

52(b)(1) General Rule

    Section 1026.52(b) provides that a card issuer must not impose a 
fee for violating the terms or other requirements of a credit card 
account under an open-end (not home-secured) consumer credit plan 
unless the issuer has determined that the dollar amount of the fee 
represents a reasonable proportion of the total costs incurred by the 
issuer for that type of violation as set forth in the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) or complies with the safe harbor 
provisions set forth in Sec.  1026.52(b)(1)(ii). It further provides 
that a card issuer must not impose such a fee unless the fee is 
consistent with certain prohibitions set forth in Sec.  1026.52(b)(2), 
including a prohibition in Sec.  1026.52(b)(2)(i)(A) on imposing a 
penalty fee that exceeds the dollar amount associated with the 
violation, which currently prohibits late fees that exceed 100 percent 
of the required minimum payment.\110\ The commentary to Sec.  
1026.52(b) explains that penalty fees subject to its provisions include 
late fees, returned-payment fees, and fees for over-the-limit 
transactions, among others.\111\
---------------------------------------------------------------------------

    \110\ See comment 52(b)(2)(i)-1.
    \111\ See comment 52(b)-1.
---------------------------------------------------------------------------

The CFPB's Proposal
    In the 2023 Proposal, the CFPB proposed to amend Sec.  
1026.52(b)(1)(ii) to lower the safe harbor dollar amount for late fees 
to $8 (currently set at $30) and to provide that the higher safe harbor 
dollar amount for subsequent violations of the same type that occur 
during the same billing cycle or in one of the next six billing cycles 
(currently set at $41) does not apply to late fees.\112\
---------------------------------------------------------------------------

    \112\ As discussed in the section-by-section analysis of Sec.  
1026.52(b)(1)(ii)(C) below, the CFPB did not propose to lower or 
otherwise change the safe harbor amount of a late fee that card 
issuers may impose when a charge card account becomes seriously 
delinquent.
---------------------------------------------------------------------------

    In addition, as discussed in more detail below, the CFPB proposed 
to provide that the current provision in Sec.  1026.52(b)(1)(ii)(D) 
that provides for annual adjustments for the safe harbor dollar amounts 
to reflect changes in the CPI would not apply to the safe harbor amount 
for late fees. Also, as discussed in the section-by-section analysis of 
Sec.  1026.52(b)(2)(i) below, the CFPB proposed to amend Sec.  
1026.52(b)(2)(i)(A) to provide that late fee amounts may not exceed 25 
percent of the required minimum payment.
    The CFPB also proposed one clarification that would apply to 
penalty fees generally. Specifically, the CFPB proposed to amend 
comment 52(b)(1)(i)-2.i to make it explicitly clear that costs for 
purposes of the cost analysis provisions in Sec.  1026.52(b)(1)(i) for 
determining penalty fee amounts do not include any collection costs 
that are incurred after an account is charged off pursuant to loan loss 
provisions.
    The CFPB did not propose to amend the lead-in text of Sec.  
1026.52(b)(1). However, for consistency with the proposed amendments to 
other provisions in Sec.  1026.52(b) and for clarity, the CFPB proposed 
certain amendments to the commentary to Sec.  1026.52(b) introductory 
text and (b)(1). Specifically, the CFPB proposed to amend comment 
52(b)-1.i.A to make it explicitly clear that a late payment fee or late 
fee is any fee imposed for a late payment and to include a cross-
reference to Sec.  1026.60(b)(9) and accompanying commentary for 
further guidance. The CFPB also proposed to amend comment 52(b)-2, 
which provides an illustrative example of how to round a penalty fee to 
the nearest whole dollar in compliance with the rule. The proposed 
amendments would have reduced the dollar amounts of late fees in the 
example to reflect amounts that would be permissible under the CFPB's 
proposals to lower the late fee safe harbor amount to $8 and to cap 
late

[[Page 19146]]

fees at 25 percent of the required minimum payment. In addition, the 
CFPB proposed to add new comment 52(b)-5 to clarify that any dollar 
amount examples in the commentary to Sec.  1026.52(b) relating to the 
safe harbors in Sec.  1026.52(b)(1) are based on the original 
historical safe-harbor thresholds of $25 and $35 for penalty fees other 
than late fees, and on the proposed threshold of $8 for late fees. This 
proposed clarification would have helped to explain why the dollar 
amounts for penalty fees other than late fees in the examples in the 
commentary are different from the ones set forth in the regulatory text 
in Sec.  1026.52(b)(1)(ii)(A) and (B).
    The CFPB also proposed to amend comments 52(b)(1)-1.i.B and C, 
which illustrate the relationship between the cost analysis provisions 
in Sec.  1026.52(b)(1)(i) and the safe harbor provisions in Sec.  
1026.52(b)(1)(ii). Specifically, the CFPB proposed to amend the 
illustrative example in comment 52(b)(1)-1.i.B to reflect a late fee 
amount consistent with the proposal. In addition, because the CFPB 
proposed to substantially amend the safe harbor provisions for late 
fees, the CFPB proposed to remove references to late fees from the 
illustrative examples in comment 52(b)(1)-1.i.C and replace them with 
references to over-the-limit fees.
    In addition, the CFPB proposed to amend comment 52(b)(1)-1.ii, 
which illustrates the relationship between the penalty fee limitations 
in Sec.  1026.52(b)(1) and the prohibitions in Sec.  1026.52(b)(2). The 
proposed amendments would have reduced the dollar amount of a late fee 
in the example to reflect an amount that would be consistent with the 
CFPB's proposal to lower the late fee safe harbor amount.
    The CFPB solicited comment on all aspects of these proposed 
amendments to the commentary to Sec.  1026.52(b) introductory text and 
(b)(1), including comment on what additional amendments may be needed 
to help ensure clarity and compliance certainty.
Comments Received and the Final Rule
    The CFPB received no comments on the proposed clarifications of the 
commentary to Sec.  1026.52(b) introductory text and (b)(1). For 
purposes of clarity and compliance certainty, this final rule adopts 
amendments to the commentary to Sec.  1026.52(b) introductory text and 
(b)(1) substantially as proposed, with minor changes reflecting the 
CFPB's decision not to finalize the new $8 late fee safe harbor amount 
for Smaller Card Issuers as defined in new Sec.  1026.52(b)(3) or to 
restrict late fee amounts to 25 percent of the required minimum 
payment. Accordingly, consistent with the proposal, comment 52(b)-1.i.A 
is revised to clarify that a late payment fee or late fee is any fee 
imposed for a late payment and to include a cross-reference to Sec.  
1026.60(b)(9) and accompanying commentary for further guidance. The 
CFPB finds this clarification necessary given the slight variations in 
terms used to describe late fees in Regulation Z. Also, consistent with 
the proposal, the illustrative example of rounding the amount of a 
penalty fee to the nearest dollar in comment 52(b)-2 is revised to 
lower the late fee amounts to be consistent with the new $8 late fee 
safe harbor amount for Larger Card Issuers. The CFPB finds that this 
revision and similar revisions to the commentary discussed below are 
helpful to facilitate compliance with the new $8 late safe harbor 
amount for card issuers to which it applies.
    Consistent with the proposal, this final rule also adds new comment 
52(b)-5 to clarify that any dollar amount examples in the commentary to 
Sec.  1026.52(b) relating to the safe harbors in Sec.  1026.52(b)(1) 
are based on the original historical safe-harbor thresholds of $25 and 
$35 for penalty fees other than late fees, and on the threshold of $8 
for late fees. In a minor change from the proposal, the comment also 
clarifies that the $8 threshold is applicable to card issuers other 
than Smaller Card Issuers as defined in Sec.  1026.52(b)(3) (namely, 
Larger Card Issuers as that term is used in this document). This new 
comment helps to explain why the dollar amounts for penalty fees set 
forth in the examples in the commentary are different from the ones set 
forth in the regulatory text in Sec.  1026.52(b)(1)(ii)(A) and (B).
    In addition, this final rule amends the illustrative example in 
comment 52(b)(1)-1.i.B to reflect a late fee amount consistent with the 
$8 late fee safe harbor amount for Larger Card Issuers. In addition, 
because the CFPB in this final rule is substantially amending the safe 
harbor provisions for late fees with respect to Larger Card Issuers, 
this final rule removes references to late fees from the illustrative 
examples in comment 52(b)(1)-1.i.C and replaces them with references to 
over-the-limit fees, the amounts of which remain the same in this final 
rule for all card issuers. In addition, this final rule reduces the 
amount of the late fee in the illustrative example in comment 52(b)(1)-
1.ii for consistency with the lower $8 late fee safe harbor amount for 
Larger Card Issuers.

52(b)(1)(i) Fees Based on Costs

    As noted above, under the cost analysis provisions in Sec.  
1026.52(b)(1)(i), a card issuer may impose a fee for violating the 
terms or other requirements of an account consistent with the general 
rule in Sec.  1026.52(b)(1) if the card issuer has determined that the 
dollar amount of the fee represents a reasonable proportion of the 
total costs incurred by the card issuer as a result of that type of 
violation. Section 1026.52(b)(1)(i) further provides that a card issuer 
must reevaluate that determination at least once every 12 months and 
sets forth certain other requirements and conditions that apply if, as 
a result of the reevaluation, the card issuer determines that either a 
lower or higher fee represents a reasonable proportion of the total 
costs incurred by the card issuer as a result of that type of 
violation.
The CFPB's Proposal
    The CFPB did not propose to amend the text of Sec.  
1026.52(b)(1)(i). However, for purposes of clarity and compliance 
certainty, the CFPB proposed to amend comment 52(b)(1)(i)-2.i to make 
it explicitly clear that the costs that card issuers can consider for 
purposes of determining the amount of a penalty fee under the cost 
analysis provisions in Sec.  1026.52(b)(1)(i) do not include collection 
costs that are incurred after an account is charged off in accordance 
with loan-loss provisions.
    Comment 52(b)(1)(i)-1 currently provides that card issuers may 
include in the costs for determining the amount of a penalty fee ``the 
costs incurred . . . as a result of [the] violation.'' Comment 
52(b)(1)(i)-2 addresses amounts not considered costs incurred by a card 
issuer as a result of violations of the terms or other requirements of 
an account for purposes of Sec.  1026.52(b)(1)(i). Comment 52(b)(1)(i)-
2.i provides that one such amount that cannot be considered as costs 
incurred for purposes of Sec.  1026.52(b)(1)(i) are losses and 
associated costs (including the cost of holding reserves against 
potential losses and the cost of funding delinquent accounts).
    The CFPB proposed to amend comment 52(b)(1)(i)-2.i to make it 
explicitly clear that the ``losses and associated costs'' that card 
issuers may not consider as costs incurred for purposes of Sec.  
1026.52(b)(1)(i) include any collection costs that are incurred after 
an account is charged off in accordance with loan-loss provisions. The 
CFPB's proposal, therefore, would have made it explicit that for any 
collection costs that a card issuer incurs

[[Page 19147]]

after an account has been charged off are not considered costs incurred 
for purposes of Sec.  1026.52(b)(1)(i). The CFPB understood that when 
an account has been charged off, the card issuer has written the 
account off as a loss; therefore, any cost in collecting amounts owed 
to a card issuer that are incurred post-charge-off is related to 
mitigating a loss as opposed to the cost of a violation of the account 
terms. As the Board noted in its 2010 Final Rule, ``it would be 
inconsistent with the purpose of the [CARD Act] to permit card issuers 
to begin recovering losses and associated costs through penalty fees 
rather than through upfront rates.'' \113\
---------------------------------------------------------------------------

    \113\ 75 FR 37526 at 37538.
---------------------------------------------------------------------------

    The CFPB solicited comment on this proposed clarification of the 
commentary to Sec.  1026.52(b)(1)(i), including comment on whether any 
additional clarification may be needed. The CFPB also solicited comment 
on whether there are other specific clarifications that should be made 
to the provisions of the commentary providing guidance on how to 
perform a cost analysis under the rule.
Comments Received
    Many consumer groups in a joint letter, a credit union, and a 
credit union trade association expressed support for the CFPB's 
proposal that comment 52(b)(1)(i)-2.i be amended to clarify that costs 
for purposes of the cost analysis provisions in Sec.  1026.52(b)(1)(i) 
for determining penalty fee amounts do not include any collection costs 
that are incurred after an account is charged off pursuant to loan loss 
provisions. The consumer groups indicated that card issuers consider 
charged off accounts to be a loss, therefore, such accounts should be 
considered a loan loss. The consumer groups also indicated that card 
issuers build loss rates into the price of credit (e.g., interest, 
including any penalty interest rate). The credit union trade 
association noted that credit unions' late fees cover pre-charge off 
collection costs.
    As discussed below, many industry commenters, including several 
trade associations, and a few individual commenters expressed concerns 
with the CFPB's proposal that comment 52(b)(1)(i)-2.i be amended to 
clarify that costs for purposes of the cost analysis provisions in 
Sec.  1026.52(b)(1)(i) for determining penalty fee amounts do not 
include any collection costs that are incurred after an account is 
charged off pursuant to loan loss provisions.
    Relationship to late fees. Several credit unions and banks, a few 
individual commenters, one law firm representing several card issuers, 
and a few industry trade associations indicated that post-charge-off 
costs, including collection costs, are related to late fees and should 
not be distinguished from pre-charge-off costs. A trade association and 
a credit union indicated that card issuers consider costs across the 
entire span of a cardholder's account and charge-off recoveries are 
accounted for in the overall profitability of a portfolio. Another 
industry trade association commenter specifically indicated that 
including the risk of some account missing payments, which ultimately 
lead to losses for card issuers, in pricing a late fee is appropriate 
under card issuers' risk-based pricing function and is consistent with 
the CARD Act's statutory factors. A credit union and an industry trade 
association indicated that costs associated with contacting the 
cardholder, be it before or after an account is charged off, are 
substantially related to the late payment and should be factored into 
the late fee. Several banks and credit unions, a law firm representing 
several card issuers, and an industry trade association further 
expanded what costs card issuers' face post-charge-off which 
collectively included internal and supplier expenses; court costs and 
vendor commissions associated with the recovery of unpaid balances; 
technology expenses; and people-related expenses for recoveries 
including the usage of third-party debt collectors.
    An individual commenter, a law firm representing several card 
issuers, and an industry trade association characterized charge-off as 
an accounting concept. These commentors collectively noted that charge-
off as an accounting entry is mandated by regulators; this accounting 
concept was unrelated to collection costs and designed to ensure 
appropriate financial reporting of credit losses; and has no impact on 
the collectability or obligation of the debt and the only difference 
between pre-charge-off and post-charge-off delinquencies is the amount 
of time the debt has been in delinquent status. Similarly, an 
individual commenter noted that card issuers do not relinquish its 
contract rights to collect payment when accounts are charged-off.
    A law firm representing several card issuers indicated that costs 
associated with post-charge-off collection activities are actually more 
like pre-charge-off collection costs, as opposed to losses, because 
card issuers cannot recoup those costs from consumers.
    A law firm representing several card issuers, an industry trade 
association and a regulatory advocacy group characterized the 
distinction between pre-and-post-charge-off collection expenses as 
arbitrary or arbitrary and capricious. The law firm noted that the 
CFPB's proposal is arbitrary and capricious because it did not explain 
why a card issuer writing off costs for its own accounting purposes 
means that the card issuer has not incurred the cost of collecting 
these payments.
    An industry trade association indicated that the provision the CFPB 
proposed to amend is currently consistent with the statutory factor 
that the CFPB be guided by the cost incurred by the creditor from an 
omission or violation. This commenter explained that in the commentary 
to Regulation Z, the Board excluded the costs of reserves held against 
potential losses and costs of funding delinquent amounts from what may 
be recovered through late fees. This commenter expressed concerns that 
the CFPB did not explain why the Board appropriately excluded these 
costs from losses when statutorily guided by the cost incurred by the 
creditor from an omission or violation.
    Credit reporting related costs. An individual commenter highlighted 
that while reporting to credit bureaus is not a direct collection 
expense, credit bureau disputes are directly related to collections. 
The individual commenter noted that disputes only originate on reports 
of charge-off or delinquency and, in general, the level of monthly 
disputes ranges from 0.3 percent to 0.5 percent of all accounts 
reported in the last seven years. The commenter indicated these dispute 
reasons are evidence that credit bureau disputes are directly related 
to collections. Further, the individual commenter noted that working on 
these disputes is costly and card issuers that lend more frequently to 
credit challenged consumers will likely incur these costs more 
frequently.
    Relationship to funds for other products and services. A few credit 
unions and an industry trade association indicated that excluding post-
charge-off collection costs would reduce the funds available for other 
products and services. One of the credit unions noted that reduced 
funds for other products and services may lead to reduced access to and 
higher costs to other members utilizing these services. Another credit 
union specifically noted that excluding post-charge-off collection 
costs would also hinder innovation to offer improved mobile and online 
platforms.
    Certain pre-charge-off costs. An industry trade association 
indicated that there are pre-charge-off costs beyond collections-
related expenses including costs associated with pre-charge-off

[[Page 19148]]

customer service, commissions, grants, program development, and 
collections strategies.
    Relationship to CARD Act. Several industry trade associations, a 
regulatory advocacy group, and a law firm representing several card 
issuers indicated that the CFPB's proposal to clarify that costs for 
purposes of the cost analysis provisions in Sec.  1026.52(b)(1)(i) for 
determining penalty fee amounts do not include any collection costs 
that are incurred after an account is charged off pursuant to loan loss 
provisions is not supported by the CARD Act. One of those industry 
trade associations specified that the CARD Act requires a broader 
consideration of the costs to issuers, namely the cost incurred by the 
creditor from such violation or omissions. Several other trade 
associations went a step further and indicated that this clarification 
is not supported in statute or regulation, and that the statute or 
regulation would have expressly limited the costs analysis provision to 
pre-charge-off collection costs if that was the intent. Similarly, the 
law firm representing several card issuers noted that the proposal 
ignores the express language of the CARD Act regarding what constitutes 
a permissible late fee. This law firm specified that the CFPB conflated 
two concepts within the CARD Act--the requirement that late fees be 
reasonable and proportional to the omission or violation to which the 
fee relates and that the CFPB be guided by the cost incurred by the 
creditor from an omission or violation. This commenter indicated that 
by interchanging the two concepts the CFPB creates a new and narrower 
standard to facilitate the reduction of late fees. This commenter 
further indicated that the proposal also contradicts this narrower 
standard because it seeks to impose a standard that makes late fees 
equal to pre-charge-off collection costs and not late fees that are 
reasonable and proportional to those costs.
    Another industry trade association indicated that, in addition to 
the proposal running afoul of the CARD Act, it may also come into 
conflict with the Due Process and Takings Clauses of the Fifth 
Amendment as it may deprive card issuers their property rights to 
return on capital invested.
    Another industry trade association suggested that the CFPB should 
reopen the existing regulation to address conflicts with the CARD Act 
to the extent that card issuers start using the cost analysis 
provisions. This commenter specifically suggested that the current 
regulation is in error because it permits the recovery of a fee that 
represents a reasonable proportion of the total costs incurred by the 
card issuer as a result of that type of violation, but those 
limitations are not found in the statute.
    Specific data provided. An individual commenter and a credit union 
provided the CFPB with relevant data to its proposal that comment 
52(b)(1)(i)-2.i be amended to clarify that costs for purposes of the 
cost analysis provisions in Sec.  1026.52(b)(1)(i) for determining 
penalty fee amounts do not include any collection costs that are 
incurred after an account is charged off pursuant to loan loss 
provisions. The individual commenter submitted publicly available 
financials of two FDIC-insured institutions. The individual indicated 
that these data show that non-interest income like annual fees and late 
fees are not enough to cover charge-offs. The credit union estimated 
that costs associated with servicing a delinquent credit card account 
(including costs related to salaries, vendor costs, notifications, and 
alerts) to be $53 per credit card and $105,442 per year, and noted 
these costs exceed the current safe harbor amounts. This commenter also 
indicated that credit cards consist of 10 percent of its loan portfolio 
but 27 percent of the accounts it collects.
    Additional issue. In addition to the comments on the proposed 
clarifications of the commentary to Sec.  1026.52(b)(1)(i), consumer 
groups recommended in a joint letter that the CFPB revise the examples 
in comment 52(b)(1)(i)-6.ii to lower the late fee amounts closer to the 
proposed $8 safe harbor amount, because otherwise, the commentary could 
be read to provide that significantly higher late fees based on the 
cost analysis provisions would be reasonable and proportional.
The Final Rule
    For the reasons stated herein, the CFPB is adopting the amendment 
to clarify comment 52(b)(1)(i)-2.i as proposed and therefore this 
amendment applies to both Larger Card Issuers and Smaller Card Issuers. 
This final rule also makes technical changes to cross references in 
comments 52(b)(1)(i)-6.ii.B and C, 52(b)(1)(i)-7.ii.B and C, and 
52(b)(1)(i)-8.iii.B and C to conform to OFR style requirements.
    With respect to the comments that post-charge-off costs are related 
to the cost of a late fee violation and should not be distinguished 
from pre-charge-off costs, comment 52(b)(1)(i)-2.i explains that card 
issuers may not consider ``losses and associated costs'' as costs 
incurred for purposes of the cost analysis provisions found in Sec.  
1026.52(b)(1)(i) and provides examples of what constitutes losses 
including the cost of holding reserves against potential losses and the 
cost of funding delinquent accounts. The Board's 2010 Final Rule does 
not characterize these specific examples as to what constitutes a 
``loss'' as exhaustive. Instead, these examples were added into comment 
52(b)(1)(i)-2.i to address specific comments received in its rulemaking 
process.\114\ The amendment adopted here, like the examples implemented 
in the Board's 2010 Final Rule, provides further clarification on what 
constitutes a ``loss.''
---------------------------------------------------------------------------

    \114\ 75 FR 37526 at 37538-9.
---------------------------------------------------------------------------

    As discussed in the 2023 Proposal, even if ``loss'' is an 
accounting term, the purpose of excluding post-charge off costs is to 
exclude those costs that are not directly linked to the violation of 
the late payment, and indeed, where in the vast majority of instances, 
the consumer who pays late may never be subject to post-charge off 
collection or written off as a loss. As the CFPB explained in the 
proposal, the costs in collecting amounts owed to a card issuer that 
are incurred post-charge-off are substantially related to mitigating a 
loss as opposed to the cost of a violation of the account terms.
    With respect to comments that the amendment is not supported by the 
CARD Act, the Board in its 2010 Final Rule received similar comments 
including that `` `costs incurred by the creditor from [an] omission or 
violation' does not expressly exclude losses and that definitions of 
`cost' typically include `loss.' '' \115\ The CFPB agrees with the 
Board when it noted that ``Section 149(c)(1) refers to `costs incurred 
by the creditor from [an] omission or violation,' which could be 
construed to mean that it is appropriate to exclude losses where--as 
here--card issuers do not incur losses as a result of the overwhelming 
majority of violations.'' \116\ If losses and post-charge off costs 
were included in the late fee amount calculation, the majority of 
consumers who pay late fees--whose accounts were merely delinquent and 
not written off--would be compensating issuers for losses that have 
nothing to do with their own late payment violations, but rather result 
from the small minority of delinquent accounts that might be written 
off. The Board explained, and the CFPB agrees, that this is contrary to 
the statutory requirement that late fees be related to the cost of the 
omission or violation, here the cost of paying late,

[[Page 19149]]

rather than the cost of writing off certain accounts.
---------------------------------------------------------------------------

    \115\ Id. at 37538.
    \116\ Id.
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    Further, the Board noted in its 2010 Final Rule that, if losses 
were included, it could result in obscuring the cost of credit, which 
was contrary to an express purpose of the CARD Act. As explained in the 
2010 Final Rule, ``it would be inconsistent with the purpose of the 
[CARD Act] to permit card issuers to begin recovering losses and 
associated costs through penalty fees rather than through upfront 
rates.'' \117\ The CARD Act was enacted to ``establish fair and 
transparent practices relating to the extension of credit.'' \118\ The 
Board recognized in its 2010 Final Rule that ``if card issuers were 
permitted to begin recovering losses and associated costs through 
penalty fees rather than upfront rates'' then ``transparency in credit 
card pricing would be reduced because some consumers overestimate their 
ability to avoid violations and therefore may discount upfront penalty 
fee disclosures.'' \119\
---------------------------------------------------------------------------

    \117\ Id.
    \118\ Pub. L. 111-24, 123 Stat. 1734 (2009).
    \119\ 75 FR 37526 at 37538.
---------------------------------------------------------------------------

    The CFPB notes that issuers have other mechanisms to recover costs 
associated with post-charge off accounts, like the APR. To that extent, 
the CFPB acknowledges commenters who provided specific data on 
financial institutions whose non-interest income like annual fees and 
late fees are not enough to cover charge-offs. However, as noted above, 
card issuers use periodic rates to account for losses, and in fact, 
this is the justification for risk-based pricing that is the norm in 
the market. Permitting issuers to recover losses, like post-charge-off 
costs, through late fees is not the intent of the CARD Act; issuers 
have other means to recover such costs such as through upfront rates.
    With respect to comments that certain costs associated with pre-
charge-off customer service, commissions, grants, program development, 
collection strategies, and credit bureau disputes should be considered 
as collection costs, the purpose of this amendment is not to create an 
exhaustive list of what card issuers can consider as collection costs 
but to clarify what is already in the text of the commentary. The CFPB 
here has determined that there is a need to clarify that for card 
issuers using the cost analysis provisions in Sec.  1026.52(b)(1)(i) to 
determine penalty fees post-charge-off collection costs are losses and 
therefore cannot be used in the analysis.
    With respect to comments that excluding post-charge-off collection 
costs would reduce the funds available for other products and services 
and that it would hinder the ability to improve mobile and online 
platforms, the CFPB notes that pursuant to the CARD Act, the amount of 
any penalty fee, including any late payment fee, must be ``reasonable 
and proportional'' to any omission with respect to, or violation of, 
the cardholder agreement.\120\ Therefore, in considering which costs 
should be considered for purposes of setting an amount for penalty fees 
pursuant to the cost analysis provisions, it would be inappropriate to 
consider penalty fees' subsidization of other products and services 
that card issuers may offer.
---------------------------------------------------------------------------

    \120\ CARD Act section 102, 123 Stat. 1740 (15 U.S.C. 1665d(a)).
---------------------------------------------------------------------------

    In adopting the amendment to comment 52(b)(1)(i)-2.i, the CFPB also 
rejects the notion raised by commenters that it is in violation of the 
Due Process and Takings Clauses of the Fifth Amendment. There is no 
public taking, and further, the discretionary $8 safe harbor is set at 
a threshold that will likely enable the average Larger Card Issuer to 
continue to recover pre-charge-off collection costs, and Larger Card 
Issuers can elect to use the cost analysis provisions if the safe 
harbor amount is insufficient for recovery of their pre-charge-off 
collection costs. In addition, as described above, Larger Card Issuers 
generally can adjust other fees or interest rates in order to recover 
any lost revenue.
    Additionally, the CFPB declines to revise the examples in comment 
52(b)(1)(i)-6 to lower the late fee amounts closer to the $8 safe 
harbor amount, as recommended. The CFPB views the revision as 
unnecessary and notes that an illustrative example is neither 
representative nor determinative of a reasonable and proportional late 
fee amount determined pursuant to the cost analysis provisions.

52(b)(1)(ii) Safe Harbors

The Board's Implementing Rule and Findings
    In the 2010 Final Rule implementing TILA section 149, the Board 
established penalty fee safe harbor amounts of $25 for the first 
violation and $35 for any additional violations of the same type that 
occur during the same billing cycle or in one of the next six billing 
cycles. In doing so, the Board indicated that it ``believes that these 
amounts are generally consistent with the statutory factors of cost, 
deterrence, and consumer conduct.'' \121\ In interpreting TILA section 
149(a), the Board found that ``it appears that Congress intended the 
words `reasonable and proportional' . . . to require that there be a 
reasonable and generally consistent relationship between the dollar 
amounts of credit card penalty fees and the violations for which those 
fees are imposed, while providing the Board with substantial discretion 
in implementing that requirement.'' \122\
---------------------------------------------------------------------------

    \121\ 75 FR 37526 at 37527.
    \122\ Id. at 37532.
---------------------------------------------------------------------------

    The Board's Consideration of Costs. The cost-related data on which 
the Board relied were limited. Although the Board received more than 
22,000 comments on its proposed rule, the Board noted that ``relatively 
few provided any data'' supporting a particular safe harbor 
amount.\123\ While one commenter suggested the average cost of 
collecting late payments for credit card accounts issued by the largest 
issuers was $28, the Board noted the comment ``significantly overstates 
the fee amounts necessary to cover the costs incurred by large issuers 
as a result of violations,'' as it included costs not incurred as a 
result of violations, such as the cost of funding balances that would 
have been charged off regardless of fees.\124\
---------------------------------------------------------------------------

    \123\ Id. at 37541.
    \124\ Id.
---------------------------------------------------------------------------

    Given these limitations, instead of relying on data related to the 
costs of collecting late payments in setting the safe harbor dollar 
amounts in its Regulation Z, Sec.  226.52(b)(1)(ii)(A) and (B), the 
Board primarily considered the following information in setting the 
safe harbor dollar amounts: (1) the dollar amounts of late fees 
currently charged by credit card issuers; (2) the dollar amounts of 
late fees charged with respect to deposit accounts and consumer credit 
accounts other than credit cards; (3) State and local laws regulating 
late fees; (4) the safe harbor threshold for credit card default 
charges established by the United Kingdom's Office of Fair Trading 
(OFT) in 2006; (5) data related to deterrence that provide evidence on 
whether the experience of incurring a late payment fee makes consumers 
less likely to pay late for a period of time; and (6) data submitted by 
a large credit card issuer that indicated that consumers who pay late 
multiple times over a six-month period generally present a 
significantly greater credit risk to issuers than consumers who pay 
late a single time.\125\
---------------------------------------------------------------------------

    \125\ Id. at 37540-43.
---------------------------------------------------------------------------

    In establishing the safe harbor amounts, the Board concluded that 
``it is not possible based on the available information to set safe 
harbor amounts that precisely reflect the costs incurred by a widely 
diverse group of card

[[Page 19150]]

issuers and that deter the optimal number of consumers from future 
violations,'' \126\ and stated its belief that the safe harbor amounts 
established in the rule were ``generally sufficient to cover issuers' 
costs and to deter future violations.'' \127\ The Board further 
concluded that, based on the comments received in response to its 
proposal, the $25 safe harbor in Sec.  226.52(b)(1)(ii)(A) for the 
first violation was sufficient to cover the costs incurred by most 
small issuers as a result of violations.\128\
---------------------------------------------------------------------------

    \126\ Id. at 37544.
    \127\ Id.
    \128\ Id. at 37542.
---------------------------------------------------------------------------

    With respect to late payments, the Board stated its belief that 
large issuers generally incur fewer collection and other costs on 
accounts that experience a single late payment and then pay on time for 
the next six billing cycles than on accounts that experience multiple 
late payments during that period.\129\ The Board further reasoned that 
even if $25 is not sufficient to offset all of the costs incurred by 
some large issuers as a result of a single late payment, those issuers 
will be able to recoup any unrecovered costs through upfront APRs and 
other pricing strategies.\130\
---------------------------------------------------------------------------

    \129\ Id.
    \130\ Id.
---------------------------------------------------------------------------

    With respect to the higher safe harbor amount in Sec.  
226.52(b)(1)(ii)(B), the Board explained its belief that when an 
account experiences additional violations that occur during the same 
billing cycle or in one of the six billing cycles following the initial 
violation, $35 would generally be sufficient to cover any increase in 
the costs incurred by the card issuer.\131\ As discussed in more detail 
below, the Board also explained its belief that the $35 safe harbor 
amount would have a reasonable deterrent effect on additional 
violations \132\ and was consistent with the consumer's conduct in 
engaging in multiple violations of the same type within six billing 
cycles.\133\
---------------------------------------------------------------------------

    \131\ Id.
    \132\ Id.
    \133\ Id. at 37543.
---------------------------------------------------------------------------

    The Board's Consideration of Deterrence. The Board did not 
expressly discuss how it took deterrence into account in setting the 
initial $25 penalty fee amount; instead, the Board limited its 
discussion of that factor to the role it played in the Board's decision 
to set a higher safe harbor amount for any additional violation of the 
same type that occurred during the same billing cycle or in one of the 
next six billing cycles. While the Board noted that it considered 
deterrence in setting a higher amount generally, the Board did not have 
specific data justifying the $35 amount. The Board noted that one 
commenter on the proposal submitted the results of applying two 
deterrence modeling methods to data gathered from all leading credit 
card issuers in the U.S. According to the commenter, these models 
estimated that fees of $28 or less have relatively little deterrent 
effect on late payments but that higher fees are a statistically 
significant contributor to sustaining lower levels of delinquent 
behavior. While the Board questioned the assumptions used to arrive at 
the results in these modeling methods, the Board did accept that 
increases in the amount of penalty fees can affect the frequency of 
violations.\134\
---------------------------------------------------------------------------

    \134\ Id. at 37541.
---------------------------------------------------------------------------

    With respect to the higher $35 fee for repeat penalty fees that 
occur during the same billing cycle or in one of the next six billing 
cycles, the Board explained its belief that a higher penalty fee amount 
is consistent with the deterrence factor set forth in TILA section 
149(c)(2) insofar as--after a violation has occurred--the amount of the 
fee increases to deter additional violations of the same type that 
occur during the same billing cycle or in one of the next six billing 
cycles.\135\ The Board also explained its belief that although upfront 
disclosure of a penalty fee may be sufficient to deter some consumers 
from engaging in certain conduct, other consumers may be deterred by 
the imposition of the fee itself. For these consumers, the Board 
explained its belief ``that imposition of a higher fee when multiple 
violations occur will have a significant deterrent effect on future 
violations.'' \136\ The Board specifically pointed to one study of four 
million credit card statements, which found that a consumer who incurs 
a late payment fee is 40 percent less likely to incur a late payment 
fee during the next month compared to a consumer who was not late, 
although this effect depreciates approximately 10 percent each 
month.\137\ Although this study indicated that the imposition of a 
penalty fee may cease to have a deterrent effect on future violations 
after four months, the Board concluded that imposing an increased fee 
for additional violations of the same type that occur during the same 
billing cycle or in one of the next six billing cycles is consistent 
with the intent of the CARD Act. The Board pointed to this study as 
evidence indicating that, as a general matter, penalty fees may deter 
future violations of the account terms.\138\
---------------------------------------------------------------------------

    \135\ Id. at 37533.
    \136\ Id.
    \137\ Sumit Agarwal et al., Learning in the Credit Card Market 
(April 24, 2013), https://ssrn.com/abstract=1091623 or http://dx.doi.org/10.2139/ssrn.1091623. The Board reviewed a 2008 version 
of the paper.
    \138\ 75 FR 37526 at 37533 n.24.
---------------------------------------------------------------------------

    The Board's Consideration of Consumer Conduct. The Board also took 
consumer conduct into account in adopting the higher $35 fee for repeat 
penalty fees that occur during the same billing cycle or in one of the 
next six billing cycles.\139\ The Board explained its belief that 
``multiple violations during a relatively short period can be 
associated with increased costs and credit risk and reflect a more 
serious form of consumer conduct than a single violation.'' \140\ The 
Board noted that, based on data submitted by a large credit card 
issuer, consumers who pay late multiple times over a six-month period 
generally present a significantly greater credit risk than consumers 
who pay late a single time. The Board acknowledged that these data also 
indicate that consumers who pay late two or more times over longer 
periods (such as 12 or 24 months) are significantly riskier than 
consumers who pay late a single time. However, the Board did not 
explain how adding additional costs to these consumers would make them 
less of a credit risk or consider whether adding costs to consumers who 
are unable to pay could increase that risk.
---------------------------------------------------------------------------

    \139\ The Board did not refer to consumer conduct in setting the 
$25 safe harbor amount. See id. at 37527.
    \140\ Id.
---------------------------------------------------------------------------

    The Board stated its belief that, when evaluating the conduct of 
consumers who have violated the terms or other requirements of an 
account, it is consistent with other provisions of the CARD Act to 
distinguish between those who repeat that conduct during the same 
billing cycle or in one of the next six billing cycles and those who do 
not.\141\ Specifically, the Board noted that (1) TILA section 171(b)(4) 
provides that, if the APR that applies to a consumer's existing balance 
is increased because the account is more than 60 days delinquent, the 
increase must be terminated if the consumer makes the next six payments 
on time; and (2) TILA section 148 provides that, when an APR is 
increased based on the credit risk of the consumer or other factors, 
the card issuer must review the account at least once every six months 
to assess whether those factors have changed (including whether the 
consumer's credit risk has declined).\142\ The Board did not, however, 
explain why this is relevant to the question of penalty fees.
---------------------------------------------------------------------------

    \141\ Id. at 37534.
    \142\ Id.

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[[Page 19151]]

The CFPB's Proposal
    The safe harbor provisions in Sec.  1026.52(b)(1)(ii) currently 
provide that a card issuer may impose a fee for violating the terms or 
other requirements of an account if the dollar amount of the fee does 
not exceed $30, as set forth in Sec.  1026.52(b)(1)(ii)(A), or $41 for 
a violation of the same type that occurs during the same billing cycle 
or one of the next six billing cycles, as set forth in Sec.  
1026.52(b)(1)(ii)(B). In addition, Sec.  1026.52(b)(1)(ii)(C) provides 
a special safe harbor that applies when a charge card account becomes 
seriously delinquent. Under that provision, when a card issuer has not 
received the required payment for two or more consecutive billing 
cycles on a charge card account that requires payment of outstanding 
balances in full at the end of each billing cycle, the issuer may 
impose a late payment fee that does not exceed 3 percent of the 
delinquent balance.
    The CFPB proposed to amend Sec.  1026.52(b)(1)(ii) to provide that 
a card issuer may impose a fee for a late payment on an account under 
the safe harbor if the dollar amount of the fee does not exceed 
$8.\143\ The CFPB further proposed to amend Sec.  1026.52(b)(1)(ii) to 
provide that other than a fee for a late payment, a card issuer may 
impose a fee for violating the terms or other requirements of an 
account if the dollar amount of the fee does not exceed the safe harbor 
amounts in Sec.  1026.52(b)(1)(ii)(A) or (B), as applicable. As such, 
the proposed $8 safe harbor amount for late fees would have been a 
single fee amount; it would have applied regardless of whether the fee 
is imposed for a first or subsequent violation. However, for all other 
penalty fees, card issuers could still charge amounts not exceeding the 
amounts in Sec.  1026.52(b)(1)(ii)(A) and (B).
---------------------------------------------------------------------------

    \143\ As discussed in more detail below, there was one proposed 
exception related to charge card accounts as described in current 
Sec.  1026.52(b)(1)(ii)(C).
---------------------------------------------------------------------------

    In addition, under the proposal, charge card issuers could still 
impose a fee pursuant to Sec.  1026.52(b)(1)(ii)(C) when a charge card 
account becomes seriously delinquent as defined in the rule. The CFPB 
stated its recognition that the fee described in Sec.  
1026.52(b)(1)(ii)(C) is a form of late fee but, for the reasons 
discussed below, did not propose to lower the safe harbor amount under 
this special provision for charge cards. However, as discussed in the 
section-by-section analysis of Sec.  1026.52(b)(1)(ii)(C) below, the 
CFPB proposed to revise this provision for clarity to provide that a 
card issuer may impose a fee not exceeding 3 percent of the delinquent 
balance on a charge card account that requires payment of outstanding 
balances in full at the end of each billing cycle if the card issuer 
has not received the required payment for two or more consecutive 
billing cycles, notwithstanding the safe harbor late fee amount in 
proposed Sec.  1026.52(b)(1)(ii). The CFPB emphasized that the proposed 
$8 safe harbor late fee amount in proposed Sec.  1026.52(b)(1)(ii) 
would still apply to fees imposed on a charge card account for late 
payments not meeting the description in Sec.  1026.52(b)(1)(ii)(C).
    In addition to the proposed amendments to the late fee safe harbor 
amounts in Sec.  1026.52(b)(1)(ii), the CFPB proposed amendments to the 
provision's commentary. The CFPB proposed these amendments for purposes 
of clarity and consistency with the proposal to lower the late fee safe 
harbor amount to a fee amount of $8 for the first and subsequent 
violations.
    Existing comment 52(b)(1)(ii)-1 explains the circumstances in which 
a card issuer may impose a higher penalty fee amount under Sec.  
1026.52(b)(1)(ii)(B) for a violation of the same type that occurred 
during the same billing cycle or one of the next six billing cycles. 
Because Sec.  1026.52(b)(1)(ii)(B) would have no longer applied under 
the CFPB's proposal to limit the late fee safe harbor amounts to a fee 
amount of $8 for the first and subsequent violations, the CFPB proposed 
to amend comment 52(b)(1)(ii)-1.i to explain additionally that a card 
issuer cannot impose a late fee in excess of $8, as provided in 
proposed Sec.  1026.52(b)(1)(ii), regardless of whether the card issuer 
has imposed a late fee within the six previous billing cycles. The CFPB 
also proposed to amend the illustrative examples in comment 
52(b)(1)(ii)-1.iii.A to remove references to late fees and replace them 
with references to over-the-limit fees, as Sec.  1026.52(b)(1)(ii)(B) 
would still apply to such fees under the CFPB's proposed amendments to 
Sec.  1026.52(b)(1)(ii). In addition, the CFPB proposed to amend the 
illustrative examples in comments 52(b)(1)(ii)-1.iii.B and C to reflect 
a late fee amount of $8, consistent with the proposed amendments to 
Sec.  1026.52(b)(1)(ii), and to make minor technical changes for 
consistency with the proposal.
    In considering all statutory factors, the CFPB preliminarily found 
that an $8 late fee for the first and subsequent late payments better 
represents a balance of issuer costs, deterrent effects, consumer 
conduct, as well as the benefits to issuers that result from relying on 
a safe harbor amount, like reduced administrative costs, and the 
possible beneficial effects of lower late fees on subprime cardholders' 
repayment behavior. Further, the CFPB preliminarily found that this 
amount is supported by analysis of the Y-14 data. Finally, the CFPB 
noted that it took into consideration changes in the market, like 
automatic payment, that facilitate billing and payment, thus making it 
easier for card issuers to collect timely payments. For these reasons, 
the CFPB preliminarily determined that a late fee amount of $8 for the 
first and subsequent violations is presumed to be reasonable and 
proportional to the late payment violation to which the fee relates.
    The CFPB sought comment on all aspects of its proposal to lower the 
late fee safe harbor dollar amounts in Sec.  1026.52(b)(1)(ii) to a fee 
amount of $8 for the first and subsequent violations and provide that a 
higher safe harbor dollar amount for penalty fees occurring within the 
same billing cycle or the next six billing cycles does not apply to 
late fees. In particular, the CFPB sought comment on whether to set a 
different amount and, if so, what amount and why, including any 
relevant data or other information. The CFPB also sought comment on 
whether to retain the higher safe harbor amount and, if so, what amount 
and why, including any data and other information related to the 
deterrent effects of the higher amount or its effects on consumer 
conduct. Further, the CFPB sought comment on whether and why to set a 
staggered late fee amount with a cap on the maximum dollar amount, such 
that card issuers could impose a fee of a small dollar amount every 
certain number of days until the cap is hit. The CFPB sought comment on 
what small dollar amount and maximum dollar amount cap may be 
appropriate and why, including any relevant data or other information. 
The CFPB also sought comment on whether the safe harbor threshold for 
late fees should be structured as a percentage of the minimum payment 
amount, and if so, what percentage should be used. In addition, the 
CFPB sought comment on what other revisions may be appropriate to 
ensure that credit card late fees imposed pursuant to the safe harbor 
provisions are reasonable and proportional. In particular, the CFPB 
sought comment on whether, as a condition of using the safe harbor for 
late fees, it may be appropriate to require card issuers to offer 
automatic payment options (such as for the minimum payment amount), or 
to provide notification of the payment due

[[Page 19152]]

date within a certain number of days prior to the due date, or both.
    The CFPB also invited comment on all aspects on the proposed 
amendments to the commentary to Sec.  1026.52(b)(1)(ii), including 
comment on what additional amendments may be needed to help ensure 
clarity and compliance certainty.
    In addition, the CFPB also sought comment on whether to eliminate 
the safe harbor provisions for late fees, rather than lowering the safe 
harbor amounts to a fee amount of $8 for the first and subsequent 
violations as proposed.
    The CFPB further sought comment on whether and why to lower the 
safe harbor amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) (including 
whether and why to eliminate the higher safe harbor amount for 
subsequent violations that occur during the same billing cycle or in 
one of the next six billing cycles) for all other credit card penalty 
fees, including fees for returned payments, over-the-limit 
transactions, and when payment on a check that accesses a credit card 
account is declined. In particular, the CFPB sought comment on what the 
safe harbor amounts for such fees should be, including any relevant 
data and information on the costs of such violations to card issuers. 
In the alternative, the CFPB sought comment on whether to finalize the 
proposed safe harbor for late fees and eliminate the safe harbors for 
other penalty fees.
Comments Received
    General. The CFPB received approximately 100 comment letters from 
industry participants. These industry commenters generally opposed the 
proposal to lower the late fee safe harbor amount to $8 amount for the 
first and subsequent late payments, including the proposal to eliminate 
the higher safe harbor amount, irrespective of the specific dollar 
amount. A substantial number of consumers, including approximately 
53,600 who submitted comments as part of letter-writing campaign, 
expressed support for the proposed $8 safe harbor amount. A large but 
significantly lower number of consumers, including approximately 170 
who identified themselves as ``bankers'' and submitted comments as part 
of a letter-writing campaign, opposed the proposed $8 safe harbor 
amount. Consumer groups generally supported the proposed amount.
    The comments on the proposed $8 safe harbor amount are discussed in 
further detail below, first in relation to the statutory factors of 
costs, deterrence, and consumer conduct, then in relation to other 
issues and concerns addressed by commenters.
    Costs. As noted, most industry commenters opposed the proposed $8 
safe harbor amount partly on the grounds that it would not cover card 
issuer's costs associated with late payments. These commenters 
generally took issue with what they viewed as flaws in the CFPB's 
analysis of issuers' costs, as discussed in the proposal.
    As discussed in more detail in part V, larger issuers and their 
trade associations criticized the CFPB's analysis of the Y-14 data to 
determine the proposed $8 amount. These commenters argued, among other 
things, that the Y-14 data are underinclusive of the actual costs that 
card issuers incur as a result of late payments. For the reasons 
discussed in part V, the CFPB has determined that it is appropriate to 
consider and rely upon the Y-14 data for the Larger Card Issuers that 
are covered by the changes to Regulation Z contained in this final 
rule.
    As noted in part V, one trade association commenter provided 
specific data related to costs of late payments. While the commenter 
did not provide data for the costs associated with all late payments, 
the commenter did provide data for accounts that were late for 60 days 
or more and estimated that these 60-day plus delinquent accounts cost 
issuers $46.30, including $33.00 in direct expenses, $9.00 in 
attributable expenses, and $4.30 in funding costs.
    As discussed in more detail in part VI, many smaller issuers, 
industry trade associations, and individual consumers on behalf of 
credit unions, one Member of Congress, and the Office of Advocacy, an 
independent office within the SBA, expressed concern that the CFPB's 
estimated pre-charge-off collection costs for Y-14 issuers that the 
CFPB used in its analysis to support the proposed $8 do not accurately 
represent the pre-charge-off collection costs for late payments of 
smaller issuers. These comments are discussed in more detail in part 
VI.
    In support of the proposal, several consumer groups noted that it 
is important to recognize that the $8 amount is a discretionary safe 
harbor, and if $8 does not adequately compensate an issuer for its 
costs in dealing with late payments, the issuer can charge more if they 
can justify the amount under the cost analysis provisions in Sec.  
1026.52(b)(1)(i). These commenters also recommended that card issuers 
be required to publicly disclose the data to support any late fee 
amounts they impose pursuant to the cost analysis provisions that are 
greater than the safe harbor.
    For the reasons discussed below, the CFPB is adopting the proposed 
$8 safe harbor for late fee amounts for Larger Card Issuers. 
Nonetheless, the CFPB is not requiring in this final rule that card 
issuers that use the cost analysis provisions in Sec.  1026.52(b)(1)(i) 
to set the late fee amount to publicly disclose the data to support any 
late fee amounts they impose pursuant to the cost analysis provisions 
that are greater than the safe harbor. The CFPB is concerned that card 
issuers may consider some of the supporting data that would be required 
to be released publicly under such a requirement to be confidential. 
The CFPB also notes that the CARD Act does not specifically require 
card issuers to disclose to the public their underlying costs data. A 
card issuer that chooses to base its penalty fees on its own 
determination (rather than on the safe harbors) must be able to 
demonstrate to the regulator responsible for enforcing compliance with 
TILA and Regulation Z that its determination is consistent with Sec.  
1026.52(b)(1)(i).
    Deterrence. Many industry commenters expressed concern that the 
proposed $8 safe harbor amount was too low to deter late payments and 
would thus result in an increase in late payments and cause harm to 
consumers and the credit card market. Several individual consumer 
commenters expressed similar concerns. In a representative comment, a 
credit union averred that late fees, when set fairly and appropriately, 
encourage consumers to pay on time, which protects their credit score 
and helps them develop positive financial habits. If late fees are too 
low, the commenter stated, consumers are more likely to pay the fee 
without considering the long-term consequence of lowering their credit 
scores, higher borrowing costs, reduced ability to access credit, and 
ultimately less disposable income. A substantial number of other 
industry commenters also cited lower credit scores and reduced access 
to credit as likely outcomes of the proposed safe harbor amount. Some 
of these commenters noted that if the safe harbor is reduced to only 
$8, consumers may end up paying more late fees over time than they 
otherwise would. A credit union posited that because $8 is roughly 
comparable to the price of common items such as a cup of coffee or 
movie ticket, more consumers may view the amount as a reasonable price 
to pay in exchange for postponing making their credit card payments. 
Similarly, an academic commenter asserted that the ability to pay late 
can be viewed as a typical product, the quantity demanded

[[Page 19153]]

of which increases when its price decreases. If the price of paying 
late becomes cheaper, this commenter reasoned, more borrowers will opt 
to pay late. One bank criticized the CFPB for positing that even if the 
proposed amount leads to more late payments, some borrowers may benefit 
in terms of greater ability to pay revolving debt. Potential consumer 
benefit, the commenter asserted, is irrelevant to the CFPB's 
statutorily mandated consideration of whether a penalty fee has a 
deterrent effect.
    Several industry commenters asserted that the CFPB lacked 
sufficient evidence that the reduced safe harbor amount would have a 
deterrent effect. Some industry commenters criticized what they viewed 
as flaws in the CFPB's deterrence analysis, including misreading or 
failing to give proper weight to existing literature on the deterrence 
effect of late fees. In particular, one credit union trade association 
noted that the CFPB failed to present an analysis of the tradeoff 
between late fees and late payments. This commenter asserted that a 
consumer is deterred from being late on a payment if the late fee is 
greater than the net benefit of missing the payment. This commenter 
also asserted that the CFPB failed to consider in its analysis a study 
that the Board relied on in its 2010 Final Rule--Agarwal et al.--that 
found that fees cause a reduction in the probability of a late fee the 
following month. In addition, this commenter cities another study--
Grodzicki (2023)--that equally concludes that late payment would be 
more likely when the fees are less costly. This commenter stated that 
the CFPB's rationale for rejecting this conclusion--the time period the 
study covers--is unsatisfactory. Another industry trade association 
noted that the CFPB's analysis did not adequately weigh the increase in 
servicing costs as a result of the decreased deterrent effect of late 
fees.
    Furthermore, one bank commenter suggested that the CFPB use 
reasonable proxies to determine the deterrence effect on the amount of 
a late fee. Such proxies suggested by the commenter include return 
check penalties as determined by States, late fees charged on utility 
bills and student loan late fees. The commenter asserted that these 
proxies could have been used by the CFPB to determine whether the 
proposed late fee penalty is reasonable, proportional and would have a 
deterrent effect.
    In addition, one academic commenter and one law firm representing 
several card issuers asserted that empirical evidence indicates that 
paying a late fee encourages borrowers to opt for automatic payments, 
helping borrowers avoid the higher cost of borrowing by avoiding late 
fees and decreasing the probability of ultimately defaulting. These 
commenters further noted that John Gathergood et al., using U.K. data, 
found that late payment fees are front-loaded, peaking in the first 
month of card life and declining sharply over the following months. 
Specifically, one of these commenters noted the study's finding that 
the share of credit card accounts incurring late payment fees in the 
study's sample fells from 6 percent in the first month to 2.5 percent 
by the 23rd month, mainly because the payment of an initial late fee 
prompted consumers to set up automatic payments.
    One trade association commenter, as another example, criticized the 
CFPB for suggesting--by comparing the effective APR a consumer might 
incur as a result of late payments in a series of hypothetical 
situations--that the deterrent effect of an $8 late fee would be 
similar to the deterrent effect of the current rate structure. The 
commenter asserted that high APRs may not adequately deter borrowers 
for ultra-short-term borrowing periods--such as the 10-30 days in the 
CFPB's hypotheticals--where the absolute dollar amounts are relatively 
small. This commenter also stated that the CFPB offered no analysis as 
to whether those APRs would have the presumed deterrent effect and 
noted that effective APRs may not have the meaningful deterrent effect 
of late fees because they are a more complicated, nebulous concept for 
consumers to understand.
    Some industry commenters asserted that the proposed $8 safe harbor 
amount, due to its lack of a deterrence effect, would make it difficult 
for card issuers to identify riskier consumers and manage for that 
risk. In this vein, one industry trade association noted that when a 
consumer pays late, the issuer can incur unanticipated additional 
interest expense on that balance. This commenter further noted that 
during the underwriting process for a new consumer, an issuer cannot 
determine with complete certainty whether the consumer may become 
chronically delinquent, occasionally delinquent, or always current, and 
that the consumer's subsequent behavior in using the card determines if 
they are riskier than average for the cohort. According to this 
commenter, the late fee is an automatic ``stabilizer'' that adjusts 
pricing for riskier consumers based on their actual post-account 
opening behavior (i.e., a form of implicit risk-based pricing). This 
commenter expressed concern that without this stabilizer, a credit card 
company may need to raise the price of credit to all consumers to cover 
the additional, unacceptable risk.
    A few industry commenters submitted their own data on the purported 
deterrence effect of late payments in response to the CFPB's request. 
Those comments along with the data provided are discussed in the 
deterrence analysis below.
    Several industry commenters noted that the CFPB failed to use 
studies cited by the Board in their 2010 Final Rule. One credit union 
trade association commenter asserted that the CFPB cherry picked 
studies that supported its position, rejected older data as no longer 
relevant when they did not support their position, but accepted even 
older data when the conclusion was favorable to the CFPB's position. 
Furthermore, this commenter asserted that the CFPB failed to 
appropriately consider the role of risk in finance but rather relied on 
theories of behavioral biases that cannot be applied generally. This 
commenter also asserted that the CFPB's analysis was not conducted in a 
transparent and consistent manner.
    Consumer conduct. Several industry commenters expressed concern 
that the proposed $8 safe harbor amount would have a negative impact on 
consumer conduct and result in harm to consumers and the credit card 
market. Several of these commenters stated that the proposal to 
eliminate the higher safe harbor amount for subsequent violations would 
exacerbate these harms, including shifting the costs of late payments 
from late payers to timely payers. One industry trade association, for 
example, asserted that the CFPB disregarded differences in consumer 
behavior that would warrant a higher safe harbor amount and a higher 
fee for subsequent missed payments--an approach, the commenter 
reasoned, that would avoid shifting costs to consumers who pay on time. 
In addition, several of these commenters asserted that the CFPB did not 
adequately consider the statutory factor of consumer conduct or 
criticized the CFPB for basing the proposed amount on insufficient 
evidence of its potential effects on consumer conduct.
    In criticizing the CFPB's consideration of consumer conduct in the 
context of proposing to eliminate the higher safe harbor amount, a bank 
commenter sought to distinguish the factor from the deterrence effect 
of late fees. Whereas deterrence requires consideration of what size 
and type of late fee would deter late payment, the commenter averred, 
consumer conduct

[[Page 19154]]

focuses on the increased risk presented to the issuer by a cardholder 
who has already paid late at least once. The commenter asserted that 
because such a cardholder is demonstrably more apt than others to 
default, a reasonable consideration of the consumer conduct factor 
would counsel the issuer to appropriately price the cardholder's 
augmented risk. In addition, this commenter stated that the CFPB's 
analysis downplays the linkage between incurring a late fee and the 
increased risk of default by attempting to explain away certain 
delinquent account behavior as a product of consumer cash flow issues. 
This commenter further noted that the credit risk posed by consumers 
who incur a late fee is particularly high for private label-focused 
issuers due to the higher likelihood of late payment and default 
occurrences for such portfolios.
    In a similar vein, a law firm representing several card issuers 
asserted that the CFPB's analysis of when consumers make late payments 
is inapposite to the specific issue of cardholder conduct. The 
commenter noted that if the problem is with consumer cash flow timing, 
as the CFPB hypothesizes, most major credit card issuers have 
mechanisms in place to allow customers to change the due date on their 
account in order to account for their own paycheck or earning 
schedules. This commenter further stated that the CFPB's analysis does 
nothing to address the reality that multiple late payments demonstrate 
an increased credit risk and reflect a more serious violation of the 
account terms--even if those payments occur before the account would be 
reported as late under credit reporting guidelines. In addition, this 
commenter noted that the existence of an adequate late fee creates an 
incentive for customers who may experience financial difficulties to 
call in and discuss the availability of hardship and other programs 
with their lender.
    A bank commenter also noted that late fees prompt numerous 
consumers to call to discuss the delinquency after billing, giving card 
issuers the ability to assist consumers. This commenter expressed 
concern that if the fee is only $8, consumers may not bother to call, 
and the card issuer will lose an opportunity to provide financial 
assistance. According to data submitted by the commenter, its contact 
rate for outbound collection calls is 2 percent to 4 percent, whereas 
the inbound call rate (the percentage of delinquent accounts who call 
the bank) for collections is 13 percent to 14 percent. Of the 
commenter's inbound calls, 27 percent to 28 percent received one or 
more late fee credits. This commenter further noted virtually all such 
calls had a payment or other payment arrangements made.
    A financial regulatory advocacy group commented specifically on 
consumer conduct. In supporting the proposed $8 safe harbor amount, the 
commenter considered the effects of late fees on consumer conduct in 
conjunction with their effects on consumers' financial health. The 
commenter noted that because payments are applied first to cover 
finance charges and fees, when late fees are tacked on, less of a 
consumer's payment goes towards reducing the principal balance, thereby 
adding to the duration and cost of revolving. Viewed from this lens, 
this commenter asserted, it would seem almost self-evident that 
reducing the size of late fees would have a positive impact on the 
financial health of those bearing those fees.
    Other factors cited by commenters. In addition to addressing the 
statutory factors, numerous industry commenters expressed concern that 
the loss of late fee revenue that would result from the proposed $8 
late fee safe harbor amount would adversely affect card issuers and 
consumers. Credit union commenters in particular expressed this 
concern. As a representative example, around 20 credit unions and 20 
individuals noted, as part of a letter-writing campaign, that when 
credit unions do charge late fees, the revenue from the fees covers 
pre-charge off collection costs but also subsidizes products and 
services that members demand and need, including programs targeted 
toward consumers with thin credit files. Many credit union and 
individual commenters cautioned that the loss in late fee revenue would 
require credit unions and other card issuers to tighten credit 
standards and consider harmful tradeoffs involving the very consumers 
who are most at risk of paying late fees. Specifically, these 
commenters asserted that credit unions will need to recoup lost late 
fee revenue through higher interest rates (while still complying with 
the Federal Credit Union Act's interest rate cap, a consideration banks 
do not face) \144\ or broad-based fees, such as maintenance fees, on 
other credit card services.
---------------------------------------------------------------------------

    \144\ See supra note 104.
---------------------------------------------------------------------------

    In the same vein, many credit union commenters asserted that 
additional fees and higher rates would have a negative impact on all 
credit union members and potential members, including those unbanked 
and underbanked communities where credit unions are seeking to expand 
access to financial services. Some noted that credit unions may need to 
balance reduced fee revenue by cutting spending on branch expansion and 
staff to serve their membership. Other commenters noted that these 
losses, and thus the adverse consequences, would be magnified in the 
current inflationary environment. A State credit union trade 
association stated that banks and other financial institutions that 
generally are not subject to statutory rate caps will simply keep 
raising their interest rates to make up for lost fee revenue and thus 
the rule, if finalized, would have little to no effect on protecting 
consumers from high-cost rate or fee practices.
    In discussing the potential consequences resulting from lost late 
fee revenue, some industry commenters expressed concerns related to 
risk management and safety and soundness. For example, one bank 
commenter asserted that the CFPB's proposed late fee safe harbor amount 
fails to take into account that card issuers set fees, including late 
fees, on a risk-adjusted basis, whereby fees applied to cardholders who 
do not pay in a timely manner are set so as to compensate for 
additional financing cost, cost of collection, funding cost, and--most 
of all--higher rates of loss on amounts borrowed so that, together, 
interest plus fees minus losses and costs make for a viable business. 
This commenter further asserted that setting fees on a risk-adjusted 
basis is essential to running a safe and sound credit card business, 
and to providing credit to customers who would not otherwise get it. A 
State bank trade association commenter noted that when its member banks 
establish terms and conditions for their credit plans, the late fee 
safe harbor weighs heavily in assuring that the bank's cost of credit 
match the higher costs of delinquency to targeted revenue and asking 
those who create such higher costs to bear those costs directly is 
necessary to maintain safety and soundness in the sub-prime space. In 
addition, a credit union commenter noted that the disruption of cash 
flows resulting from a higher frequency of late payments under the 
proposal could necessitate the acquisition of replacement dollars to 
meet the credit union's cash obligations, such as by accessing its 
lines of credit or issuing a certificate of deposit (CD) to members. 
This commenter further noted that such efforts to ensure that its cash 
flow obligations are met would impose additional administrative and 
finance costs on the institution.
The Final Rule
    For card issuers that are not Smaller Card Issuers (namely, Larger 
Card

[[Page 19155]]

Issuers as that term is used in this document), this final rule revises 
Sec.  1026.52(b)(1)(ii) to (1) repeal the current safe harbor threshold 
amounts in Sec.  1026.52(b)(1)(ii)(A) and (B), (2) adopt in Sec.  
1026.52(b)(1)(ii) a late fee safe harbor dollar amount of $8, and 
eliminate for late fees a higher safe harbor dollar amount for 
subsequent violations of the same type that occur during the same 
billing cycle or in one of the next six billing cycles \145\ and (3) 
provide that the current provision in Sec.  1026.52(b)(1)(ii)(D) that 
provides for annual adjustments for the safe harbor dollar amounts to 
reflect changes in the CPI will not apply to the $8 safe harbor amount 
for those late fees, as discussed in more detail in the section-by-
section analysis of Sec.  1026.52(b)(1)(ii)(D).
---------------------------------------------------------------------------

    \145\ This final rule does not amend the safe harbor set forth 
in Sec.  1026.52(b)(1)(ii)(C) applicable to charge card accounts.
---------------------------------------------------------------------------

    For the reasons discussed in part VI, the CFPB is not adopting at 
this time the changes discussed above for Smaller Card Issuers that are 
defined in Sec.  1026.52(b)(3) to mean a card issuer that together with 
its affiliates had fewer than one million ``open credit card accounts'' 
as defined in Sec.  1026.58(b)(6) for the entire preceding calendar 
year.\146\ For Smaller Card Issuers, the safe harbor thresholds set 
forth in Sec.  1026.52(b)(1)(ii)(A) through (C) still will apply to 
late fees charged by Smaller Card Issuers.\147\ In addition, the annual 
adjustments for the safe harbor thresholds to reflect changes in the 
CPI in Sec.  1026.52(b)(1)(ii)(D) still will continue to apply to late 
fees imposed by Smaller Card Issuers.
---------------------------------------------------------------------------

    \146\ See supra note 5. Also, as discussed in the section-by-
section analysis of Sec.  1026.52(b)(2)(i), the proposed provisions 
to restrict late fee amounts to 25 percent of the required minimum 
payment are not being finalized at this time with respect to any 
card issuers, including Smaller Card Issuers. Nonetheless, the 
clarification in comment 52(b)(1)(i)-2.i that the collection costs 
for calculating the late fee amount under the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) do not include post-charge-off 
collection costs is being adopted for all card issuers, including 
Smaller Card Issuers.
    \147\ This final rule revises the safe harbor threshold amounts 
in Sec.  1026.52(b)(1)(ii)(A) and (B) as discussed in more detail 
below in the section-by-section of Sec.  1026.52(b)(1)(ii)(A) and 
(B).
---------------------------------------------------------------------------

    Pursuant to the annual adjustments for safe harbor dollar amounts 
to reflect changes in the CPI in Sec.  1026.52(b)(1)(ii)(D), this final 
rule revises the safe harbor threshold amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) to $32, except that it sets forth a safe 
harbor of $43 for each subsequent violation of the same type that 
occurs during the same billing cycle or in one of the next six billing 
cycles. As discussed in more detail in the section-by-section analysis 
of Sec.  1026.52(b)(1)(ii)(A) and (B), these revised safe harbor 
threshold amounts of $32 and $43 apply to penalty fees other than late 
fees for all card issuers (i.e., Smaller Card Issuers and Larger Card 
Issuers) as well as late fees imposed by Smaller Card Issuers, as noted 
above.
Repeal of Current Late Fee Safe Harbor Threshold Amounts and Adoption 
of $8 Late Fee Safe Harbor Threshold for Larger Card Issuers
    In adopting this final rule, the CFPB has determined that the 
existing safe harbors in Sec.  1026.52(b)(1)(ii), as applicable to late 
fees charged by Larger Card Issuers, are too high to be ``reasonable 
and proportional'' to a consumer's late payment. The CFPB therefore is 
repealing the existing safe harbors in Sec.  1026.52(b)(1)(ii)(A) and 
(B) with respect to late fees charged by Larger Card Issuers.
    In the 2023 Proposal, the CFPB proposed to replace the existing 
safe harbors of $30 for the first violation and $41 for subsequent 
violations, but it also requested comment on whether to eliminate the 
safe harbor provisions.\148\ The CFPB proposed a replacement safe 
harbor of $8 based on a conservative estimate that $8 would, on 
average, be at or higher than a late fee amount calculated by the 
average card issuer using the cost analysis provisions in existing 
Sec.  1026.52(b)(1)(i), which the CFPB did not propose to change.
---------------------------------------------------------------------------

    \148\ See 88 FR 18906 at 18924.
---------------------------------------------------------------------------

    This final rule adopts the $8 safe harbor threshold for late fees 
charged by Larger Card Issuers, in part, based on the Y-14 data 
collected from certain Larger Card Issuers from 2013 up to September 
2022 which show that late fee revenue is at least five times higher 
than relevant costs since August 2021. The $8 late fee safe harbor 
threshold for Larger Card Issuers is conservative because, instead of 
dividing the average late fee per incident for Y-14+ issuers ($31 in 
2020) by five or dividing the current lower regulatory threshold ($30) 
by five, it divides the highest safe harbor late fee of $41 by five to 
reach the $8 safe harbor threshold amount.\149\
---------------------------------------------------------------------------

    \149\ Were the CFPB to take the less conservative approach, it 
would divide the average late fee per incident for Y-14+ issuers 
($31 in 2020) by five, to reach a final rule of roughly $6, which is 
likely closer to the market average cost-per-late-payment incident 
for Larger Card Issuers. This conclusion is also consistent with 
subsequent data collected by the CFPB after issuance of the 2023 
Proposal, which showed that the average late fee per incident for Y-
14+ issuers in 2022 was $32.
---------------------------------------------------------------------------

    In other words, in adopting this final rule, the CFPB has 
determined that the existing safe harbors of $30 and $41 are too high 
with respect to late fees charged by Larger Card Issuers and should be 
replaced with respect to late fees charged by those issuers. As 
discussed above, the Board set the original safe harbors based on very 
limited cost-related data as compared to what the CFPB has available to 
it now.\150\ Because the Board had no data directly related to issuers' 
costs of collecting late payments, it set the safe harbor dollar 
amounts based on indirect considerations of costs, including the 
following: (1) dollar amount of late fees charged on credit cards at 
the time; (2) dollar amount of late fees on other products, (3) State 
and local laws regulating late fees; (4) safe harbor thresholds used in 
the United Kingdom; (5) data relating to deterrence; and (6) data 
submitted by one card issuer.\151\ The Board admitted that ``it is not 
possible based on the available information to set safe harbor amounts 
that precisely reflect the costs incurred by a widely diverse group of 
card issuers and that deter the optimal number of consumers from future 
violations.'' \152\
---------------------------------------------------------------------------

    \150\ 75 FR 37526 at 37541.
    \151\ Id. at 37540-43.
    \152\ Id. at 37542.
---------------------------------------------------------------------------

    The CFPB now has an extensive dataset, which relates to collection 
costs of certain Larger Card Issuers, that allows it to judge whether 
the original safe harbors are adequately tailored to reflect the 
average outcome of the cost analysis provisions in Sec.  
1026.52(b)(1)(i) with respect to late fees charged by Larger Card 
Issuers. As discussed in part V and below, the CFPB has data from the 
16 largest card issuers, in the Y-14 dataset, showing that the total 
late fee income from the first three quarters in 2022 was $4.46 
billion, while estimated pre-charge off collection costs amounted to 
only $896 million.\153\ As discussed below, this ratio has been five or 
above from August 2021 through March 2022 (based on data used in the 
2023 Proposal) and has increased considerably since the preparation of 
the 2023 Proposal.
---------------------------------------------------------------------------

    \153\ Based on data collected after the 2023 Proposal was 
issued, the CFPB has data from the 20 card issuers in the Y-14+, 
showing that the total late fee income between October 2021 and 
September 2022 was $11 billion, while estimated pre-charge off 
collection costs amounted to only $2.16 billion.
---------------------------------------------------------------------------

    In addition, as noted in part II.E, the CFPB has observed in its 
2022 survey of credit card agreements that it appears there are no 
Larger Card Issuers who set their late fees based on the cost analysis 
provisions in Sec.  1026.52(b)(1)(i), suggesting that the safe harbor 
is set so high that there is no issuer, even outlier

[[Page 19156]]

issuers with higher than average costs for Larger Card Issuers, who 
would generate more revenue through that method.\154\ This suggests 
that the discretionary safe harbor, which protects issuers from needing 
to show that fees are reasonable and proportional, is set at a level 
that is too high for Larger Card Issuers and may, therefore, allow them 
to charge late fees that are not consistent with the statutory 
protections.
---------------------------------------------------------------------------

    \154\ This conclusion also is consistent with the review of 
credit card agreements that the CFPB conducted in 2023, as discussed 
in more detail in part II.E.
---------------------------------------------------------------------------

    Furthermore, the safe harbor thresholds have increased by $5-6 due 
to annual adjustments to reflect changes in the CPI made pursuant to 
Sec.  1026.52(b)(1)(ii)(D) since the thresholds were first adopted in 
2010, and thus, for this reason, the threshold amounts warranted 
independent reconsideration. As the CFPB notes in the section-by-
section analysis of Sec.  1026.52(b)(1)(ii)(D), collection costs 
observed in Y-14 data from certain Larger Card Issuers do not appear to 
be rising lockstep with inflation particularly when considering the 
month-to-month changes in inflation versus those costs.
    Additionally, the Board's conclusion with regard to the original 
safe harbor threshold amounts did not appear to consider whether it 
could have been too high, only that it was ``generally sufficient to 
cover issuer's costs and to deter future violations.'' \155\ The Board 
did not appear to consider whether the safe harbor was so high as to do 
more than just cover costs and deter future violations. In other words, 
the Board failed to consider whether the discretionary safe harbor 
might be set at an amount that permitted issuers to recover late fees 
that were too high, and thus, were not reasonable and proportional to 
the violation and, therefore, were inconsistent with the statute. The 
Board's failure to consider both whether the safe harbor was high 
enough and whether it was too high is an independent reason to repeal 
the existing late fee safe harbor threshold amount in Sec.  
1026.52(b)(1)(ii)(A) and (B) with respect to late fees charged by 
Larger Card Issuers.
---------------------------------------------------------------------------

    \155\ 75 FR 37526 at 37542.
---------------------------------------------------------------------------

    And lastly, much of the evidence used originally by the Board was 
not relevant to the question of whether the safe harbor was set at an 
appropriate level. For example, evidence of State, local, or 
international government approaches reflects the policy decisions of 
those legislative bodies. Such evidence is not determinative of whether 
the safe harbor appropriately meets the applicable standards in the 
CARD Act. In addition, setting the thresholds based on then existing 
late fee amounts, set by issuers before the CARD Act passed, assumes 
that Congress merely intended to curtail further increases, rather than 
lower late fees from the then-existing baseline. The CFPB sees no 
evidence in the legislative history to justify this assumption, and 
rather, concludes that the safe harbor threshold amount should be set 
based on the cost-analysis provisions.\156\ The safe harbor is a 
discretionary option, and therefore, it should not be so high that it 
allows fees that are contrary to the statutory standard. Without the 
safe harbor, card issuers can rely on the cost analysis provisions to 
ensure they are charging individually calculated fees that comply with 
the statute.
---------------------------------------------------------------------------

    \156\ In fact, the legislative history suggests that Congress 
intended to lower late fees. 155 Cong. Rec. 5314, 5315, 5319 (2009).
---------------------------------------------------------------------------

    In addition, the CFPB received around 56,800 comments letters from 
consumers that generally supported the proposed $8 late fee safe harbor 
threshold. Many consumers indicated that they thought the current late 
fees charged by issuers are too high, and some consumers indicated they 
had limited income and that even a small late fee can impact consumers 
on a tight budget.
    Thus, for the reasons discussed above including the CFPB's analysis 
of the Y-14 data, in this final rule, the CFPB repeals the existing 
safe harbor threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) 
with respect to late fees charged by Larger Card Issuers.\157\
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    \157\ The CFPB recognizes that it is repealing the existing safe 
harbor solely as to late fees charged by Larger Card Issuers. As 
described in detail in part VI, the CFPB has determined it is 
appropriate to limit this repeal with respect to late fees charged 
by Larger Card Issuers.
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    As a result, the CFPB has determined that, at this time and based 
on current data and commenter feedback, it is appropriate to revisit 
and amend the safe harbor as applied to Larger Card Issuers. 
Establishing a safe harbor is an exercise of discretionary rulemaking 
authority, and thus, a safe harbor need not exist.\158\ Moreover, the 
existence of a safe harbor means that card issuers are deemed to be 
presumptively in compliance with the CARD Act. As a result, a safe 
harbor has the potential to enable card issuers to charge amounts that 
would otherwise not be in compliance with the Act.
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    \158\ See 15 U.S.C. 1665d(e) (unlike a required rulemaking to 
define ``reasonable and proportional'' as prescribed in 15 U.S.C. 
1665d(b), Congress indicated that the CFPB ``may'' issue a safe 
harbor and is merely ``authorized'' to issue a safe harbor but is 
not required to do so).
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    Given this, the CFPB has determined that, in light of its data and 
analysis, it is appropriate to repeal the existing safe harbor 
threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) with respect to 
late fees charged by Larger Card Issuers, and then to amend the safe 
harbor to the lower $8 amount. The decision to repeal of the safe 
harbor is independent of, and severable from, the decision below that 
$8 is an appropriate safe harbor threshold amount with respect to late 
fees charged by Larger Card Issuers. Accordingly, if the $8 safe harbor 
for Larger Card Issuers were stayed or determined to be invalid, the 
remainder of the regulation shall continue in effect without a safe 
harbor for late fees charged by Larger Card Issuers.
The CFPB's Analysis of Data and Consideration of Statutory Factors 
Related to the $8 Late Fee Safe Harbor Threshold for Larger Card 
Issuers
    As an initial matter, the CFPB is not statutorily required to 
consider the statutory factors of costs, deterrence, and consumer 
conduct in setting the discretionary safe harbor amounts under TILA 
section 149(e). Instead, in setting discretionary safe harbor amounts, 
TILA section 149(e) specifies that the CFPB may issue rules to provide 
an amount for any penalty fee or charge that is presumed to be 
reasonable and proportional to the omission or violation to which the 
fee or charge relates. As discussed below, the CFPB analyzed whether 
the current safe harbor threshold amounts for late fees should be 
presumed to be reasonable and proportional to a cardholder's omission 
or violation. In considering whether and what is the appropriate amount 
for the safe harbor, the CFPB looked to whether the threshold is a 
reasonable proxy for the definition of a ``reasonable and 
proportional'' fee such that any fee under the threshold should be 
presumed to have met that standard.
    In implementing this standard, the CFPB primarily focused on 
whether a particular late safe harbor amount would cover the pre-
charge-off collection costs of the average Larger Card Issuer. The CFPB 
has determined that it is appropriate to focus on the pre-charge-off 
collection costs of the average Larger Card Issuer to determine a 
reasonable proxy for the definition of a ``reasonable and 
proportional'' because this allows the average Larger Card Issuer to 
obtain the benefits of relying on the safe harbor without having to 
incur the compliance burden of conducting the cost analysis set forth 
in

[[Page 19157]]

Sec.  1026.52(b)(1)(i) but does not allow these Larger Card Issuers to 
charge an amount that exceeds the costs for most Larger Card Issuers.
    Costs. As discussed below, the CFPB analyzed the Y-14 data and 
other information in considering the pre-charge-off collection costs of 
a late payment violation to Larger Card Issuers.\159\ Based on that 
analysis, the CFPB has determined that for Larger Card Issuers a late 
fee safe harbor amount of $8 for the first and subsequent violations 
would cover the average Larger Card Issuers' costs from late payments 
while providing those card issuers with compliance certainty and 
administrative simplicity and, therefore, reduce their compliance costs 
and burden.
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    \159\ See part V for the CFPB's determination that it is 
appropriate to consider the Y-14 data in adopting the changes to 
Regulation Z contained in this final rule.
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    In considering the costs of late payments to Larger Card Issuers, 
the CFPB considered only those (estimated) pre-charge-off collection 
costs that card issuers are permitted to consider for purposes of 
determining the amount of a late fee under the cost analysis provisions 
in Sec.  1026.52(b)(1)(i) and related commentary. As provided in the 
commentary to Sec.  1026.52(b)(1)(i), such costs for late fees (1) 
include the costs associated with the collection of late payments, such 
as the costs associated with notifying consumers of delinquencies and 
resolving delinquencies (including the establishment of workout and 
temporary hardship arrangements); and (2) exclude losses and associated 
costs (including the cost of holding reserves against potential losses 
and the cost of funding delinquent accounts). As discussed in the 
section-by-section analysis of Sec.  1026.52(b)(1)(i), consistent with 
the Board's 2010 Final Rule, the CFPB in this final rule makes it 
explicitly clear that costs for purposes of the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) for determining penalty fee 
amounts do not include any collection costs that are incurred after an 
account is charged off pursuant to loan loss provisions. The CFPB has 
determined that considering pre-charge-off collection costs as the 
``costs'' of a late payment is consistent with Congress' intent to: (1) 
allow card issuers generally to use late fees to pass on to consumers 
the costs issuers incur to collect late payments or missed payments; 
(2) ensure that those costs are spread among consumers and that no 
individual consumer bears an unreasonable or disproportionate share; 
and (3) prevent card issuers from recovering losses and associated 
costs through late fees rather than through upfront rates.
    As discussed in part V, the reported collection costs in the Y-14 
data include costs incurred to collect problem credits that includes 
the total collection cost of delinquent, recovery, and bankrupt 
accounts. The CFPB concludes that the collection costs data in the Y-14 
are consistent with the costs included for the cost analysis provisions 
in Sec.  1026.52(b)(1)(i) except that the collection costs in the Y-14 
data include post-charge-off collection costs. As discussed in part V, 
in the 2023 Proposal, the CFPB estimated that approximately 75 percent 
of collection costs incurred by card issuers are incurred pre-charge-
off. Thus, the CFPB's estimate of pre-charge-off collection costs is 
based on only 75 percent of the collection costs in the Y-14 data for 
purposes of its analysis related to the final changes to the safe 
harbor thresholds in Sec.  1026.52(b)(1)(ii), as discussed in more 
detail below. However, as discussed below, the conclusions are similar 
even if the CFPB assumes that pre-charged-off collection costs are 80 
percent of total collection costs incurred by card issuers, consistent 
with the estimated post-charge-off commission rates for 2021 and 2022, 
as discussed in more detail in part V.
    In developing the $8 late fee safe harbor amount adopted in this 
final rule, the CFPB carefully considered several sources of data and 
other information to determine the amount that would cover the average 
Larger Card Issuer's pre-charge-off collection costs. As discussed in 
part V, and described in detail below, the CFPB reviewed and analyzed 
major issuers' late fee income, collection costs, late fee amounts, and 
required payment information contained in the Y-14 data, a source that 
was not available when the Board set the initial safe harbor amounts in 
2010. That analysis indicates that late fees generally generate revenue 
that is multiple times higher than the Y-14 issuers' collection costs. 
As discussed in more detail in part II.E, in 2022, the CFPB also 
reviewed issuers' stated late fee amounts in card agreements that 
issuers are required by the CARD Act to submit quarterly to the CFPB. 
Based on these data, the CFPB expects that even if late fees were 
reduced to one-fifth of current levels (implying late fees of $8 or 
less), most Y-14 issuers would recover pre-charge-off collection costs.
    Using this one-fifth estimate, the CFPB calculated the $8 fee by 
dividing $41 by five and rounding to the nearest dollar. The CFPB 
conservatively chose to use $41, the highest late fee charged in the 
market, in the interest of caution. A less conservative approach would 
have used $30 (the safe harbor for the first fee) or $31 (the average 
late fee per incident for Y-14+ issuers in 2020), resulting in a $6 
safe harbor.
    To estimate the fee income to collection cost ratio for Larger Card 
Issuers, the CFPB used the late fee income data and 75 percent of the 
collection costs contained in the Y-14 data (referred to below as 
``estimated pre-charge-off collection costs''). Using the Y-14 data, 
the CFPB analyzed monthly late fee income and estimated pre-charge-off 
collection costs for the consumer segments of major issuers' credit 
card portfolios, namely the consumer general purpose and private label 
portfolios. For the 16 consumer portfolios with continuous cost data 
for the first three quarters of 2022 (adding up to about 73 percent of 
total consumer credit card balances at the end of September 2022), 
total late fee income in the first three quarters added up to $4.46 
billion, while total collection costs added up to $1.19 billion with 
pre-charge-off collection costs estimated to be $896 million (where the 
pre-charge off collection costs are estimated to be 75 percent of the 
total collection costs).\160\
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    \160\ Based on data collected after the 2023 Proposal was 
issued, the CFPB has data from 20 card issuers in the Y-14+ data. 
For these Larger Card Issuers, total late fee income added up to $11 
billion between October 2021 and September 2022, while total 
collection costs added up to $2.7 billion with pre-charge-off 
collection costs estimated to be $2.16 billion (where pre-charge-off 
collection costs are estimated to be 80 percent of the total 
collection costs).
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    In reviewing the monthly data, the CFPB observed that late payments 
exhibit seasonal patterns. The CFPB also considered that there may be a 
delay between when a late fee was assessed and when the issuer incurs 
substantial collection costs associated with the account. For these 
reasons, the CFPB compared each month's late fee income for a 
particular portfolio to the portfolio's average estimated pre-charge-
off collection costs for that month, where that estimate was based on 
estimated pre-charge-off collection costs that occurred two through six 
months later.\161\ Consistent with the data used

[[Page 19158]]

for the 2023 Proposal, the CFPB developed monthly estimates of this 
late fee income-to-cost ratio for each year from 2013 up to September 
2022. The analysis showed that an average of this ratio across issuers 
and market segments, weighted by the number of accounts reported in the 
Y-14 data, has been fairly stable since early 2019 (and was higher 
before 2019). As shown in Figure 1 below, late fee income has always 
been higher than three times subsequent estimated pre-charge-off 
collection costs, and more than four times as high in all but seven 
pandemic months (April-June 2020 and February-May 2021, coinciding with 
pandemic stimulus payments, when there was a reduction in late fee 
income without a corresponding decline in average collection costs in 
subsequent months). Since August 2021, late fee income has exceeded the 
relevant estimated pre-charge-off costs more than fivefold, which 
resembles the period before the pandemic.
---------------------------------------------------------------------------

    \161\ For example, if an issuer were to report late fee income 
of $24 million in January for a portfolio and total collection costs 
for that portfolio of $25 million in March through July, the CFPB 
estimated $20 million in pre-charge-off collection costs in March 
through July and calculated an average monthly collection cost of $4 
million for purposes of this analysis--resulting in a ratio of late 
fee income of $24 million to collection cost of $4 million for this 
portfolio for the month of January. The CFPB found that its findings 
based on the weighted average of this ratio across issuers and 
market segments as discussed in the analysis below are robust to 
shifting, expanding, or shortening the time period of delay in 
collection costs as they relate to late fee income.
[GRAPHIC] [TIFF OMITTED] TR15MR24.000

    Based on this analysis, the CFPB expects that the average Larger 
Card Issuer would recover pre-charge-off collection costs even if late 
fees were reduced to one-fifth of their current level. In the 2022 
survey of credit card agreements discussed in part II.E, all but one 
issuer among those in the Y-14 data (representing the majority of 
balances in the credit card market) disclosed late fees ``up to'' $40 
or $41 (the current maximum safe harbor amount) in their most recent 
card agreements submitted to the CFPB. Given the finding that, in the 
most recent data, late fee income is greater than five times estimated 
pre-charge-off collection costs, the CFPB expects that an $8 late fee 
would still recover the average Larger Card Issuer's pre-charge-off 
collection costs, as that fee represents one-fifth of the maximum late 
fee amount, which is necessarily greater than average fee income per 
late payment. This conclusion is also consistent with additional 
information from the CFPB's 2023 survey of credit card agreements in 
the CFPB's Credit Card Agreement Database, which the CFPB conducted 
after it issued the 2023 Proposal. As discussed in more detail in part 
II.E, of the 30-35 submitters the CFPB would expect to be Larger Card 
Issuers, 13 issuers charged at maximum late fee in their submitted 
agreements of $40 and 11 charged $41 with the minority charging between 
$35 and $39 and only two charging a maximum late fee below $35.
    As discussed in part V, since issuing the 2023 Proposal, the CFPB 
obtained Y-14 data for 14 more months than were available for the 
analysis in the 2023 Proposal. In addition, the CFPB obtained updated 
data related to post-charge-off commission rates for 2021 and 2022, and 
based on that data estimated that pre-charged-off collection costs were 
80 percent of collection costs incurred by Y-14 issuers for those 
years. Figure 2a below shows the ratio of fee income to collection cost 
ratio for Y-14 issuers, using the late fee income data and 80 percent 
of the collection costs contained in the Y-14 data, including the 14 
more months of Y-14 data.

[[Page 19159]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.001

    The CFPB has determined that these updated Y-14 data yield a ratio 
that is consistent with the determination that a $8 late fee safe 
harbor threshold would recover the average Larger Card Issuer's pre-
charge-off collection costs. As shown in Figure 2a above, the ratio has 
been above five for those additional 14 months and above six for the 
last 11 months.
    In addition, as discussed in part V, after issuing the 2023 
Proposal, the CFPB obtained total collection costs and late fee income 
data from specialized issuers that are included in the Y-14+ data but 
do not report under the Y-14. The CFPB collected confidential quarterly 
data from the five specialized issuers that are included in the Y-14+ 
data for their consumer cards in all quarters in 2019 through 2022, 
split by whether the accounts in a given portfolio are general purpose 
or private label cards, through an information order pursuant to 
section 1022(c)(4) of the CFPA.\162\ Respondents were instructed to 
provide the amounts of non-interest expense in costs incurred to 
collect problem credits, defined as total collection cost for 
delinquent, recovery, and bankrupt accounts, and net late fee income. 
These definitions are identical to those provided in the Y-14 
collection for collections expense and late fee income. Four issuers 
provided timely and verifiable collections costs and late fee income 
data, and those four issuers represented over one-third of late fee 
volume for the Y-14+ in 2022.\163\
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    \162\ See part V for a description of the Y-14+ data.
    \163\ One specialized issuer's submissions were not provided on 
the same timeline and did not align with data from previous 
submissions, as such, those data are not used for the purpose of 
this analysis using the specialized issuer's submissions.
---------------------------------------------------------------------------

    As the responses to the information order described above yielded 
quarterly data, the CFPB is not able to calculate the same ratio of 
late fee income to estimate pre-charge-off collection costs two-to-six 
months later for each portfolio as it did for the weighted average in 
Figure 1 above from the Y-14 data alone. To make use of the most widely 
available data from certain Larger Card Issuers but treat them 
consistently, the CFPB calculated a similar ratio but of a quarter's 
total late fee income to the same quarter's estimated pre-charge-off 
collection costs (where pre-charge-off costs are estimated to be 80 
percent of the total collection costs) for each portfolio in the above 
information order or in the Y-14 data with three months of non-zero 
collection costs reported for that quarter. Figure 2b below shows the 
market-wide weighted average of these ratios from 2019 to 2022, 
weighted by the number of accounts. This calculation also suggests that 
late fee incomes recently are so far above pre-charge-off collection 
costs (using 80 percent of total collection costs) that a five-fold 
decrease in the safe harbor is reasonable.

[[Page 19160]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.002

    As discussed in part VI, the CFPB recognizes that the new $8 safe 
harbor amount will apply to approximately a dozen issuers for which the 
CFPB does not have total collections data and late fee revenue data. 
The CFPB has determined that it is appropriate to apply this new safe 
harbor amount to those issuers because they together with their 
affiliates have at least one million open credit card accounts which 
result in economies of scale similar to Y-14+issuers. Specifically, and 
based on the CFPB's expertise and markets research, the CFPB expects 
that these issuers have similar mechanisms to more efficiently collect 
late payments and to do so at a lower cost than for Smaller Card 
Issuers, and thus would have similar pre-charge off collection costs to 
the Y-14+ issuers. Further, unlike Smaller Card Issuers, these Larger 
Card Issuers derive substantial revenue from credit card portfolios, 
and therefore, are more likely to have resources that would allow them 
to use the cost analysis provisions in Sec.  1026.52(b)(1)(i) to 
determine the late fee if the $8 safe harbor threshold amount fails to 
cover pre-charge off collections costs.
    Since the issuance of the proposal, the CFPB also obtained some 
additional data through an information order pursuant to section 
1022(c)(4) of the CFPA as part of its statutorily required, bi-annual 
CARD Markets Report.\164\ In gathering the data for this report, one 
question related to the average monthly all-in cost of pre-charge-off 
collections. Based on these data, the average monthly all-in cost of 
pre-charge off collections related to the ``delinquent inventory'' was 
$18.61 for eight Larger Card Issuers in 2021 and $14.58 in 2022. These 
data ranged from a high of over $40 to a low of $2, but most were 
between $10 and $20. Although these data relate to pre-charge-off 
collection cost from the ``delinquent inventory'' of the month, the 
CFPB has determined they are not an accurate representation of pre-
charge off collection costs for late payments because the data 
potentially exclude those consumers who pay almost immediately, and 
this is a significant number of consumers. In 12 months of account-
level Y-14 data (the second half of calendar year 2022 and the first 
half of 2023), most portfolios have 20-30 percent as many accounts with 
month-end delinquency noted than how many accounts saw late fees 
assessed. The CFPB would expect that the average pre-charge off 
collection costs per month-end delinquent account would be higher than 
the average pre-charge-off collection costs per late payment because 
late payments where consumers pay almost immediately are less costly to 
collect then those accounts with month-end delinquencies.
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    \164\ In 2009, Congress passed the CARD Act. Among the CARD 
Act's provisions was a requirement that the Board report every two 
years on the state of the consumer credit card market. With the 
passage of the CFPA in 2010, that requirement transferred to CFPB 
alongside broader responsibility for administering most of the CARD 
Act's provisions.
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    In addition, as discussed above, an industry trade association 
commenter also provided information on costs for accounts that are at 
least 60 days late, which again is a subgroup of all late payment 
incidents. This trade association asserted that the average costs per 
delinquent account that is at least 60 days late is $46.30, including 
$33.00 in direct expenses, $9.00 in attributable expenses, and $4.30 in 
funding costs. The CFPB has determined that these cost data for 
delinquent accounts that are at least 60 days late are not as relevant 
as the Y-14 data in understanding Larger Card Issuers' average pre-
charge-off collection costs with respect to all late payments, as 
opposed to a certain subset of late payments (i.e., at least 60 days 
late). The CFPB expects that accounts that are more than 60 days late 
likely represent a minority of late fee incidences but may generate 
most of the collection costs. In addition, the trade association's cost 
data includes some costs that are not permitted to be considered under 
the cost analysis provisions in Sec.  1026.52(b)(1)(i). For example, 
current comment 52(b)(1)(i)-2.i provides that amounts that cannot be 
considered as costs incurred for purposes of Sec.  1026.52(b)(1)(i) are 
losses and associated costs (including the cost of

[[Page 19161]]

holding reserves against potential losses and the cost of funding 
delinquent accounts). The commenter also indicated that the direct 
expenses include post-charge-off collection costs, which this final 
rule makes explicitly clear are not included in the costs that are 
permitted to be considered for purposes of Sec.  1026.52(b)(1)(i). 
Also, it is unclear whether the attributable expenses would be costs 
permitted to be considered for purposes of Sec.  1026.52(b)(1)(i) 
without knowing the facts and circumstances surrounding those expenses.
    The CFPB also notes that average late fees for Y-14+ issuers are 
lower than the disclosed maximum late fees. As discussed in part II.D, 
in 2020, the average late fee charged by issuers in the Y-14+ data was 
$31.\165\ Reasoning that the average late fees are lower than the 
current maximum safe harbor of $41 and yet still generate late fee 
income that is again more than five times the ensuing (estimated) pre-
charge-off collection costs since August 2021, the CFPB concludes that 
$8 is likely to recover the average Larger Card Issuer's pre-charge-off 
collection costs.\166\
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    \165\ Late Fee Report, at 6. To gain further insights into how 
the average late fee compares to the disclosed maximum late fee in 
the agreements, the CFPB analyzed a 40 percent random subsample of 
tradelines of Y-14 data from 2019 to observe the incidence of late 
fees and the fee amounts assessed. The CFPB observed that the 
average late fees have been lower than the amounts in the card 
agreements for several reasons, including (1) some late fees did not 
occur within six months of an earlier late fee and thus are set at 
the lower safe harbor amount; and (2) some late fees reflect the 
current limitation in Sec.  1026.52(b)(2)(i)(A) and related 
commentary that prohibits late fees from exceeding the minimum 
payment amount that is due. The CFPB also observed that some late 
fees are imposed but later reversed and that some late fees are 
charged to accounts that never make another payment.
    \166\ This conclusion is also consistent with subsequent data 
collected by the CFPB after issuance of the 2023 Proposal, which 
showed that the average late fee per incident for Y-14+ issuers in 
2022 was $32.
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    The CFPB acknowledges that not all issuers in the Y-14+ data incur 
the average pre-charge-off collection costs. By using estimates of pre-
charge-off collection costs per paid incident using the Y-14 data from 
September 2021 to August 2022 (consistent with the data used in the 
2023 Proposal), the CFPB estimates that fewer than four of the 12 card 
issuers in the Y-14 data have estimated pre-charge-off collection costs 
that are significantly higher than one-fifth of their late fee income. 
For these issuers, the proposed $8 safe harbor amount may not have been 
enough to fully recover estimated pre-charge-off collection costs, such 
that the benefits of using the cost analysis provisions may outweigh 
the administrative simplicity of using the safe harbor.
    This result is also consistent when the CFPB considers the 
additional data it obtained since the publication of the 2023 Proposal, 
namely (1) using 14 additional months of Y-14 data; (2) estimating the 
pre-charge-off costs are 80 percent of the total collections costs in 
the Y-14 data; and (3) considering data submitted by the specialized 
card issuers in the Y-14+.
    By using estimates of pre-charge-off collection costs (80 percent 
of total collection costs) per paid incident using the Y-14+ data from 
calendar year 2022, the CFPB estimates that fewer than six of the 16 
issuers with a continuous history of non-zero collection costs had 
estimated pre-charge-off collection costs that were significantly 
higher than one-fifth of their late fee income. For the remaining 
issuers, who represent less than 30 percent of accounts and around a 
fourth of late fee income in this set, the proposed $8 safe harbor 
amount may not have been enough to fully recover estimated pre-charge-
off collection costs in 2022, such that the benefits of using the cost 
analysis provisions may outweigh the administrative simplicity of using 
the safe harbor. While both the data considered for the proposal and 
this more recent, supplementary data suggest that the $8 late fee safe 
harbor amount adopted in this final rule would cover pre-charge-off 
collection costs for most Y-14+ issuers in years resembling 2022, the 
CFPB acknowledged in the 2023 Proposal and continues to recognize that 
some Larger Card Issuers may not recover pre-charge off collection 
costs for all portfolios at all times under the lower safe harbor. The 
CFPB, however, notes that the safe harbor is discretionary, and these 
issuers can choose to determine the late fee amount using the cost 
analysis provisions in Sec.  1026.52(b)(1)(i), rather than using the 
proposed $8 safe harbor amount, if $8 is insufficient to recover their 
pre-charge-off collection costs. Larger Card Issuers also may undertake 
efforts to reduce collection costs or use interest rates or other 
charges to recover some of the costs of collecting late payments. 
Building those costs into upfront rates would provide consumers greater 
understanding regarding the cost of using their credit card accounts.
    The CFPB notes that the CARD Act does not require the CFPB to 
establish a late fee safe harbor amount that covers the costs for all 
issuers or the entire costs of the omission or violation in all 
instances. Instead, TILA section 149(e) authorizes the CFPB to issue 
rules to provide, for any penalty fee or charge, a safe harbor amount 
that is presumed to be reasonable and proportional to the omission or 
violation to which the fee or charge relates. The CFPB is concerned 
that setting a higher safe harbor amount for late fees in order to 
cover the pre-charge-off collection costs of all Larger Card Issuers 
could result in an amount that exceeds the costs for most Larger Card 
Issuers. As discussed in part II.E the CFPB also is concerned that 
Larger Card Issuers may have a disincentive to charge a lower fee 
amount than the safe harbor amount, even if their average collection 
costs are less than the safe harbor amount, given the industry's 
reliance on late fees as a source of revenue and that many consumers 
may not shop for credit cards based on the amount of the late fee.
    The CFPB notes that the analysis based on the Y-14 data discussed 
above does not consider any potential changes in consumer behavior in 
response to the change in the late fee safe harbor amount in this final 
rule for Larger Card Issuers. In particular, the discussion does not 
take into account the possibility that reduced late fees will lead to 
more late payments at Larger Card Issuers. However, the CFPB also 
expects that any increase in the frequency of late payments, if any, as 
a result of the reduced late fee safe harbor amount, would increase 
both fee income and collection costs at Larger Card Issuers. Even if 
more consumers pay late at Larger Card Issuers because of the decreased 
amount, the CFPB concludes that the increased number of late payments 
are unlikely to be more costly, on average, to administer and collect 
than the current number of late payments. Therefore, the CFPB expects 
that collection costs to Larger Card Issuers would not increase by more 
than fee income. Further, as discussed below, the CFPB's analysis of Y-
14 data and other information suggests that the proposed $8 safe harbor 
amount for the first and subsequent late payments would still have a 
deterrent effect on late payments.
    In addition, the CFPB has determined that the $8 late fee safe 
harbor provision in Sec.  1026.52(b)(1)(ii) adopted as part of this 
final rule would continue to save costs for Larger Card Issuers that 
use the safe harbor. As discussed above, in considering the appropriate 
safe harbor amount for late fees, the CFPB is guided by the factors in 
TILA section 149(c), which provides that the CFPB can consider such 
other factors that the CFPB deems necessary or appropriate. The CFPB 
finds that it is both necessary and appropriate, when considering the 
portion of Larger Card Issuers' pre-charge-off costs that a late fee 
safe

[[Page 19162]]

harbor amount would cover, to consider the benefits to Larger Card 
Issuers from use of the safe harbor, including compliance certainty, 
administrative simplicity, and reduced litigation risk. The CFPB also 
finds that for Larger Card Issuers, a late fee safe harbor amount of $8 
for the first and subsequent late payments would cover the average 
Larger Card Issuers' costs from late payments while providing those 
card issuers with compliance certainty and administrative simplicity 
and, therefore, reduce their compliance costs and burden.
    For the foregoing reasons, the CFPB determines that a late fee of 
$8 for the first and subsequent violations is appropriate to cover pre-
charge-off collection costs for Larger Card Issuers on average while 
providing those issuers compliance certainty and administrative 
simplicity.
    Even if the CFPB were required to consider the statutory factors of 
costs, deterrence, and consumer conduct in setting the discretionary 
safe harbor amounts, the CFPB has determined that TILA section 149(e) 
does not require that the CFPB weigh all of the factors equally in 
determining what safe harbor amount is a reasonable proxy for the 
definition of a ``reasonable and proportional'' fee. In this regard, 
the CFPB has determined that the cost factor deserves the most weight 
of these factors in setting the precise late fee safe harbor amount 
because it is most closely correlated to the consequences to the issuer 
of a consumer's late payment. In other words, costs are the best guide 
to what constitutes a ``reasonable and proportional'' fee. The CFPB has 
determined that the data described above allows the CFPB to quantify 
the pre-charge-off collection costs of Larger Card Issuers and set a 
late fee safe harbor amount that will allow the average Larger Card 
Issuer to recover its pre-charge-off collection costs. By contrast, the 
CFPB has determined that deterrence and consumer conduct--while 
important--are less determinative than costs in setting a precise late 
fee safe harbor amount. Not only are deterrence or consumer conduct 
harder to quantify, but the link between the late fee amount and 
deterrence or consumer conduct is more tenuous. For instance, as noted 
by consumer commenters on the 2023 Proposal, consumers indicated that 
there were various reasons why they incurred a late fee in the past, 
including (1) their mailed payment was not received by the card issuer 
by the due date because of slower postal service; (2) they paid on the 
due date but after the cut off time on the due date; (3) they forgot to 
pay on time because of vacations, medical issues, or family issues; or 
(4) they experienced cash flow issues because of unexpected expenses. 
Thus, while deterrence and consumer conduct can help corroborate a safe 
harbor amount set based on costs, the CFPB believes that the deterrence 
and consumer conduct factors could not justify a safe harbor amount 
that is disproportionate to costs.
    Nonetheless, while the CFPB has determined that deterrence or 
consumer conduct should not be the primary factors in deciding the 
precise late fee safe harbor amount for Larger Card Issuers, the CFPB 
has determined based on the analysis discussed below that the $8 late 
fee safe harbor amount will still have a deterrent effect on late 
payments, and that the $8 late fee safe harbor amount better reflects a 
consideration of consumer conduct than do the higher safe harbor 
amounts set by the Board.
    Deterrence. After careful consideration of the comments, the CFPB 
determines that the available evidence for Larger Card Issuers suggests 
that an $8 safe harbor amount will have a deterrent effect on late 
payments. The CFPB also determines that some cardholders may benefit 
from the $8 safe harbor threshold amount in terms of a greater ability 
to repay revolving debt, including some cardholders who may experience 
an increase in late payments under the lower safe harbor amount. The 
CFPB also notes that card issuers have methods other than higher late 
fees to deter late payment behavior and to facilitate timely payments. 
For example, card issuers may decrease the cardholder's credit line, 
limit their earning or redemption of rewards, or impose penalty rates 
in certain circumstances. Card issuers also may offer automatic payment 
and provide notification within a certain number of days prior to the 
payment due date. The CFPB's reasons for making these determinations, 
including its analysis of available evidence, are discussed below.
    As a threshold matter, the CFPB acknowledges, as it acknowledged in 
the 2023 Proposal, that a late fee of any dollar amount has some 
deterrent effect that is more than no late fee at all. Some of the 
comments received, as discussed above, support the CFPB's determination 
by noting that a safe harbor late fee amount of $8 would have a lesser 
deterrent effect than the current amounts, rather than no deterrent 
effect. The CFPB also recognizes, as it recognized in the 2023 
Proposal, that generally a lower late fee amount has less theoretical 
deterrence than a higher amount, though whether that will manifest in 
lower repayment rates in light of the other salient factors is 
uncertain. As such, the many comments asserting that a late fee amount 
of $8 may result in a higher frequency of late payments, as discussed 
above, are consistent with the assumptions in the CFPB's deterrence 
analysis. The CFPB rejects the notion, implicit in many comments 
opposing the $8 late fee amount, that consideration of deterrence 
necessitates, as a matter of law or policy, setting a safe harbor 
amount that will have the maximum theoretical deterrence effect. In 
addition, the CFPB recognizes, as it recognized in the 2023 Proposal, 
that it does not have direct evidence concerning what consumers would 
do in response to a fee reduction similar to the one in this final 
rule. The CFPB notes, however, that the Y-14 data and other information 
on which its deterrence analysis is based, as discussed below, have 
become available since the Board issued its 2010 Final Rule and 
constitute a far richer body of evidence than that on which the Board 
relied. It should be noted that by the same logic, those commenters 
expressing concern regarding the potential deterrence effect of a lower 
late fee likewise had no direct evidence to proffer in support.
    As discussed in the 2023 Proposal, for purposes of considering the 
deterrence effect of the $8 safe harbor amount, the CFPB analyzed 
available data from certain Larger Card Issuers to consider the extent 
to which lower late fees for both the first and subsequent late 
payments could potentially lessen deterrence. Specifically, in making 
its determination that the $8 safe harbor amount will still have a 
deterrent effect on late payments, the CFPB considered (1) a comparison 
of the $8 late payment safe harbor amount to minimum payment amounts on 
accounts in the Y-14 data; and (2) available empirical evidence on the 
effects of credit card late fees on the prevalence of late payments. 
The CFPB notes that whether a consumer is late in making a required 
payment depends in part on the consequences of paying late, including 
penalty fees for late payments and other consequences such as increased 
interest charges and potential credit reporting consequences (as 
discussed in part II.G and in more detail below). From the point of 
view of a rational consumer faced with the decision of whether to make 
a minimum balance payment on time or to put off the payment until 
later, the decision represents a tradeoff weighing the value to the 
consumer of retaining the money for longer against the total costs of 
paying late. For the median minimum payment amount of

[[Page 19163]]

approximately $100 for accounts that paid late in the Y-14 data from 
October 2021 through September 2022, the CFPB's analysis found that the 
costs of paying late are quite steep both under current late payment 
fee amounts and under the $8 safe harbor amount.\167\ For example, a 
consumer who effectively borrows a minimum payment amount of $100 until 
the next due date (that is, who makes a payment one month late) and 
pays a $8 late fee would be incurring an effective APR of 96 percent, 
even ignoring other consequences. In addition, a consumer who 
effectively borrows a minimum payment amount of $40 for 10 days (past 
due) and pays a $8 late fee would be incurring an effective APR of 730 
percent. As the median minimum due was $39 for all cardholders between 
October 2021 and September 2022 in the Y-14 data,\168\ and around half 
of late payers made a payment in less than 10 days past the due date, 
the effective APR could be higher than 730 percent for some consumers. 
Based on that analysis, the CFPB determines that an $8 late fee safe 
harbor amount for Larger Card Issuers will still serve as a powerful 
deterrent to those consumers who pay attention to financial penalties.
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    \167\ For more information about the distribution of minimum 
payment amounts for late accounts in the Y-14 data, see Figure 5 and 
related discussion in the section-by-section analysis of Sec.  
1026.52(b)(2)(i).
    \168\ For purposes of the calculations of the distribution of 
the minimum payment amounts in the Y-14 data, the calculations do 
not include account-months where a late fee was charged but the 
minimum due was reported to be $0.
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    In addition to the analysis discussed above, the CFPB considered 
available empirical evidence on the effects of credit card late fees on 
the prevalence of late payments. In particular, the CFPB considered (1) 
a 2023 paper analyzing the effect of the reduction of late fee amounts 
that became effective as a result of the CARD Act in 2010; (2) analysis 
by the CFPB using Y-14 data of how the prevalence of late payments is 
affected by increases in late fee amounts during the six months 
following a violation; and (3) other empirical investigations into the 
correlates of late fee amounts and late fee incidence as discussed 
below.
    As discussed in the 2023 Proposal, in analyzing the available data, 
the CFPB notes a 2023 paper by Grodzicki et al., which contains an 
empirical analysis that concluded that a decrease in the late fee 
amount stemming from the Board's 2010 Final Rule raised the likelihood 
of a cardholder paying late.\169\ The CFPB rejects the notion, advanced 
by one commenter, that it cherrypicked evidence to support its 
deterrence analysis, or even ignored evidence that may be viewed as 
conflicting with its conclusion. To the contrary, the CFPB recognizes 
that the 2023 paper suggests that consumers may engage in more late 
payments when they are less costly to consumers. However, as noted in 
the 2023 Proposal, the CFPB does not consider this to be robust 
evidence that the $8 safe harbor late fee amount would not have a 
deterrent effect. As discussed in the 2023 Proposal, the CFPB also 
notes that the paper focused on the late fee variations resulting from 
the limitations on penalty fee amounts in the Board's 2010 Final Rule 
and thus could be confounded by other market changes coinciding with 
the rule going into effect. In particular, the late fee provisions in 
the Board's 2010 Final Rule were implemented in August 2010, as the 
U.S. economy was still dealing with the aftermath of the Great 
Recession,\170\ and thus it was difficult to attribute consumer finance 
statistical trends to particular events. Moreover, the Board's 2010 
Final Rule affected all consumers and all issuers, so there was no 
suitable control group of consumers that were charged the same amount 
of late fees before and after the implementation of the Board's 2010 
Final Rule. Thus, the 2023 paper compared consumer behavior in the year 
before and the year after August 2010, and the causal attribution of an 
increase in late payments to a reduction of the late fee amount is hard 
to prove due to the general economic uncertainty around that time. As 
discussed above, a credit union trade association took issue with the 
CFPB's questioning the 2023 paper's findings based on the time period 
studied. The CFPB emphasizes that the chief problem with the study is 
that its authors could not convincingly distinguish the effects of the 
financial crisis and other regulatory reforms under the CARD Act from 
the effects of lowering late fees. The CFPB also notes that the 2023 
paper relied on an older and smaller version of the Y-14 data than that 
on which the CFPB's analysis is based.
---------------------------------------------------------------------------

    \169\ Daniel Grodzicki, et al., Consumer Demand for Credit Card 
Services, Journal of Financial Services Research 63, 272-311 (2023), 
https://doi.org/10.1007/s10693-022-00381-4.
    \170\ The Great Recession began in the fourth quarter of 2007 
and ended in the second quarter of 2009. See generally Nat'l Bureau 
of Econ. Res., Business Cycle Dating Committee Announcement (Sept. 
20, 2010), https://www.nber.org/cycles/sept2010.html.
---------------------------------------------------------------------------

    In developing the deterrence analysis, the CFPB also analyzed Y-14 
data from 2019, where the variation in late fees does not correspond to 
other big changes or differences that might plausibly affect late 
payment. As discussed above, the current rule sets a higher late fee 
safe harbor amount for instances where another late payment occurred 
over the course of the preceding six billing cycles. The CFPB conducted 
statistical analysis to investigate whether the lower late fee amount 
in month seven leads to a distinct rise in late payments (Y-14 seventh-
month analysis). Specifically, the CFPB estimated whether there is a 
discontinuous jump in late payments in the seventh month after the last 
late payment.\171\ This analysis focused on this potential jump to 
isolate the potential impact that the lower late fee that would apply 
in month seven might have on late payment rates, given that month seven 
is generally comparable to month six other than the lower late fee 
amount. In a random subsample from account-level data available in 2019 
from the Y-14 data, this statistical analysis did not support that the 
lower late fees in month seven have an effect on the late payment rate, 
at conventional confidence levels. In addition, as a separate 
observation, the CFPB observed that for consumers that incurred a 
higher fee for a late payment during the six months after the initial 
late payment, the payment of that higher late fee did not lead to a 
discernibly lower chance of late payment for a third time in the future 
than for those consumers whose second late fee was lower because they 
paid late seven or more months after their first late payment.
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    \171\ The CFPB observed in the Y-14 data that, consistent with 
the safe harbor provisions of the current rule, consumers who paid 
late again within the six months after a late payment paid higher 
late fees during those six months than they paid after the initial 
late fee.
---------------------------------------------------------------------------

    The CFPB acknowledges that the variation in late payments in the Y-
14 seventh-month analysis discussed above is not the same as the 
changes that will result from this final rule. Nonetheless, the CFPB 
has determined that this evidence suggests the prevalence of late 
payments is not highly sensitive to the level of late fees at the 
current order of magnitude.
    As discussed in the 2023 Proposal, an advantage of the Y-14 
seventh-month analysis is that it avoids confounding factors that often 
are found in other studies of late fees, including the 2023 paper by 
Grodzicki et al., discussed above. Studies that compare behaviors of 
consumers facing higher or lower fees (if late) with consumers in a 
comparison group are often fraught with multiple confounding factors 
that may also vary

[[Page 19164]]

across time periods, issuers, products, or consumer behavior in each 
group.
    The CFPB notes that the finding from the Y-14 seventh-month 
analysis described above is still contingent upon the fact that some 
consumers understand that their issuers charge lower late fees starting 
the seventh month after an initial violation. The CFPB recognizes that 
the higher late fees for subsequent late payments within the next six 
billing cycles might be more of a deterrent if consumers understood 
them better in 2022 than they did in 2019, but the CFPB has no evidence 
to indicate that is the case. However, as discussed in the 2023 
Proposal, the CFPB's analysis is not dependent on all issuers charging 
the lower late fee safe harbor amount more than six months after a late 
payment nor the higher late fee safe harbor amount within the six 
billing cycles. As long as some card issuers made use of the higher 
safe harbor, as the analysis described above shows that they did, the 
CFPB should still have been able to detect an increase in the deterrent 
effect of their fee structure.
    The CFPB also notes that because the Y-14 seventh-month analysis 
discussed above focused on a potential discrete jump in late payments 
more than six months after a preceding late payment, it also allowed 
for late payments to trend down as more time passed after a late 
payment. As described above, the CFPB did not see the lower late fee 
amount that could be charged in month seven change this downward trend.
    The CFPB also determines that other publicly available studies on 
late fees suggest that the $8 safe harbor amount will still have a 
deterrent effect on late payments. As discussed in the 2023 Proposal, 
empirical investigations into the correlates of late fee amounts \172\ 
and late fee incidence \173\ have noted that late fee payment can often 
be avoided by small and relatively costless changes in behavior. This 
suggests that the lower $8 late fee safe harbor amount will still be 
higher than the costs of making a timely payment. Further, the CFPB 
determines that the triggers that make cardholders avoid the current 
prevailing late fees--including notices provided by card issuers--also 
will make cardholders avoid a $8 late fee.
---------------------------------------------------------------------------

    \172\ Nadia Massoud, et al., The Cost of Being Late? The Case of 
Credit Card Penalty Fees, 7 Journal of Financial Stability, at 49-59 
(2011).
    \173\ Sumit Agarwal, et al., The Age of Reason: Financial 
Decisions Over the Life Cycle and Implications for Regulation, 2 
Brookings Papers on Economic Activity, at 51-117 (2009).
---------------------------------------------------------------------------

    With respect to other publicly available studies, the CFPB notes 
(as it did in the 2023 Proposal) that the Board--in support of setting 
higher late fee safe harbor amounts for violations that occur in the 
following six billing cycles after a late payment--pointed in its 2010 
Final Rule to a 2008 study by Agarwal et al. of four million credit 
card statements. That study found that a consumer who incurs a late 
payment fee is 40 percent less likely to incur a late payment fee 
during the next month, although this effect depreciates approximately 
10 percent each month.\174\ As noted above, one credit union trade 
association commenter criticized the CFPB for not taking the 2008 study 
into account in its deterrence analysis. However, as discussed in the 
2023 Proposal, the CFPB in fact consulted the last available revision 
of the cited working paper by Agarwal et al., from 2013. Based on that 
analysis, the CFPB determines that the study is of limited relevance as 
to whether the late fee amount impacts late payment incidence, for two 
reasons. First, the study considers the months following any late fee 
and compares them to months with no recent late payment. That 
comparison is not the same as comparing to months in which a payment 
was late, but a lower late fee (or even a $0 late fee) was charged. 
Second, even if the study had compared to months in which a payment was 
missed but no late fee was charged, that comparison still would not be 
relevant to this final rule, in that this final rule reduces the safe 
harbor amount to $8; it does not completely eliminate the late fee.
---------------------------------------------------------------------------

    \174\ See Agarwal et al., supra note 137.
---------------------------------------------------------------------------

    In addition, the CFPB notes that the Y-14 seventh-month analysis 
discussed above shows that in the surrounding months reoffending rates 
trend down with each month after the last late payment. That seventh-
month analysis, however, did not show a jump in late payment rates in 
month seven after the last late fee, which suggests that the higher 
late fee amount during the prior six months is not contributing to this 
downward trend. The CFPB also notes that the 2013 study by Agarwal et 
al. did not separate the effects of the late fee itself from other 
possible consequences of a late payment, such as additional finance 
charges, a lost grace period, penalty rates, and reporting of the late 
payment to a credit bureau, which could affect the consumer's credit 
score. Given these other consequences of a late payment as discussed in 
more detail below and in part II.G, it is not clear that the lower late 
fee safe harbor amount would meaningfully affect the decreased chance 
that consumers will pay late again after an initial late payment in 
ways similar to those established in this 2013 study.
    As discussed in the 2023 Proposal, in adopting the safe harbor 
amounts in its 2010 Final Rule, the Board also considered the 
limitations that the United Kingdom's OFT placed on credit card default 
charges in 2006. The CFPB notes that it is not aware of evidence 
suggesting that the [pound]12 ($21 on April 5, 2006, $13.40 in November 
2022) limit the OFT imposed on default charges (including late fees) in 
2006 meaningfully increased late payments in the United Kingdom (U.K.). 
The OFT ruled on April 5, 2006, that it would presume default charges 
higher than [pound]12 unfair and challenge the company unless 
exceptional business factors drove the decision for the company to 
charge higher fees. As fees were routinely as high as [pound]25 ($43.75 
on April 5, 2006) until that spring, this episode is the closest to 
what the CFPB would foresee as the outcome to its proposal: a salient 
reduction in late fees impacting a large portion of the marketplace at 
once, letting both issuers and cardholders learn and adapt to the lower 
later fees. As such, the CFPB has taken it into account in its 
deterrence analysis.
    As discussed above, two academic commenters suggested that the CFPB 
consider for purposes of its deterrence analysis a study by John 
Gathergood et al.\175\ The CFPB agrees that the study merits 
consideration and thus has taken it into account in developing this 
final rule. Using U.K. data, that study found that the occurrence of 
late fees incurred by consumers on credit card accounts are front-
loaded, peaking in the first month of card life and declining sharply 
over the following months. Specifically, one of the commenters noted 
the study's finding that the share of credit card accounts incurring 
late payment fees in the study's sample fell from 6 percent in the 
first month to 2.5 percent by the 23rd month, mainly because the 
payment of an initial late fee prompted consumers to set up automatic 
payments. The CFPB notes that, arguably, this work proves again that 
many missed payments are often mistakes that can be easily avoided 
through a number of means, including autopay. Even if issuers see no 
cheaper way to effectively promote autopay than through the imposition 
of late fees, that is no reason for issuers to keep the revenue from 
late fees above cost or even to cross-subsidize other

[[Page 19165]]

cardholders through the imposition of late fees. Considering the fact 
that U.S. late payment rates are higher than the cited 2.5 percent for 
cards older than two years in the U.K., the CFPB is not convinced that 
charging late fees is even an effective way to promote autopay in the 
current American context.
---------------------------------------------------------------------------

    \175\ John Gathergood et al., ``How Do Consumers Avoid Penalty 
Fees? Evidence From Credit Cards'' (Dec. 11, 2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2960004.
---------------------------------------------------------------------------

    Some industry commenters submitted additional data on deterrence in 
response to the CFPB's request for additional data. The CFPB 
appreciates these submissions but does not find the data persuasive. In 
particular, one large industry trade association submitted the results 
from a survey of 2,000 consumers it conducted for the purpose of 
identifying the fee point at which consumers would likely be deterred 
from paying their credit card bills late. The commenter reported that, 
among other things, the survey found that late fees are more effective 
in motivating consumers to pay bills on time than negative credit score 
impacts. Almost half of consumers (46 percent) said that avoiding late 
fees was the most important reason to pay credit card bills on time, 
and 30 percent said that doing the responsible thing was the most 
important reason to pay on time. Only 15 percent said that concerns 
about credit ratings was the most important reason to pay on time. This 
commenter further reported that the survey found that the CFPB's 
proposed $8 safe harbor would not motivate many consumers to pay their 
credit card bills on time. In the survey, more than 4 in 5 consumers 
(83 percent) said that a $10 late fee would be insufficient to deter 
them from paying a credit card bill late. Only 6 percent of respondents 
said that a fee of $10 would have a deterrent effect. For those who 
have paid a late fee in the past year, the deterrence effect of a $10 
fee is even lower: only 4.3 percent said that such a fee would deter 
them from paying late.
    The CFPB notes that the submitted survey asked consumers about the 
primary reason they avoid a late fee. As such, it is consistent with 
current fees being excessive that 46 percent of consumers pay on time 
primarily to avoid late fees, while only 30 percent would do so to do 
the responsible thing. The posed question does not shed light on 
whether concerns about a credit rating or the other listed reasons (or 
other reasons not even listed) in combination with a $8 late fee would 
be sufficient for most consumers not to breach a contract. It is 
unclear from the results submitted whether the amount of the 
hypothetical late fee was meant or understood to be considered in 
isolation or alongside the other consequences of a missed payment. For 
example, did respondents say that a $10 fee would not deter them 
because they thought that the fee would be the only consequence of a 
missed payment? Would respondents have said something else had they 
known (and understood) the loss of the grace period or larger interest 
payments? The survey results leave these questions unanswered.
    Although the survey did ask respondents if they would be deterred 
by a late fee amount below $5, $10, and $15, the reported ``yes'' 
response rates in the single digits are missing crucial context--
specifically, whether the respondents would indeed have said they would 
be deterred by late fee amounts close to $30 and $41. The survey is 
hypothetical. In practice, the vast majority of cardholders pay on time 
in the vast majority of months. The survey results submitted to the 
CFPB do not show whether respondents, within the hypothetical world 
posited by the survey, indicated whether $30 is at or near the price 
point at which they would be deterred from making a late payment. In 
other words, the results reveal nothing about the extent to which a $30 
late fee determines consumers' payment behavior in the real world.
    An additional reason why the survey is of limited value is that, 
based on the results provided to the CFPB, the survey seems to have 
posited a hypothetical world in which it is assumed that respondents 
had the money to pay the bill and were aware of the due date. In 
practice, consumer commenters indicated that they pay late for a 
variety of reasons, including (1) their mailed payment was not received 
by the card issuer by the due date because of slower postal service; 
(2) they paid on the due date but after the cut off time on the due 
date; (3) they forgot to pay on time because of vacations, medical 
issues, or family issues; or (4) they experienced cash flow issues 
because of unexpected expenses, such as an illness. To the extent 
consumers are late in paying because of mail delivery issues, they are 
inattentive to their account, or they are so cash-constrained that they 
are unable to make a minimum payment, the amount of the late fee may 
have little effect on whether they pay late.
    Further, the appendix to the comment letter mentions that the 
contractor used the Van Westendorp's Price Sensitivity Meter \176\ to 
``identify the fee point at which consumers would likely be deterred 
from paying their credit card bills late,'' indicating the commenter 
gathered much more data about purported demand for late fees than the 
data related to just three price points that it chose to share. That 
type of data might be useful, given that a careful consideration of 
deterrence needs to trade off additional deterrence against other cost 
and benefits of higher fees. It is crucial to know whether deterrence 
would be meaningfully higher at $20, or maybe $50, in order to consider 
whether that higher deterrence is indeed worth the harm to consumers 
from those higher fee amounts. The survey responses that the commenter 
chose to share prove that there is not meaningfully more deterrence at 
$15 than at $5, but nothing about the comparative deterrent effect of 
$30 or $41. This final rule maintains the stance of the 2023 Proposal 
that late fee amounts can have some deterrent effect, and higher 
amounts have more, but a $30 or $40 late fee amount would not be 
sufficiently more of a deterrent than an $8 late fee amount to justify 
late fees far above cost, especially given the other negative 
consequences of a late payment. The final rule further maintains the 
stance, as supported by consumer commenters, that many late payments 
are due to reasons that would not be responsive to any level of 
deterrent.
---------------------------------------------------------------------------

    \176\ The Van Westendorp Price Sensitivity Meter is a 
comprehensive, multi-question survey model that indirectly measures 
potential buyers' willingness to pay. Instead of asking potential 
buyers to identify a single price point, the Van Westendorp model 
helps assess willingness across a range of prices. See Rebecca 
Shaddix, How To Price Your Product: A Guide To The Van Westendorp 
Pricing Model, Forbes (June 22, 2020), at: https://www.forbes.com/sites/rebeccasadwick/2020/06/22/how-to-price-products/?sh=4cbfd2055c75.
---------------------------------------------------------------------------

    A regulatory advocacy group commenter submitted data from its 
recent poll of approximately 1,100 consumers regarding credit card late 
fees. The commenter reported the poll shows that by a 21-point margin, 
respondents believe that a decrease in the penalty will result in more 
people making late payments. Further, 53 percent of those surveyed 
believe they will be more likely to make late payments on their credit 
cards if the late payment penalty is reduced from $30 to $8. A large 
trade association commenter cited the same poll results as direct 
evidence of what consumers would do in response to a reduction in late 
fee amounts similar to the one proposed.
    The CFPB acknowledges that the direction of the response to a fee 
change in these results seems correct, and that such a reaction has 
never really been in doubt in the CFPB's development of this final 
rule. Lower fee amounts would be less deterrent than higher fee 
amounts, but this observation provides scant evidence to help the CFPB 
ensure that

[[Page 19166]]

late fees are reasonable and proportional, as guided by the factors of 
deterrence, cost, and consumer conduct. The CFPB also finds that 
responses to questions posed to consumers about hypothetical late 
payment amounts are less informative than are the effects of late 
payment fees that consumers actually incur, such as those studied in 
the seventh-month analysis of certain Larger Card Issuers' Y-14 data 
discussed above.
    In addition, a bank commenter asserted that it has consistently 
found that late fee assessments under the current safe harbor amounts 
reduce the incidents of recurring delinquencies and submitted its own 
data in support of the statement. According to the commenter, between 
2019 and 2021, 43 percent of its 30-day delinquent cardholders did not 
subsequently enter a 60-day delinquency after incurring a late fee. 
Furthermore, over the same time period, 48 percent of 60-day its 
delinquent cardholders who were assessed two late fees did not enter a 
90-day delinquency status.
    The CFPB notes that the disclosed information does not show the 
effects of charging a late fee, let alone the effects of charging the 
$41 current safe harbor amount, against the counterfactual of charging 
an $8 safe harbor amount. The fact that a decreasing share of late 
payers are delinquent for one, two, or three months is fully consistent 
with the CFPB's understanding of consumer behavior in this market and 
with the CFPB's analysis of the effects of late fee charges and other 
consequences of late payments, as discussed herein. The commenter did 
not formulate how many more cardholders would be delinquent for 30, 60, 
and 90 days or more if no late fee were charged or if a $8 late fee 
were assessed after a late payment.
    As discussed above, one credit union trade association asserted 
that the CFPB failed to present in the 2023 Proposal an analysis of the 
tradeoff between late fees and late payments. This commenter asserted 
that a consumer is deterred from being late on a payment if the late 
fee is greater than the net benefit of missing the payment. Similarly, 
one credit union commenter expressed concern that if the late fee 
amount is set too low, consumers are more likely to pay the fee without 
considering the long-term consequence of lowering their credit scores, 
higher borrowing costs, reduced ability to access credit, and 
ultimately less disposable income. Many other industry commenters 
expressed similar concerns. In response, the CFPB notes that 
calculating consumers would trade off the total costs of a missed 
payment against the full array of benefits of missing the deadline on 
minimum payments. The CFPB notes, however, that the total costs of a 
late payment are higher than just the late fee, as the 2023 Proposal 
and this final rule have enumerated.\177\ In addition, in practice, 
many late payments are due to circumstances beyond consumers' control.
---------------------------------------------------------------------------

    \177\ The CFPB also notes that the benefits need not be 
restricted to the alternative use of funds, such as the opportunity 
cost of investing the minimum payment due for a short time. Rather, 
they also include the cognitive and other costs of initiating other 
transactions in advance of the due date in such a way as to ensure 
that the consumer has available funds at the last possible moment at 
which they can initiate a payment that the issuer would accept as 
timely.
---------------------------------------------------------------------------

    Also, as discussed above, several commenters posited that because 
$8 is roughly comparable to the price of common items such as a cup of 
coffee or movie ticket, more consumers may view that amount as a 
reasonable price to pay in exchange for postponing making their credit 
card payments. The CFPB reiterates that some late payments are the 
result of circumstances beyond consumers' control.\178\ Moreover, the 
CFPB notes that some consumers pay late simply because they do not have 
enough funds to pay the minimum payment. As noted in part III.B, some 
consumer commenters indicated that they have limited income and that 
even a small late fee can impact their tight budget. For consumers in 
these circumstances, a $30 late fee is simply adding to the unpayable 
debt amount.
---------------------------------------------------------------------------

    \178\ As discussed in part III.B, some consumers commenting on 
the 2023 Proposal stated that they had incurred late fees because 
(1) their mailed payment was not received by the card issuer by the 
due date because of slower postal service; (2) they paid on the due 
date but after the cut off time on the due date; or (3) they forgot 
to pay on time because of vacations, medical issues, or family 
issues.
---------------------------------------------------------------------------

    For the reasons discussed above, the CFPB finds that the available 
evidence and the CFPB's study of the Y-14 data of certain Larger Card 
Issuers indicate that the $8 safe harbor amount for the first and 
subsequent late payments will still have a deterrent effect on late 
payments, although that effect may be lessened to some extent, and 
other factors may be more relevant (or may become more relevant) toward 
creating deterrence.
    In addition, for the reasons discussed herein, the CFPB determines 
that some consumers may benefit from the $8 safe harbor threshold 
amount, including some consumers who may experience an increase in late 
payments under the lower safe harbor amount. With respect to those 
consumers, the CFPB notes, as it did in the 2023 Proposal, that for the 
more constrained cardholders, like subprime borrowers, who pay a 
disproportionate proportion of late fees, the current, higher late fee 
may be impacting cardholder repayment conduct--i.e., the higher late 
fee amount could have gone toward a payment on the account. As 
discussed in part IX, the CFPB estimates that reducing the safe harbor 
for late fees to $8 for Larger Card Issuers will likely reduce late fee 
revenue by billions of dollars. This expected savings will benefit 
consumers. The money saved by cardholders on late fees may go toward 
repayment. As discussed in the 2023 Proposal, the 2023 paper by 
Grodzicki et al.,\179\ described above, with all the caveats noted 
there, found such a pattern for subprime cardholders: A decrease in 
late fees after the implementation of the CARD Act increased borrowing 
for prime borrowers but triggered repayment for subprime 
cardholders.\180\ If this prediction holds true for the late fee safe 
harbor amount in this final rule, it would imply that lowering late 
fees may provide some benefits to subprime consumers in terms of a 
greater ability to repay revolving debt.\181\ This effect might also 
lower issuers' losses from delinquencies, as it could subsequently 
reduce the likelihood and the severity of default in the population 
most prone to default.\182\
---------------------------------------------------------------------------

    \179\ Supra note 169.
    \180\ Although the paper found that lower late fees may cause 
subprime cardholders to pay late more often, it also found that 
lower late fees may cause subprime cardholders to make a larger 
payment when they ultimately make the payment. This paper explained 
that this latter effect on subprime cardholders might result from 
the lower late fee amount lessening the need for subprime 
cardholders to focus on avoiding late fees and instead allowing some 
subprime cardholders to start to pay more attention to the high cost 
of their revolving debt.
    \181\ As discussed in part V, the Y-14+ data that the CFPB 
considered in developing the proposal and this final rule include 
data from specialized card issuers. Those issuers make up a majority 
of subprime credit card balances.
    \182\ Even if lower late fees would decrease losses from 
delinquencies, issuers may still prefer higher late fees to maximize 
profits. As current late fee levels generally produce profits to 
issuers on the average late payment, the CFPB does not take the 
prevalence of high fees as strong evidence that lower fees would 
raise issuers' losses from delinquency. Even if lowering late fee 
amounts reduced delinquency, doing so might not be in issuers' 
interest: A $1 reduction in the late fee amount might decrease 
delinquency losses by less than $1 per incident, and thus lower 
profits.
---------------------------------------------------------------------------

    The CFPB rejects the notion, as one commenter asserted, that 
potential benefits to the vast majority of consumers (including 
subprime consumers) who obtain credit cards through larger issuers are 
irrelevant to the analysis because those benefits are not among the 
specific statutory factors

[[Page 19167]]

for determining an appropriate safe harbor amount for penalty fees. As 
discussed above, while the factors in TILA section 149(c) are not 
strictly controlling, that statutory provision includes such other 
factors that the CFPB deems necessary or appropriate. In its analysis 
of the Y-14 data, the CFPB finds that the combined beneficial effects 
for consumers are an appropriate consideration for this rulemaking. The 
CFPB also finds that a late fee safe harbor amount of $8 for the first 
and subsequent late payments strikes the appropriate balance of 
deterrence considerations and considerations of those beneficial 
effects.
    In addition, as discussed in the 2023 Proposal, the CFPB notes that 
card issuers have available methods and tools other than charging 
higher late fees to deter late payment behavior, and thereby minimize 
the potential frequency and cost to card issuers of late payments. In 
particular, as discussed in part II.G, for cardholders who typically 
pay their balance in full every month (so-called transactors), a late 
fee is in addition to new interest incurred for carrying or revolving a 
balance. For these consumers, who do not roll over a balance in the 
month before or after a late fee is assessed, the loss of a grace 
period and coinciding interest charges may pose a similar or even 
greater deterrent effect than the late fee itself. For some consumers, 
card issuers may also report the late payment to a credit bureau, which 
could affect the consumers' credit scores. The CFPB notes that since 
the Board's 2010 Final Rule went into effect, many credit card issuers, 
financial institutions, and third parties have begun providing free 
credit scores to consumers.\183\ Access to real-time changes in 
consumers' credit scores have likely increased their awareness of any 
decline related to late payments, contrary to some commenters' 
assertions that consumers do not think about such things. Thus, the 
deterrent effect of any negative credit score impact is likely greater 
than in 2011--and the potential impact encourages payment within one 
billing cycle of the due date without the imposition of additional 
financial penalties.
---------------------------------------------------------------------------

    \183\ CFPB, The Consumer Credit Card Market, at 174-176 (Dec. 
2017) (2017 Report), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2017.pdf.
---------------------------------------------------------------------------

    Further, as noted, card issuers may decrease the consumer's credit 
line, limit the cardholder's earning or redemption of rewards, or 
impose penalty rates in certain circumstances--all of which can have a 
deterrent effect. For example, if a consumer does not make the required 
payment by the due date, Sec.  1026.55(b)(3) permits a card issuer to 
take actions to reprice new transactions on the account according to a 
penalty rate in certain circumstances. After 60 days, Sec.  
1026.55(b)(4) permits issuers to take steps to reprice the entire 
outstanding balance on the account according to a penalty rate in 
certain circumstances.
    As discussed above, several commenters expressed concerns about the 
negative consequences that consumers may incur--including higher APRs 
and lower credit scores--if a lower late fee safe harbor amount results 
in an increase in late payments. Further, as noted in the 2023 
Proposal, card issuers have non-punitive methods to facilitate timely 
payments, including, for example, automatic payment and notification 
within a certain number of days (e.g., five days) prior to the due date 
that the payment is coming due. Both the availability and adoption of 
these methods have increased since the Board issued its 2010 Final 
Rule. In 2013, issuers tracking the number of consumers making payments 
online reported that an average of 38 percent of consumers made at 
least one non-automatic payment online or through automatic payment; 
\184\ in 2022, 61 percent of active accounts made at least one non-
automatic online payment online in the last cycle of the year, and 20 
percent of accounts made at least one automatic payment in the last 
cycle of the year.\185\ Even in the past few years, digital enrollment 
has grown, with 76 percent of active accounts enrolled in an issuer's 
online portal in 2022 (a 3 percentage point increase from 2017), 76 
percent enrolled in a mobile app (a 25 percentage point increase from 
2017), and 67 percent receiving only e-statements (a 23 percentage 
point increase from 2017).\186\
---------------------------------------------------------------------------

    \184\ 2013 Report, at 68.
    \185\ These categories are not mutually exclusive. 2023 Report, 
at 131-132.
    \186\ Id. at 131.
---------------------------------------------------------------------------

    The CFPB expects that these other methods, and the negative 
consequences resulting from missed payments, will decrease the 
likelihood of late payments not only in cases where card issuers 
consider the deterrent effects of lower late fees to be insufficient, 
but for other reasons as well. As discussed above, Larger Card Issuers 
also may offset lost revenue from lower late fees by increasing 
interest rates, which would indirectly make late payments more costly 
than without this response. Also, issuers may have less ability to 
charge consumers higher late fees to maximize profits and thus may be 
more inclined to take other, more efficient steps to deter late 
payments, including providing timely reminders of an upcoming due date, 
well-chosen due dates aligned with cardholders' cash flow, and 
encouraging automatic payments.
    Some industry commenters, as discussed above, expressed concern 
that a late fee safe harbor amount of $8, due to its diminished 
deterrence effect, would make it difficult for card issuers to identify 
riskier consumers and manage for that risk, and thus result in higher 
costs to card issuers. The CFPB finds these concerns unwarranted. As 
discussed above, the CFPB determines that the $8 safe harbor will cover 
pre-charge-off collection costs for the average Larger Card Issuer. As 
also discussed above, the CFPB determines that this result is the 
approach most consistent with the CARD Act's requirements and purpose. 
To manage credit risk and post-charge-off collection costs resulting 
therefrom, card issuers can continue to customize rates using risk 
based-pricing, and to adjust those rates and apply penalty rates--
consistent with limitations in the CARD Act as implemented in 
Regulation Z--if they indeed learn something from consumers' 
delinquency.
    The CFPB also declines to look to proxies, as one commenter 
suggested, such as returned-check penalties under State laws, late fees 
charged on utility bills, and student loan late fees. The CFPB notes 
that those violations do not trigger financial consequences, such as a 
missed grace period or a month's worth of interest on the balance and 
new purchases that otherwise would not have applied. As such, the 
penalty fees for those violations are inapt proxies for purposes of the 
CFPB's deterrence analysis.
    Consumer conduct. Based on the available evidence and careful 
consideration of the comments, with respect to the late fee safe harbor 
threshold amount for Larger Card Issuers, the CFPB determines that an 
$8 late fee safe harbor amount for the first and subsequent late 
payments for Larger Card Issuers better reflects a consideration of the 
Y-14 data related to consumer conduct than do the higher amounts set by 
the Board. The CFPB is aware that the Board noted in the 2010 Final 
Rule noted that ``consumers who pay late multiple times over a six-
month period generally present a significantly greater credit risk than 
consumers who pay late a single time.'' \187\ The CFPB is

[[Page 19168]]

also aware that the Board further noted that ``when evaluating the 
conduct of consumers . . . it is consistent with other provisions of 
the Credit Card Act to distinguish between those who repeat that 
conduct during the next six billing cycles and those who do not.'' 
\188\ However, as discussed in the 2023 Proposal, the CFPB's analysis 
of the Y-14 data and other relevant information indicates that it not 
clear that multiple violations during a relatively short period are 
associated with increased credit risk and thus reflect a more serious 
consumer violation. Based on the account-level Y-14 data from October 
2021 to September 2022 from certain Larger Card Issuers, the CFPB 
estimates that only 13.6 percent of accounts incurred a late fee and 
then no additional payments were made on that account. In addition, 
based on Y-14 data, for accounts that incurred a late fee, the CFPB 
estimates that a third of accounts paid the amount due within five days 
of the payment due date, half the accounts paid the amount due within 
15 days of the payment due date, and three out of five accounts paid 
the amount due within 30 days of the payment due date.
---------------------------------------------------------------------------

    \187\ 75 FR 37526 at 37534.
    \188\ Id.
---------------------------------------------------------------------------

    In addition, as discussed in the 2023 Proposal, the CFPB 
understands that the Metro 2 reporting format used by the industry for 
reporting information to credit bureaus does not consider a payment to 
be late if it is made within 30 days of the due date. Thus, for risk 
management purposes, the industry itself does not appear to consider 
the consumer's conduct in paying late to be a serious form of consumer 
conduct until the consumer is 30 or more days late. As discussed above, 
the CFPB estimates that a majority of accounts become current before 
card issuers even consider the consumer late for credit reporting 
purposes.
    An academic commenter, as discussed above, stated that the CFPB's 
analysis does nothing to address the reality that multiple late 
payments demonstrate an increased credit risk and reflect a more 
serious violation of the account terms--even if those payments occur 
before the account would be reported as late under credit reporting 
guidelines. The CFPB does not accept the notion that a late fee safe 
harbor amount should reflect a more expansive idea of what constitutes 
an increased credit risk or serious violation than does the credit 
reporting format that the credit card industry has adopted. The CFPB 
further notes that, for the subset of consumers who do make their 
credit card payment 30 or more days late, the consequences of being 
reported to a credit bureau are potentially quite costly. In this 
respect, reporting late payments to the credit bureaus is just one of 
the several other tools and methods that card issuers can employ to 
address the conduct of late-paying consumers.
    Further, the CFPB has determined that permitting risk-based pricing 
in setting the amount of a late fee is generally inconsistent with the 
CARD Act's requirement that late fees be reasonable and proportional to 
the cost of the omission or violation. This type of pricing would 
enable issuers to set late fee amounts based on estimation of risk 
among groups of consumers, as compared with the statutory requirement 
that late fees be based on the actual violation, rather than the 
potential risk of consumers. Moreover, the safe harbor is a 
discretionary amount that is presumptively reasonable and proportional, 
and use of risk-based pricing could result in a higher late fee amount 
than the cost of the omission or violation for many Larger Card 
Issuers. Further, the CFPB disagrees that this pricing is necessary to 
manage the risk presented by consumers who pay late more than once 
within the next six billing cycles. As a basic matter, bona fide late 
fees are excluded from the definition of finance charge in Regulation Z 
and thus are not reflected in TILA's cost of credit. It is difficult to 
square why a fee that is not considered a price component for all other 
purposes under TILA and Regulation Z should be treated as one for 
purposes of risk management. Indeed, as discussed in the 2023 Proposal, 
increasing the APR is among the methods other than late fees that card 
issuers have to address credit risk. Specifically, card issuers that 
charge an interest rate are permitted by Sec.  1026.55(b)(3) to reprice 
new transactions on the account according to a penalty rate in certain 
circumstances. In addition, after 60 days, Sec.  1026.55(b)(4) permits 
these issuers to take actions to reprice the entire outstanding balance 
on the account according to a penalty rate in certain circumstances. In 
addition, card issuers may take steps to reduce a cardholder's credit 
line.
    The CFPB recognizes that a special rule in Sec.  
1026.52(b)(1)(ii)(C), as discussed below in the section-by-section 
analysis of that provision, permits card issuers to impose a late fee 
that does not exceed 3 percent of the delinquent balance on a charge 
card account that requires payment of outstanding balances in full at 
the end of each billing cycle, when a charge card issuer has not 
received the required payment for two or more consecutive billing 
cycles. As the Board noted in the 2010 Final Rule, this provision is 
intended to provide charge card issuers with more flexibility to charge 
higher late fees and thereby manage credit risk when an account becomes 
seriously delinquent, because charge card issuers do not apply an APR 
to the account balance and therefore cannot respond to serious 
delinquencies by increasing that rate. Thus, the Board acknowledged in 
its rationale for adopting this special rule that for most card 
issuers, increasing the rate is an appropriate tool for managing the 
risk resulting from seriously delinquent accounts. As discussed below, 
the CFPB is not substantively amending the current safe harbor set 
forth in Sec.  1026.52(b)(1)(ii)(C). The CFPB recognizes that card 
issuers do not charge interest on charge card accounts, and thus would 
not be able to use the interest rate charged on the account to manage 
credit risk.
    As discussed in the 2023 Proposal, in considering consumer conduct, 
the CFPB also recognizes that some consumers may pay late chronically 
but otherwise make a payment within 30 days for a number of reasons, 
including cash flow issues, that do not necessarily indicate that they 
are at significant risk of defaulting on the credit. For example, 
consumers may make a credit card payment after the due date from the 
next paycheck to smooth out expenses and avoid paying overdraft fees. 
As discussed above, some commenters asserted that the CFPB placed too 
much emphasis on cash flow issues in its analysis, with one commenter 
noting that if the problem is with consumer cash flow timing, as the 
CFPB hypothesizes, most major credit card issuers have mechanisms in 
place to allow customers to change the due date on their account in 
order to account for their own paycheck or earning schedules. The CFPB 
encourages the use of such mechanisms. However, even with the 
availability of those mechanisms, the CFPB notes, as it did in the 2023 
Proposal, that a 2021 study suggests that some consumers who are paid 
on a bi-weekly basis may not make the required payment by the due date 
but will make the required payment within 30 days after the due date 
from their next paycheck. In addition, as discussed in part III.B, some 
consumer commenters who supported the proposal indicated that they had 
been charged a late fee because they experienced cash flow issues due 
to unexpected expenses, such as an illness,

[[Page 19169]]

and in some cases were not able to change the due date for their 
payments.
    As discussed above, a bank commenter expressed concern that if a 
late fee is only $8, consumers may not bother to call, and the card 
issuer will lose an opportunity to provide financial assistance. The 
CFPB notes that $8 is a significant sum for many consumers, 
particularly deep subprime consumers who pay a disproportionately large 
share of credit card late fees. Indeed, as discussed part III.B, some 
consumers who supported the proposal indicated they had limited income 
and that even a small late fee can impact consumers on a tight budget. 
The CFPB also notes that card issuers have other options for offering 
financial assistance besides waiting for delinquent cardholders to 
call. These include proactively contacting such cardholders through 
email, letters, and web and mobile notifications. The CFPB encourages 
card issuers to use nonintrusive methods of reaching out to 
cardholders. The CFPB also notes, as a financial regulatory advocacy 
group commented, that because credit card payments are applied first to 
cover finance charges and fees, when late fees are tacked on, less of a 
consumer's payment goes toward reducing the principal balance. For 
consumers, this in turn adds to the duration and cost of revolving an 
outstanding balance. The CFPB anticipates, as the commenter asserted, 
that the lower safe harbor amount may have a positive impact on the 
financial health of consumers who bear late fees, and that it is 
necessary and appropriate to take that effect into consideration in 
conjunction with safe harbor amount's effects on consumer conduct.
    Other factors cited by commenters. As discussed above, many 
industry commenters recommended that the CFPB consider certain 
additional factors in establishing a safe fee late harbor amount. 
Specifically, several industry commenters cited lost late fee revenue 
and the resultant negative impacts on card issuers as factors meriting 
establishing a safe harbor amount significantly higher than $8 or 
leaving the current safe harbor amounts intact. Several credit union 
commenters, for example, stated that revenue from late fees covers pre-
charge off collection costs but also subsidizes products and services 
that members demand and need, including programs targeted toward 
consumers with thin credit files. A dramatic cut in that revenue, these 
commenters cautioned, would necessitate cutting or eliminating those 
programs. Other commenters expressed concern that it would necessitate 
raising rates.
    The CFPB notes that to the extent that industry commenters raising 
these concerns are Smaller Card Issuers as defined in Sec.  
1026.52(b)(3) (i.e., card issuers that together with their affiliates 
have fewer than one million open credit card accounts for the entire 
preceding calendar year),\189\ they will still be permitted under this 
final rule to impose late fees pursuant to the safe harbor provisions 
in Sec.  1026.52(b)(1)(ii)(A) and (B) (as revised by this final rule) 
for the reasons discussed in part V. However, the CFPB emphasizes, for 
all card issuers, that the CARD Act as implemented by Regulation Z 
permits card issuers to recover through late fee revenue only pre-
charge-off costs associated with late payments; it does not provide 
that card issuers may also fund other programs and services through 
excess late fee revenue. Thus, as discussed above, in setting the $8 
late fee safe harbor amount, the CFPB has indeed considered late fee 
revenue resulting from the imposition of late fees in that amount, but 
only in evaluating the extent to which an $8 late fee would cover card 
issuers' pre-charge off collection costs. As discussed above, the CFPB 
expects that an $8 late fee is sufficient to cover the pre-charge-off 
collection costs of the average Larger Card Issuer. Those whose pre-
charge-off collection costs are not fully covered may impose late fees 
pursuant to the cost analysis provisions in Sec.  1026.52(b)(1)(i).
---------------------------------------------------------------------------

    \189\ See supra note 5.
---------------------------------------------------------------------------

    As discussed above, one bank and one State bank trade association 
cited safety and soundness concerns as another factor that the CFPB 
should consider. One of these commenters asserted that setting fees on 
a risk-adjusted basis is essential to running a safe and sound credit 
card business, as well as to providing credit to customers who would 
not otherwise get it. A State bank trade association commenter noted 
that when its member banks establish terms and conditions for their 
credit plans, the late fee safe harbor weighs heavily in assuring that 
the bank's cost of credit match the higher costs of delinquency to 
targeted revenue and asking those who create such higher costs to bear 
those costs directly is necessary to maintain safety and soundness in 
the sub-prime space. The CFPB notes that, if these banks are Smaller 
Card Issuers, they are not covered by the $8 safe harbor threshold 
amount adopted in this final rule because it is limited to the Larger 
Card Issuers (as that term is used in this document), for the reasons 
discussed in part VI.
    The CFPB also notes, however, that even if these banks are covered 
by this final rule the available evidence does not support the 
suggestion that late fees imposed pursuant to the current safe harbor 
amounts are adjusted or priced according to risk. In the 2022 survey of 
agreements as discussed in part II.E, most of the top 20 card issuers 
based on outstanding balances impose late fees at or near the safe 
harbor amounts--little to no adjusting or pricing is done at all. 
Moreover, none of these top issuers appear to be charging late fee 
amounts above the current late fees safe harbor amounts to adjust for 
particularly risky consumers. This conclusion also is supported by the 
data the CFPB collected through its 2023 survey of agreements discussed 
in part II.E, showing that most Larger Card Issuers charged a maximum 
late fee at or near the higher safe harbor amount of $41 in 2023 but 
did not go beyond that level. Further, as discussed in the analysis of 
consumer conduct above, the CFPB notes that card issuers have many 
other tools at their disposal for managing the higher risks posed by 
cardholders who chronically pay late. These include raising the rates 
on those cardholders' accounts, consistent with certain limitations in 
the CARD Act. The CFPB also notes that none of the prudential 
regulators with which it consulted on this final rule, as discussed in 
part III.C, raised safety and soundness concerns.
Additional Issues
    As discussed above, the CFPB requested comment on a number of 
different issues related to its proposal to lower the late fee safe 
harbor amount to $8 for first and subsequent violations, including 
eliminating the late fee safe harbor, alternative approaches to 
determining the late fee safe harbor amount, or whether to impose 
certain conditions on the use of the safe harbor or on assessing late 
fees generally. The CFPB also request for comment on a number of issues 
related to penalty fees generally, including whether to extend the $8 
safe harbor amount to all penalty fees, such as over-the-limit fees, 
returned-payment fees, and declined access check fees. The CFPB is not 
finalizing any of these alternative approaches or conditions for the 
reasons discussed below.
    Eliminate the safe harbor for late fees and adopt no replacement 
safe harbor. The CFPB received some comments on whether to eliminate 
the safe harbor for late fees altogether, i.e., eliminate the existing 
safe harbor without adopting a new one. An individual commenter noted 
that for simplicity, eliminating the safe harbor altogether might 
better

[[Page 19170]]

serve the CFPB's aims. This commenter also noted, however, that the 
2023 Proposal would still accomplish the CFPB's goals and would be more 
in line with the intent of the law. A few industry commenters responded 
in opposition to entirely eliminating the safe harbor for late fees. A 
bank, for example, asserted that doing so would lead, among other 
things, to a drastic uptick in operational complexity for issuers, 
complexity in the CFPB's oversight, and consumer uncertainty. An 
industry trade association stated that the CFPB had not provided any 
evidence or support for why the late fees safe harbor should be 
eliminated altogether. For the reasons discussed above, the CFPB has 
made an independent determination to repeal the existing safe harbor 
for late fees charged by Larger Card Issuers. Nonetheless, for the 
reasons discussed above, the CFPB is also adopting a new $8 safe harbor 
for Larger Card Issuers.
    The CFPB restates its conclusion, as discussed above, that 
establishing a safe harbor amount is an exercise of discretionary 
rulemaking authority, and thus, a safe harbor need not exist. The CFPB 
also reiterates its expectation that some Larger Card Issuers will opt 
to use the cost analysis provisions in Sec.  1026.52(b)(1)(i) to set 
the amount of their late fees. The CFPB disagrees that the cost 
analysis will be an operational challenge for Larger Card Issuers with 
sophisticated businesses. These institutions should be able to track 
their pre-charge off collection costs and perform the mathematics 
necessary to calculate a cost-basis fee.
    Establish a different safe harbor amount for late fees. Although 
many commenters implicitly recommended that the CFPB establish a late 
fee safe harbor amount higher than $8, only a few commenters responded 
to the CFPB's specific request for comment on whether it should 
establish a different amount for late fees and, if so, what that amount 
would be. A credit union trade association recommended that if the CFPB 
determines that current late fee amounts are too high for consumers, it 
should reinstate the late fee amount of $25 initially established by 
the Board pursuant to the CARD Act. Another credit union commenter, 
through its trade association, suggested that the CFPB consider 
providing a different safe harbor amount for variable rate credit cards 
vs. fixed rate cards. The commenter noted that an $8 late fee may be 
appropriate for variable rate cards, given that in the current rising 
interest rate environment, minimum payment amounts would continue to 
increase, thus offsetting a reduction in late fee amounts for such 
cards. A consumer commenter recommended that the CFPB set a minimum 
late fee safe harbor amount of $8 and a maximum one of $30, reasoning 
that this would help to avoid a high fee for a small balance while 
still leaving allowance for the higher fee on large balances. Another 
consumer commenter recommended that the late fee safe harbor amount be 
set at 8 percent of the balance.
    A few commenters responded to the CFPB's request for comment on 
whether to adopt a staggered late fee safe harbor amount with a cap on 
the maximum dollar amount, such that card issuers could impose a fee of 
a small dollar amount every certain number of days until a cap is hit. 
All opposed the idea, asserting that it would add needless complexity, 
be expensive to implement, or would confuse consumers.
    For the reasons discussed in detail above, this final rule for 
Larger Card Issuers repeals the current safe harbor threshold amounts 
in Sec.  1026.52(b)(1)(ii)(A) and (B) as they apply to late fees and 
sets late fee safe harbor threshold amount of $8. The CFPB determines 
that this approach better ensures that late fees imposed by Larger Card 
Issuers for the first and subsequent violations are reasonable and 
proportional than do any of the other approaches suggested by 
commenters, many of which would result in late fee amounts that are too 
high or would add unnecessary complexity to the rule.
    Conditions on using safe harbor or on assessing late fees 
generally. Several commenters responded to the CFPB's request for 
comment on whether to impose certain conditions on using the late fee 
safe harbor or on assessing late fees generally, such as requiring card 
issuers to offer autopay or provide additional notices to consumers. 
Several consumer groups expressed support for imposing both conditions 
for late fees generally. These commenters noted that the vast majority 
of card issuers, including smaller ones, currently provide an autopay 
option. With respect to offering additional notices, these commenters 
urged the CFPB to require issuers to provide a notice by postal mail 
before imposing a late fee on cardholders who only receive statements 
online. They suggested that such notice should include a warning that a 
late fee will be imposed if the cardholder does not make a payment 
within seven days and should also inform cardholders of their right to 
receive paper statements and provide an easy way to exercise this 
right. These commenters expressed concern that card issuers' aggressive 
pushing of online-only statements has resulted in some consumers paying 
late because they have missed an email or other electronic notification 
that a statement is available.
    Industry commenters generally opposed imposing either condition, 
with the exception of at least two card issuers that expressed support 
for requiring issuers to offer an autopay option. In opposing both 
conditions, one large industry trade association stated its belief that 
because the two ideas, along with a 15-day courtesy period, are only 
briefly referenced in the proposal, the CFPB cannot move forward on the 
matters absent (1) more work on the CFPB's part to understand the 
benefits and burdens of this approach; and (2) far more opportunity for 
the public to understand the specifics of any proposed approach with an 
opportunity to meaningfully comment. Accordingly, the commenter 
concluded, a new proposed rule would be required if the CFPB sought to 
pursue these ideas. Another industry trade association commenter stated 
that TILA does not authorize the CFPB to make the safe harbor subject 
to prerequisites or conditions, reasoning that if Congress intended to 
so limit card issuers' ability to use the safe harbor, it would have 
made any such prerequisites or conditions explicit in the statute or 
expressly granted the CFPB the authority to adopt such prerequisites or 
conditions. This commenter also expressed concern that a regulatory 
requirement that card issuers provide one or both of these options in 
order to rely on the safe harbor would limit issuer flexibility and 
increase compliance costs.
    With respect to autopay, industry commenters noted that most card 
issuers already offer an autopay option, as well as the option for 
mail-in payments, online payments, and phone payments. Some noted that 
many consumers prefer to pay by other means even when autopay is an 
option and may be concerned about maintaining control over the timing 
and amount of their payments in order to avoid nonsufficient funds 
(NSF) or overdraft fees. A credit union commenter expressed concern 
that requiring issuers to offer an autopay option could be especially 
burdensome for smaller credit unions. This commenter noted that because 
some smaller financial institutions must outsource an autopay service 
for members who opt in for automatic payments, requiring all credit 
unions to employ this service would be an added expense, which would 
ultimately force the smaller credit unions to pass these costs on to 
their

[[Page 19171]]

members. A card issuer commenter also noted that complying with such a 
requirement might well be beyond the capabilities and means of smaller 
issuers.
    With respect to additional notices, one industry trade association 
noted that issuers currently often send multiple proactive payment 
reminders prior to the payment due date across multiple channels, 
including through email, push notifications in an app, and prompting 
users when they log into their online account. Additionally, this 
commenter noted that email alerts may be sent each month when a credit 
card statement is generated, which includes the statement balance, 
minimum payment amount, due date, and links to other resources to 
answer questions customers may have related to the credit card program. 
This commenter further noted that consumers can also often set their 
own alerts, including payment due and credit card past due notices. 
While acknowledging that these alerts have had a positive impact on 
consumer behavior, this commenter asserted that the CFPB provided no 
data or evidence suggesting the effectiveness or ineffectiveness of 
these notifications and services; nor did it provide any evidence that 
additional notifications or services would reduce late payments or 
suggest alternative notifications or services that issuers should be 
employing.
    A card issuer commenter noted the relatively low take-up rate for 
the expanded alert registration system that it rolled out a part of the 
online account opening process a few years ago, whereby consumers are 
prompted to enroll and select which types of alerts they want to 
receive, if any. This commenter reported that even with all of those 
processes, reminders and ease of registration, the percentage of 
accounts that have selected payment alerts by type are 14.9 percent by 
text, 13.4 percent by email, and 1.5 percent by push notification 
(through mobile app). This commenter further stated that as it does not 
want to harass or create dissatisfaction for its customers, it is 
incredibly important to engage them when and how they want to be 
engaged. In addition, this commenter noted that each alert delivery 
method has its own legal implications as a result of Federal laws--such 
as the Telephone Consumer Protection Act (TCPA)--designed to protect 
consumers from unwanted communications. This commenter suggested that 
if the CFPB has determined that additional notifications are warranted, 
it should seek Congressional exceptions to the TCPA and other 
applicable laws, as well as the preemption of any applicable State 
laws.
    The CFPB declines to impose conditions on using the late fee safe 
harbor or on assessing late fees generally. The CFPB will continue to 
consider whether these additional regulatory requirements are 
appropriate.
    Extend $8 safe harbor amount to all penalty fees. Five industry 
commenters responded to the CFPB's request for comment on whether to 
extend the $8 safe harbor amount to all penalty fees, such as over-the-
limit fees, returned-payment fees, and declined access check fees. All 
opposed such an extension. None provided data on other penalty fees in 
response to the CFPB's request. In opposing the idea, industry 
commenters generally asserted that the 2023 Proposal lacked sufficient 
empirical evidence or legal justification for lowering the safe harbor 
amounts of all penalty fees. An industry trade association, for 
example, asserted that because the CFPB had not provided any reasoned 
justification for adjusting any other penalty fees, changes to other 
fees related to a credit card account would not be a logical outgrowth 
of the proposal and thus could not be finalized without notice and 
comment.
    Several consumer groups in a joint letter supported lowering the 
safe harbor amount for all penalty fees, expressing particular concern 
that card issuers will try to push cardholders into over-the-limit 
transactions. These commenters posited that while over-the-limit fees 
virtually disappeared because of the CARD Act's requirement that 
issuers must obtain the consumer's consent or opt in for over-the-limit 
transactions, that might not be a permanent condition. These commenters 
further noted that as can be seen from the experience for overdrafts in 
the early 2010s, banks are very good at overcoming the stickiness of 
defaults and getting consumers to opt in to a harmful product.
    The CFPB declines to extend the $8 safe harbor amount to all 
penalty fees or otherwise lower the safe harbor amounts of those fees. 
As discussed in part II.D, late fees are by far the most prevalent 
penalty fees charged by card issuers and as such pose the greatest 
consumer protection concerns at this time. Moreover, the CFPB's current 
data and other evidence primarily relate to late fees charged by Larger 
Card Issuers. For these reasons, the CFPB is not adopting the $8 late 
fee safe harbor amount to all penalty fees or otherwise lower the safe 
harbor amounts of those fees. As discussed in more details in the 
section-by-section analysis of Sec.  1026.52(b)(1)(ii)(A) and (B), this 
final rule adjusts the safe harbor threshold amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) for penalty fees other than late fees 
imposed by Larger Card Issuers pursuant to the annual adjustment 
provisions in Sec.  1026.52(b)(1)(ii)(D). The CFPB will monitor the 
market for any notable increases in the prevalence of other types of 
penalty fees, including over-the-limit fees.

52(b)(1)(ii)(A) and (B)

    The CFPB did not include in its 2023 Proposal the annually adjusted 
amounts for 2023 (effective for the year 2024) for Sec.  
1026.52(b)(1)(ii)(A) and (B) pursuant to Sec.  1026.52(b)(1)(ii)(D). 
The APA does not require notice and opportunity for public comment if 
an agency finds that notice and public comment are impracticable, 
unnecessary, or contrary to the public interest.\190\ Pursuant to this 
final rule, as discussed in more detail below, Sec.  
1026.52(b)(1)(ii)(A) and (B) and comment 52(b)(1)(ii)-2.i.J is added to 
update the threshold amounts. The amendments in this final rule 
adjusting the amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) are 
technical and non-discretionary, as they merely apply the method 
previously established in Regulation Z for determining adjustments to 
the thresholds. For these reasons, the CFPB has determined that 
publishing a notice of proposed rulemaking and providing opportunity 
for public comment are unnecessary. The amendments adjusting the 
amounts in Sec.  1026.52(b)(1)(ii)(A) and (B), discussed in more detail 
below, are adopted in final form.
---------------------------------------------------------------------------

    \190\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------

The Final Rule
    Section 1026.52(b)(1)(ii)(D) provides that amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) will be re-calculated annually using the 
CPI that was in effect on the preceding June 1; the CFPB uses the 
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-
W) for this adjustment. If the cumulative change in the adjusted value 
derived from applying the annual CPI-W to the current amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) has risen by a whole dollar, those amounts 
will be increased by $1.00. Similarly, if the cumulative change in the 
adjusted value derived from applying the annual CPI-W level to the 
current amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) has decreased by 
a whole dollar, those amounts will be decreased by $1.00.\191\
---------------------------------------------------------------------------

    \191\ See comment 52(b)(1)(ii)-2.
---------------------------------------------------------------------------

    The CFPB did not issue a final rule adjusting the amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) in 2022 for

[[Page 19172]]

adjustments with an effective date of January 1, 2023. This adjustment 
analysis therefore considers both the percentage change from April 2021 
to April 2022 and from April 2022 to April 2023 as reflected in the 
CPI-W index, which was reported by the Bureau of Labor Statistics on 
May 11, 2022, and May 10, 2023, respectively. The adjustment to the 
permissible fee thresholds of $32 for a first violation penalty fee and 
$43 for a subsequent violation being adopted in this final rule 
reflects an 8.9 percent increase in the CPI-W from April 2021 to April 
2022 and a 4.6 percent increase in the CPI-W from April 2022 to April 
2023. Accordingly, the CFPB is revising Sec.  1026.52(b)(1)(ii)(A) and 
(B) to state that the fee imposed for violating the terms or other 
requirements of an account shall not exceed $32 and $43, respectively. 
The CFPB is also amending comment 52(b)(1)(ii)-2.i to preserve a list 
of the historical thresholds for this provision. This final rule also 
makes technical changes to cross references in the heading for and 
lead-in paragraph in comment 52(b)(1)(ii)-2 to conform to OFR style 
requirements.

52(b)(1)(ii)(C)

    As noted above, the CFPB did not propose to lower the safe harbor 
amount of a late fee that card issuers may impose under the special 
rule in Sec.  1026.52(b)(1)(ii)(C) when a charge card account becomes 
seriously delinquent. For the reasons discussed below, the CFPB is not 
finalizing any substantive changes to the special rule, but it is 
finalizing certain technical changes to the provision and its 
commentary.
The CFPB's Proposal
    Under the special rule Sec.  1026.52(b)(1)(ii)(C), a card issuer 
may impose a fee of 3 percent of the delinquent balance on a charge 
card account that requires payment of outstanding balances in full at 
the end of each billing cycle if the card issuer has not received the 
required payment for two or more consecutive billing cycles. This safe 
harbor provision, as discussed above, is intended to provide charge 
card issuers with more flexibility to charge higher late fees and 
thereby manage credit risk when an account becomes seriously 
delinquent, because charge card issuers do not apply an APR to the 
account balance and therefore cannot respond to serious delinquencies 
by increasing that rate, as other card issuers can. For clarity, the 
CFPB proposed to amend the special rule to provide that card issuers 
may impose a fee on a charge card account in those circumstances 
notwithstanding the limitation on the amount of a late payment fee in 
proposed Sec.  1026.52(b)(1)(ii). In addition, the CFPB proposed to 
amend comment 52(b)(1)(ii)-3, which provides illustrative examples of 
the application of Sec.  1026.52(b)(1)(ii)(C). The 2023 Proposal would 
have amended these examples to use a $8 late fee amount, consistent 
with the proposed changes to the late fee safe harbor amount in 
proposed Sec.  1026.52(b)(1)(ii). The 2023 Proposal also would have 
amended a cross reference contained in comment 52(b)(1)(ii)-3.iii so 
that it would correctly reference paragraph i.
Comments Received
    The CFPB received one comment on its preliminary decision not to 
propose lowering the safe harbor amount of a late fee that card issuers 
may impose under the special rule in Sec.  1026.52(b)(1)(ii)(C). In 
that comment, several consumer groups jointly urged the CFPB to revise 
the special rule to explicitly state that it is only applicable if 
there is no possibility of interest being charged on a balance for the 
account, given that the lack of interest rate applied to charge card 
balances is the rationale for the special rule. The commenters noted 
that there appear to be no traditional charge cards left on the market 
that do not charge interest at all. The commenters further noted their 
concern that without the suggested revision, issuers will start 
offering a ``charge card balance'' feature on credit cards in order to 
take advantage of the ability to impose late fees of three percent of 
the balance. The CFPB declines to adopt the recommended clarification 
because it is unnecessary. Section 1026.2(a)(15)(iii) defines a charge 
card as a credit card on an account for which not periodic rate (i.e., 
interest) is used to compute a finance charge. Thus, a credit card that 
charges interest on balances is not a charge card by definition--and 
therefore does not qualify for the special rule in Sec.  
1026.52(b)(1)(ii)(C)--regardless of how the card issuer labels or 
markets that card.
The Final Rule
    For the reasons discussed above and below, the CFPB is adopting as 
proposed revisions to the special rule Sec.  1026.52(b)(1)(ii)(C) 
regarding the safe harbor amount that card issuers may impose when a 
charge card account becomes seriously delinquent. Accordingly, the CFPB 
has determined not to lower that particular late fee amount. 
Specifically, the revisions clarify that card issuers may impose a fee 
on a seriously delinquent charge card account notwithstanding the 
limitation on the amount of a late payment fee in Sec.  
1026.52(b)(1)(ii). This clarification is necessary because, as 
discussed above, the CFPB is finalizing amendments to Sec.  
1026.52(b)(1)(ii) for Larger Card Issuers that repeal the current safe 
harbor threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) as they 
apply to late fees charged by Larger Card Issuers and set a late fee 
safe harbor threshold amount of $8 for the first and subsequent 
violations for Larger Card Issuers. As noted in the proposal, charge 
card issuers do not apply an APR to the account balance and therefore 
cannot respond to serious delinquencies by increasing that rate, as 
other card issuers can. The CFPB determines that preserving the special 
rule's current safe harbor amounts is necessary and appropriate to 
provide charge card issuers with more flexibility to charge higher late 
fees and thereby manage credit risk resulting from seriously delinquent 
accounts.
    The CFPB also is adopting amendments to comment 52(b)(1)(ii)-3, 
which provides illustrative examples of the application of Sec.  
1026.52(b)(1)(ii)(C), substantially as proposed. Specifically, an 
amendment to comment 52(b)(1)(ii)-3 clarifies that the card issuer in 
the examples is not a Smaller Card Issuer as defined in Sec.  
1026.52(b)(3). This final rule also amends the examples to use a $8 
late fee amount, consistent with the changes to the late fee safe 
harbor amount in Sec.  1026.52(b)(1)(ii). In addition, this final rule 
amends the cross reference in comment 52(b)(1)(ii)-3.iii so that it 
correctly references paragraph i. This final rule also makes a 
technical change to a cross reference in comment 52(b)(1)(ii)-3.ii to 
conform to OFR style requirements.

52(b)(1)(ii)(D)

    Section 1026.52(b)(1)(ii)(D) provides that the dollar safe harbor 
amounts for penalty fees set forth in Sec.  1026.52(b)(1)(ii)(A) and 
(B) will be adjusted annually by the CFPB to reflect the changes in the 
CPI. The Board included this provision in its Regulation Z, Sec.  
226.52(b)(1)(ii)(D) as part of its 2010 Final Rule where it determined 
that changes in the CPI, while not a perfect substitute, would be 
``sufficiently similar to changes in issuers' costs and the deterrent 
effect of the safe harbor amounts.'' \192\ In reaching this 
determination, the Board rejected commentators' arguments that the 
Board should adjust the safe harbor amounts as appropriate through 
rulemaking

[[Page 19173]]

because the Board believed that this approach would be 
inefficient.\193\
---------------------------------------------------------------------------

    \192\ 75 FR 37526 at 37543.
    \193\ Id.
---------------------------------------------------------------------------

The CFPB's Proposal
    The CFPB proposed to no longer apply the annual adjustments to the 
safe harbor amount for late fees. The 2023 Proposal would have 
accomplished this by including the $8 proposed late fee safe harbor 
amount in the lead in text to Sec.  1026.52(b)(1)(ii), instead of 
including it in Sec.  1026.52(b)(1)(ii)(A) or (B). Thus, Sec.  
1026.52(b)(1)(ii)(D), which only applies the annual adjustments to the 
dollar safe harbor amounts in Sec.  1026.52(b)(1)(ii)(A) and (B), would 
have no longer applied to the late fee safe harbor amount. The CFPB 
proposed one technical change to the cross reference to Sec.  
1026.52(b)(1)(ii)(A) and (B) used in Sec.  1026.52(b)(1)(ii)(D) to 
conform to OFR style requirements. In addition, for clarity, the 2023 
Proposal would have amended the lead-in paragraph in comment 
52(b)(1)(ii)-2 to indicate that the annual adjustments in Sec.  
1026.52(b)(1)(ii)(D) do not apply to late fees. Under the proposal, 
Sec.  1026.52(b)(1)(ii)(D) would have continued to apply to the dollar 
amount safe harbor amounts that apply to other penalty fees, such as 
over-the-limit fees, and returned-payment fees. With respect to the 
dollar amount of the late fee safe harbor, the CFPB would have then 
monitored the safe harbor amount for late fees for potential 
adjustments as necessary.
    The CFPB noted that to reflect changes in the CPI, annual or 
otherwise, are not statutorily required. TILA section 149, however, 
does statutorily require that any late payment fee or any other penalty 
fee or charge, must be ``reasonable and proportional'' to such omission 
or violation. When the Board determined that the dollar safe harbor 
amounts for penalty fees should be subjected to annual adjustments, it 
did not expressly consider the effect such adjustments may have on the 
reasonableness and proportionality of the late payment fee (or any 
other penalty fee). The Board also did not provide any other data or 
evidence to support these adjustments as necessary. Instead, the Board 
summarily stated that annual adjustments would be ``sufficiently 
similar to changes in issuers' costs and the deterrent effect of the 
safe harbor amounts'' \194\ and also considered efficiency, which is 
not statutorily required. The Board did not go into further details on 
why annual adjustments would be similar to changes in issuers' costs 
and the deterrent effect of the safe harbor amounts.
---------------------------------------------------------------------------

    \194\ Id.
---------------------------------------------------------------------------

    In the proposal, the CFPB analyzed relevant data from certain 
Larger Card Issuers that were not available to the Board to take into 
consideration the statutorily mandated reasonable and proportional 
standard by considering the costs incurred as a result of the violation 
in determining whether a fee amount is reasonable and proportional. The 
CFPB, based on these data, preliminarily determined that annual 
adjustments based on the CPI are not necessarily reflective of how the 
cost of late payment to issuers changes over time and, therefore, may 
not reflect the ``reasonable and proportional'' standard in the 
statute. The proposal stated that while Larger Card Issuers' costs do 
appear to be trending up, it does not appear that they are doing so 
lockstep with inflation particularly when considering the month-to-
month changes in inflation versus costs. Additionally, there are 
factors outside of inflation that may impact when issuers' cost goes up 
and by how much. Figure 3 below shows monthly per-account collection 
costs in the Y-14 collection (for all consumer portfolios with positive 
costs that month, solid line) and the Consumer Price Index for all 
Urban Consumers (CPI-U) price index since 2013 (dashed). Given that the 
costs fluctuate more than the price level, the CFPB preliminarily 
determined that any overarching trend in costs is better dealt with 
through ad hoc adjustments when the safe harbor amounts are revisited.
[GRAPHIC] [TIFF OMITTED] TR15MR24.003

    Thus, in the 2023 Proposal, the CFPB considered the cost incurred 
as a result of a late payment violation and preliminarily determined 
that the proposal was more aligned with Congress' intent for late fees 
to be reasonable and proportional than the current provision which 
requires the CFPB to adjust the safe harbor amounts to reflect changes 
in the CPI regardless of what the exact changes are, if any, in actual 
costs incurred by the card issuer.
    As noted above, the Board also briefly considered deterrence and 
efficiency when making the determination to implement annual 
adjustments to reflect changes in the CPI. In the 2023 Proposal, the 
CFPB preliminarily determined that deterrence should not be the driving 
factor in whether the late fee safe harbor amount should be adjusted 
annually according to the CPI, nor should it outweigh considerations of 
issuers' costs. The CFPB noted while it

[[Page 19174]]

is possible for the deterrent effect of the safe harbor amount to be 
eroded year-to-year with inflation, there are three overriding 
considerations as to why that does not necessarily mean there should be 
annual adjustments to reflect changes in the CPI. First, the CFPB 
preliminarily determined that it does not intend to tightly peg the 
deterrent effect to a specific value and recognizes there may be a 
range of values under which the deterrent effect would be suitable. The 
CFPB preliminarily determined that the deterrence of the proposed safe 
harbor amount was sufficiently high so that the CFPB was not concerned 
by the lesser deterrence of a potentially eroded real value under 
realistic trajectories for medium-term inflation before any potential 
readjustment could be put in effect. Second, similar to the analysis of 
collection costs above, the CFPB preliminarily found that the deterrent 
effect does not move in lockstep with the CPI. Third, the CFPB 
preliminarily determined that the CFPB monitors the market so, under 
the proposal, the CFPB would have been able to adjust the safe harbor 
amount on an ad hoc basis based on this monitoring, at which point the 
CFPB would have again considered the deterrent effect when promulgating 
a new safe harbor amount. While TILA section 149 authorizes the CFPB to 
consider other factors that the CFPB deems necessary and appropriate in 
issuing rules to establish standards for assessing whether the amount 
of any penalty fee is reasonable and proportional, the CFPB 
preliminarily determined that consideration of costs incurred, and the 
deterrent effect, outweigh consideration of efficiency to help ensure 
that late fee amounts are reasonable and proportional.
    The CFPB solicited comment on the proposal to eliminate the annual 
adjustments to reflect changes in the CPI for the late fee safe harbor 
amount, including data and evidence as to why the adjustment may or may 
not reflect the reasonable and proportional standard. The CFPB also 
sought comment on potential future monitoring or other approaches to 
ensure that the late fee amount is consistent with the reasonable and 
proportional standard. The CFPB also solicited comments on whether 
annual adjustments to reflect changes in the CPI should be eliminated 
for all other penalty fees subject to Sec.  1026.52(b), including over-
the-limit fees, returned-payment fees, and declined access check fees.
Comments Received
    A few individual commenters, a credit union, and two financial 
regulatory advocacy groups expressed support for the CFPB's proposal to 
no longer apply the annual adjustments to the safe harbor amount for 
late fees. Both the regulatory advocacy groups along with one 
individual supported the CFPB's analysis that collection costs do not 
increase in lockstep with the cost of living. One of the regulatory 
advocacy groups did, however, urge the CFPB to consider that reducing 
the safe harbor amount to $8 and eliminating future annual adjustments 
for late fees could cause card issuers to reduce their minimum payment 
formula or maintain minimum payments at a lower amount than would 
otherwise be expected.
    As discussed in more detail below, many banks and credit unions, a 
few industry trade associations, and a few individuals expressed 
concerns with the CFPB's proposal to no longer apply the annual 
adjustments to the safe harbor amount for late fees.
    Relationship to costs incurred by financial institutions. Several 
banks and credit unions and industry trade associations, and a few 
individual commenters, expressed concerns that elimination of annual 
adjustments to reflect changes in the CPI for late fees would 
eventually cause card issuers' costs to outpace the safe harbor amount. 
One industry trade association explained that this in turn would 
effectively reduce the safe harbor amount over time and, as a few 
commenters indicated, ``quickly'' reduce the real value of the safe 
harbor amount to $0. A credit union and several industry trade 
associations specifically indicated that costs associated with 
collection (e.g., wage and utility increases and postage costs) will 
rise due to inflation and if the safe harbor is not annually adjusted 
for inflation, then the safe harbor amount will no longer be reasonable 
and proportional to costs incurred by card issuers from consumers 
paying late.
    A bank and two trade associations argued that if the late fee is no 
longer reasonable and proportional to costs due to the elimination of 
annual adjustments then card issuers would experience financial strain 
which could lead to increased consumer fees and reductions in customer 
service, technology, and access to credit for lower income consumers.
    Inflation adjustments used in other financial regulations. A few 
banks and credit unions and several industry trade associations 
highlighted that annual inflation adjustments are commonly used in 
other financial regulations under the authority of the CFPB. For 
example, a few of the trade associations pointed out that the Federal 
Civil Penalties Inflation Adjustment Act of 1990 requires the CFPB to 
adjust for inflation the maximum amount of each civil penalty within 
the CFPB's jurisdiction. One trade association also specifically 
highlighted the CFPB's recent regulation implementing section 1071 of 
the Dodd-Frank Act contained an inflation adjustment, which will occur 
every five years, for the revenue threshold for covered small 
businesses.
    Monitoring for adjustments. A few individual commenters and trade 
associations cautioned the CFPB against manually monitoring the market 
for adjustments as it would be time-consuming for the CFPB, burdensome 
for both the CFPB and the financial industry, create uncertainty, and 
provides little consolation for eliminating the annual adjustments.
    Alternative suggestions. A bank and a few industry trade 
associations provided the CFPB with alternative suggestions to 
eliminating the annual adjustment. One bank commenter urged the CFPB to 
consider providing for an inflation adjustment that takes place every 
few years, instead of annually, similar to Regulation CC, 12 CFR part 
229. A credit union trade association requested that the CFPB consider 
a required reevaluation of the safe harbor amounts every two years to 
determine whether an increase is appropriate. Finally, another industry 
trade association further urged, if the final rule included the 
elimination of the annual adjustment, that the CFPB consider clarifying 
how it would address adjustments and provide a date by which the annual 
adjustments would no longer be in effect, preferably two years after 
the implementation of the final rule.
    Specific data provided. Two individuals and a law firm representing 
several card issuers provided the CFPB with specific data related to 
the CFPB's proposal to no longer apply the annual adjustments to the 
safe harbor amount for late fees. The law firm adjusted the proposed $8 
to reflect the amount it would have been in 2010 and states that the 
late fee would be approximately $5.74 which is substantially less than 
what consumer groups were proposing to the Board in its 2010 
rulemaking. One individual commenter provided the CFPB with a chart 
showing that the real value of the CFPB's $8 proposed late fee amount 
would be cut in half in 10 years at the current inflation rate. The 
other individual commenter indicated that holding safe harbor steady 
would have resulted in the safe harbor declining by 15 percent in real 
terms since the beginning of 2020.
    Two bank commenters and an industry trade association commenter

[[Page 19175]]

expressed concerns in response to the CFPB's solicitation of comments 
on whether the CFPB's proposal to no longer apply the annual 
adjustments to the safe harbor amount for late fees should apply to all 
other credit card penalty fees. One bank and one industry trade 
association were generally concerned that extending the proposal to 
other penalty fees was not adequately addressed or analyzed in the 
CFPB's 2023 Proposal and therefore should not be considered as a part 
of the final rule. Another bank commenter indicated that, just like 
late fees, the elimination of annual adjustments to reflect changes in 
the CPI should not apply to other credit card penalty fees because the 
cost of everything goes up with time.
The Final Rule
    For reasons set forth herein, the CFPB is adopting the amendment as 
proposed for Larger Card Issuers as that term is used in this document 
(i.e., card issuers except Smaller Card Issuers as defined in Sec.  
1026.52(b)(3)). The CFPB is effectuating this in this final rule by 
including the $8 late fee safe harbor amount in the lead in text to 
Sec.  1026.52(b)(1)(ii), instead of including it in Sec.  
1026.52(b)(1)(ii)(A) or (B). With respect to Smaller Card Issuers, this 
final rule is adding Sec.  1026.52(b)(1)(ii)(E) to provide that a 
Smaller Card Issuer, as defined in Sec.  1026.52(b)(3), may impose a 
fee for a late payment on an account if the dollar amount of the fee 
does not exceed the amount in Sec.  1026.52(b)(1)(ii)(A) or (B), as 
applicable, notwithstanding the limitation on the amount of a late 
payment fee in the lead-in text to Sec.  1026.52(b)(1)(ii). The CFPB is 
retaining Sec.  1026.52(b)(1)(ii)(D), with one technical change to the 
cross reference to Sec.  1026.52(b)(1)(ii)(A) and (B) used in Sec.  
1026.52(b)(1)(ii)(D) to conform to OFR style requirements. As such, it 
still provides that the amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) 
will be adjusted annually by the CFPB to reflect changes in the CPI. 
Therefore, with regard to late fees, the amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B), which are subject to the annual 
adjustments found in Sec.  1026.52(b)(1)(ii)(D), apply only to Smaller 
Card Issuers. The CFPB is not adopting the proposed amendment to the 
lead-in paragraph in comment 52(b)(1)(ii)-2 to indicate that the annual 
adjustments in Sec.  1026.52(b)(1)(ii)(D) do not apply to late fees 
because under this final rule annual adjustments in Sec.  
1026.52(b)(1)(ii)(D) are still applicable to late fees for Smaller Card 
Issuers.
    In eliminating the annual adjustments for Larger Card Issuers, the 
CFPB is not persuaded by the commenters who expressed concerns that by 
doing so card issuer costs would outpace the safe harbor amount and 
late fees assessed at the safe harbor would not be reasonable and 
proportional to card issuers' costs. The CFPB understands that Larger 
Card Issuers' costs do not appear to be rising lockstep with inflation 
particularly when considering the month-to-month changes in inflation 
versus costs based on the Y-14 data. Figure 3 above, which was also 
provided in the 2023 Proposal, illustrates that monthly per-account 
collection costs in the Y-14 collection (for all consumer portfolios 
with positive costs that month) and the CPI-U price index since at 
least 2013 have not fluctuated at the same rate. The CFPB has also 
included Figure 4 below demonstrating that, like the CPI-U, monthly 
per-account collection costs in the Y-14 collection (for all consumer 
portfolios with positive costs that month) and the CPI-W price index 
since at least 2013 have not fluctuated at the same rate.\195\ The CFPB 
is also not persuaded by commenters who suggested alternatives to the 
2023 Proposal including that the CFPB adjust the safe harbor amounts in 
different increments of time such as every 2 or 5 years. The CFPB has 
determined that just like annual adjustments, issuers' costs do not 
trend up in lockstep with inflation even if the adjustments occurred in 
different increments of time.
---------------------------------------------------------------------------

    \195\ In the 2023 Proposal, the CFPB incorrectly compared 
monthly per-account collection costs in the Y-14 collection to the 
CPI-U price index. The CFPB adjust the amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) to the CPI-W not the CPI-U. However, 
the discrepancy does not impact the CFPB's overall analysis because, 
as shown in Figure 4, like Figure 3, the monthly per-account 
collection costs do not move in lockstep with the CPI-W price index.

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[[Page 19176]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.004

    The CFPB has further considered and determined that deterrence is 
not a driving factor in whether the late fee safe harbor amount should 
be annually adjusted according to the CPI, nor should it outweigh 
considerations of issuers' costs. The CFPB acknowledges that it is 
possible for the deterrent effect of the safe harbor amount to be 
eroded year-to-year with inflation. However, the CFPB has determined 
that (1) it does not intend to tightly peg the deterrent effect to a 
specific value and recognizes there may be a range of values under 
which the deterrent effect would be suitable; further, the deterrence 
of the $8 safe harbor amount is sufficiently high so that the CFPB is 
not concerned by the lesser deterrence of a potentially eroded real 
value under realistic trajectories for medium-term inflation before any 
potential readjustment could be put in effect; (2) the deterrent effect 
does not move in lockstep with the CPI; and (3) the CFPB monitors this 
market and will continue to do so in order to, among other things, 
consider the deterrent effect when promulgating a new safe harbor 
amount when making adjustments to the safe harbor amount on an ad hoc 
basis. The CFPB acknowledges commenters who highlighted that the CFPB 
adjusts for inflation in other regulations, but here, the CFPB is not 
statutorily required to make annual adjustments like it is in certain 
other statutes such as the Federal Civil Penalties Inflation Adjustment 
Act of 1990 and the Fair Credit Reporting Act. Instead, when 
considering the appropriate safe harbor amount the CFPB is guided by 
certain statutory factors it has considered here such as costs to 
issuers and deterrence.
    Given that the costs fluctuate more than the price level and any 
erosion in deterrence should not outweigh consideration of issuers' 
costs, that CFPB has determined that any overarching trend in costs and 
other factors that affect whether the late fee safe harbor amount is 
reasonable and proportional for Larger Card Issuers is better dealt 
with through ad hoc adjustments when the safe harbor amounts are 
revisited.
    The CFPB also acknowledges commenters who provided concerns and 
specific data about the effect eliminating the annual adjustments could 
have on the real value of the safe harbor amount. For example, some 
industry commenters expressed concerns that the real value of the safe 
harbor amount would ``quickly'' be reduced to $0. A law firm 
representing several card issuers adjusted the $8 safe harbor to 
reflect the amount it would have been in 2010 which would have been 
approximately $5.74. An individual commenter showed that the $8 amount 
would be cut in half in 10 years at the current inflation rate. A 
different individual commenter indicated that holding the safe harbor 
steady would have resulted in the safe-harbor cap declining by 15 
percent in real terms since the beginning of 2020. Although the CFPB 
acknowledges the real value of the safe harbor could decline with time 
(1) it would not happen as quickly as commenters suggested; for 
example, it would have taken 53 years to erode a nominal $8 set over 
the summer of 1970 to $1 and (2) because erosion would not occur 
quickly, the CFPB maintains that monitoring the market for any such 
erosion and making ad hoc adjustments as needed is appropriate.
    The CFPB further acknowledges comments that expressed concerns that 
manually monitoring the market and making ad hoc adjustments would be 
burdensome to the CFPB and card issuers. The CFPB is obligated to 
monitor \196\ and report \197\ on the credit card market and any ad hoc 
adjustments would necessarily be implemented in a way that provide 
notice to card issuers of any changes.
---------------------------------------------------------------------------

    \196\ 12 U.S.C. 5512(c).
    \197\ 15 U.S.C. 1616(a).
---------------------------------------------------------------------------

    As discussed in more detail in part VI, the CFPB acknowledges 
commenters that expressed concerns surrounding the impact eliminating 
the annual adjustments may have on credit unions and small card 
issuers. Also as discussed in more detail in part VI, the CFPB is not 
amending Sec.  1026.52(b) in this final rule to eliminate annual 
adjustments to the safe harbor threshold

[[Page 19177]]

amounts available to Smaller Card Issuers.
    The CFPB received only a few responses to its request for comment 
on whether the elimination of the annual adjustments should be applied 
to all penalty fees covered by Sec.  1026.52(b). The few commenters 
that did express concern highlighted that they were generally concerned 
extending the proposal to other penalty fees was not adequately 
addressed or analyzed in the CFPB's 2023 Proposal and that, just like 
late fees, the elimination of annual adjustments to reflect changes in 
the CPI should not apply to other credit card penalty fees because the 
cost of everything goes up with time. Although the CFPB rejects the 
broad notion that the cost of everything goes up with time, it has 
declined to adopt the elimination of the annual adjustments for all 
other credit card penalty fees covered by Sec.  1026.52(b) because at 
this time the CFPB does not have the same in-depth data to base its 
decision as it does with late fees.

52(b)(1)(ii)(E)

    As discussed in part VI, with respect to Smaller Card Issuers as 
defined in Sec.  1026.52(b)(3), the CFPB is not adopting at this time 
the $8 late fee safe harbor threshold and the elimination of the higher 
late fee safe harbor amount for subsequent violations. In addition, as 
discussed in part VI and in the section-by section analysis of Sec.  
1026.52(b)(1)(ii)(D), with respect to Smaller Card Issuers, the CFPB 
also is not adopting the proposed elimination of the annual adjustments 
for the late fee safe harbor threshold.
    Accordingly, the CFPB is adopting a new Sec.  1026.52(b)(1)(ii)(E) 
to implement those decisions. Specifically, Sec.  1026.52(b)(1)(ii)(E) 
provides that a Smaller Card Issuer, as defined in Sec.  1026.52(b)(3), 
may impose a fee for a late payment on an account if the dollar amount 
of the fee does not exceed the safe harbor amount in Sec.  
1026.52(b)(1)(ii)(A) or (B), as applicable, notwithstanding the $8 
limitation on the amount of a late fee in the lead-in text to Sec.  
1026.52(b)(1)(ii). Thus, Smaller Card Issuers as defined in this final 
rule may continue imposing a late fee pursuant to the safe harbor in an 
amount that does not exceed the amount in Sec.  1026.52(b)(1)(ii)(A) 
for a first violation or the amount in Sec.  1026.52(b)(1)(ii)(B) for a 
late payment violation that occurs during the same billing cycle or one 
of the next six billing cycles. Further, because the penalty fee dollar 
amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) are adjusted annually to 
reflect changes in the CPI as described in Sec.  1026.52(b)(1)(ii)(D), 
late fees imposed by Smaller Card Issuers pursuant to Sec.  
1026.52(b)(1)(ii)(A) and (B) also will be adjusted annually. The CFPB 
determines that adopting these separate late fee safe harbor provisions 
for Smaller Card Issuers is necessary and appropriate for the reasons 
set forth in part VI.
    The CFPB also is adopting a new comment 52(b)(1)(ii)-4 explaining 
the late fee safe harbor provision for Smaller Card Issuers in Sec.  
1026.52(b)(1)(ii)(E). The comment explains that pursuant to the 
provision, and assuming that the original historical safe harbor 
threshold amounts apply, a Smaller Card Issuer may impose a late fee of 
$25 for a first late payment violation under Sec.  1026.52(b)(1)(ii)(A) 
and a late fee of $35 for a late payment violation that occurs during 
the same billing cycle or one of the next six billing cycles under 
Sec.  1026.52(b)(1)(ii)(B), provided that those amounts are consistent 
with the prohibitions in Sec.  1026.52(b)(2). The CFPB is adopting 
comment 52(b)(1)(ii)-4 to facilitate compliance.

52(b)(2) Prohibited Fees

    As previously discussed, a card issuer must not impose a fee for 
violating the terms or other requirements of a credit card account 
under an open-end (not home-secured) consumer credit plan unless the 
dollar amount of the fee is consistent with Sec.  1026.52(b)(1) and 
(2). Section 1026.52(b)(2) provides certain circumstances where fees 
are prohibited. Specifically, Sec.  1026.52(b)(2) prohibits (1) fees 
that exceed the dollar amount associated with the violation; and (2) 
multiple fees based on a single event or transaction.
    In the 2023 Proposal, the CFPB considered whether to require a 
courtesy period, which would have prohibited late fees imposed within 
15 calendar days after each payment due date and be applicable only to 
late fees assessed if the card issuer uses the safe harbor or 
alternatively, applicable to all late fees generally (regardless of 
whether the card issuer assesses late fees pursuant to the safe harbor 
amount set forth in Sec.  1026.52(b)(1)(ii) or the cost analysis 
provisions set forth in Sec.  1026.52(b)(1)(i)). The CFPB had 
preliminary determined that it may be appropriate that the late fee 
amount essentially be $0 during the courtesy period because card 
issuers may not incur significant costs to collect late payments 
immediately after a late payment violation.
    Further, the 2023 Proposal noted that given that the late payments 
may be caused by problems with unavoidable processing delays, the 
implementation of a courtesy period also would be consistent with 
considerations of consumer conduct and deterrence, since, in these 
circumstances, the consumer attempted to pay timely. To the extent card 
issuers face increased cost from this 15-day courtesy period, the CFPB 
also noted that issuers have options that may not have been as readily 
available at the time of the Board's 2010 Final Rule to encourage 
timely payment, like sending notifications to consumers to warn them of 
payment due dates or facilitating automatic payment.
    The CFPB solicited comments on whether Sec.  1026.52(b)(2) should 
be amended to provide for a courtesy period which would prohibit late 
fees imposed within 15 calendar days after each payment due date. The 
CFPB additionally solicited comment on whether, if a 15-day courtesy 
period was required, the courtesy period should be applicable only to 
late fees assessed if the card issuer is using the late fee safe harbor 
amount (in which case Sec.  1026.52(b)(1)(ii) would have been amended 
instead of Sec.  1026.52(b)(2)) or alternatively, if the courtesy 
period should be applicable generally (regardless of whether the card 
issuer assesses late fees pursuant to the safe harbor amount set forth 
in Sec.  1026.52(b)(1)(ii) or the cost analysis provisions set forth in 
Sec.  1026.52(b)(1)(i)). The CFPB also solicited comment, as well as 
data, on whether a courtesy period of fewer or greater than 15 days may 
have been appropriate.
    The CFPB noted that the alternative of applying a 15-day courtesy 
period only to use of the safe harbor late fee amount may have certain 
unintended effects on the possible late fee amounts assessed under the 
cost analysis provisions. To illustrate, using the Y-14 data, the CFPB 
estimated that a 15-day courtesy period tied to the proposed $8 safe 
harbor would cut the incidence of consumers charged the proposed $8 
safe harbor amount by as much as half. This would have caused card 
issuers who use the proposed $8 safe harbor amount to recover as much 
as half of what they would have recovered if a 15-day courtesy period 
was not required. Card issuers who use the proposed $8 safe harbor 
amount, therefore, would have recovered an average of $4 in late fees 
per late payment. On the other hand, card issuers that opted to use the 
cost analysis provisions to assess late fees would not have been 
required to provide a 15-day courtesy period. This could have resulted 
in an outcome where card issuers who used the cost

[[Page 19178]]

analysis provisions to determine the late fee amount could charge a 
late fee that is less than the proposed $8 safe harbor amount, for 
example $6, but still, on average, collect more in total late fees than 
if they had charged the proposed $8 late fee amount. In this example, 
card issuers could have charged $6 on 100 percent of incidences, 
whereas if they had used the proposed $8 safe harbor amount, they could 
have only charged the proposed $8 on approximately half of the 
incidences. This could have led to a scenario where consumers who are 
subject to late fees determined by the cost analysis provisions may 
have been assessed a lower late fee amount than the proposed $8 late 
fee safe harbor amount but would have been charged a late fee more 
frequently than consumers who were subject to the late fee safe harbor 
amount.
    The CFPB additionally solicited comments on whether a 15-day 
courtesy period should apply to the other penalty fees that are subject 
to Sec.  1026.52(b), including over-the-limit fees and returned-payment 
fees, and if so, why it would be appropriate to apply a 15-day courtesy 
period to these other penalty fees. The proposal inquired, for example, 
should the CFPB provide consumers with (1) 15 calendar days after the 
billing cycle ends to bring the balance below the credit limit to avoid 
being charged an over-the-limit fee; and (2) 15 calendar days after 
each due date to make the required periodic payment to avoid a 
returned-payment fee if a payment has been returned. With respect to 
declined access checks, the CFPB solicitated comment on whether a 15-
day courtesy period is appropriate and if so, how should it be 
structured.
Comment Received
    Support for late fee courtesy period. Many consumer groups in a 
joint letter, two credit union commenters, two individual commenters, 
and an industry trade association expressed support in response to the 
CFPB's solicitation of comments on whether Sec.  1026.52(b)(2) should 
be amended to provide for a courtesy period which would prohibit late 
fees imposed within 15 calendar days after each payment due date. The 
consumer groups provided the CFPB with multiple reasons why it would 
support a 15-day courtesy period including it would prevent abuses that 
cause consumers from being trapped into incurring late fees, other 
payment obligations require a courtesy period before late fees can be 
imposed, and industry convention shows that, with regards to risk 
management, payments within 30 days of a due date should not be 
considered late. The consumer groups urged the CFPB to apply a 15-day 
courtesy period to when card issuers use the safe harbor amount or the 
cost analysis provision. The consumer groups indicated that late fees 
imposed using the cost analysis provision are likely to be higher than 
the safe harbor amount and thus card issuers may be inclined to trigger 
late fees more frequently.
    An individual commenter indicated that a courtesy period for 
payments would help consumers who mail in their payments to not be 
penalized for any payment that is late due to issues with mail 
delivery.
    Two credit unions and a trade association highlighted that many 
credit unions and other card issuers currently offer consumers a 
courtesy period. The trade association specifically noted that courtesy 
periods more appropriately help consumers who may barely miss the 
minimum payment due date than a staggered late fee schedule. A credit 
union commenter specifically noted that a 15-day-or-less courtesy 
period was preferable to any additional notification requirements 
because notifications run the risk of confusing consumers.
    Opposition to late fee courtesy period. Several banks and credit 
unions, several trade associations, and two individual commenters 
expressed opposition to the CFPB's solicitation for comments on whether 
Sec.  1026.52(b)(2) should be amended to provide for a courtesy period 
which would prohibit late fees imposed within 15 calendar days after 
each payment due date.
    Several banks and credit unions, an industry trade association, and 
an individual commenter indicated that a 15-day courtesy period was not 
necessary because card issuers are already required to provide 
consumers with a periodic statement at least 21 days prior to the 
payment due date disclosed on the statement which puts consumers on 
notice when the payment is due and gives consumers enough time to then 
timely make the required payment. Many of these commenters indicated 
that this 21-day timeframe is akin to a courtesy period.
    Two industry trade associations indicated that a courtesy period 
would contradict, and thus could not be implemented by a card issuer, 
Sec.  1026.5(b)(2)(ii)(A)'s requirement that periodic statement be 
mailed or delivered at least 21 days prior to the payment due date 
disclosed on the statement. The commenters noted that statutorily a 
card issuer is permitted to treat payments not received by the due date 
as late immediately so long as the consumer was sent a periodic 
statement at least 21 days before the payment is due. The commenters 
believe that a courtesy period runs in contradiction to the ability to 
treat a payment late immediately.
    A bank and a credit union indicated that available payment methods 
provided by card issuers aid and ensure consumers make timely payments.
    Many banks and credit unions and industry trade associations, a law 
firm representing several card issuers, and a financial regulatory 
advocacy group expressed concerns about the potential negative impacts 
a 15-day courtesy period may have on consumers.
    Many of these commenters indicated that a 15-day courtesy period 
would generally cause consumer confusion because there would now be a 
minimum payment due date and a date by which a late fee may be 
incurred. Many of these commenters further specified that consumers 
would be confused about when their payment was actually due or that 
consumers may be confused by what consequences are triggered by missing 
the minimum payment on the due date versus paying it within the 15-day 
courtesy period. For example, one credit union expressed concern that a 
consumer may not be aware that making a payment within the 15-day 
courtesy period but after the minimum payment due date could still 
negatively impact the consumer's credit score. An industry trade 
association indicated that consumers may not be aware that they could 
lose the grace period on purchases by not making a payment by the 
minimum payment due date but within the 15-day courtesy period.
    Two trade associations and a financial regulatory advocacy group 
specifically expressed concerns about the potential confusion 
surrounding the principal payment and interest accrual. These 
commenters generally indicated that consumers may not be aware that 
their payment is actually due on the payment due date and not 15 days 
thereafter and that interest may continue to accrue between the due 
date and the end of the courtesy period. An industry trade association 
indicated it would be difficult to develop a disclosure that accurately 
informs consumers that the courtesy period applies to a late fee but 
other negative consequences, like interest accrual, would still occur 
even if the consumer paid within the 15-day period. A financial 
regulatory advocacy group also expressed concerns that disclosures 
would be more confusing because it would include both a minimum payment 
due date and a different date to avoid incurring a late fee.
    Several of these industry commenters cautioned the CFPB that a 15-
day

[[Page 19179]]

courtesy period would lessen the deterrence effect and negatively alter 
consumers' payment habits by encouraging late payments. However, a bank 
did indicate that there is little evidence proving that a courtesy 
period would alter consumer payment habits.
    Several industry trade associations, two banks, and one financial 
regulatory advocacy group expressed concerns that a 15-day courtesy 
period would cause negative impacts for card issuers. Many of these 
commenters indicated that a 15-day courtesy period would generally 
increase delinquencies thereby decreasing card issuers' revenue and 
negatively impacting card issuers' costs. These commenters collectively 
noted that an impact on card issuers' cost could raise significant 
safety and soundness risks; impact card issuers' cash flow and thus 
affect their liquidity and financial management; impact a card issuers' 
ability to absorb losses associated with riskier accounts; and cause 
card issuers to spend more on monitoring and managing delinquent 
accounts. The financial regulatory advocacy group also noted that it 
believed the safe harbor amount would need to be as much as double the 
proposed $8 in order for card issuers to recover their collection 
costs. A credit union trade association cautioned the CFPB that card 
issuers may compensate for reduced revenue by raising interest rates or 
other fees associated with their credit card products. This trade 
association warned that due to increases in interest rates cardholders 
may face higher borrowing costs and credit unions may be less 
competitive in the market.
    A few industry trade associations additionally expressed concerns 
that a 15-day courtesy period would create a substantial credit risk to 
card issuers. One of the industry trade associations specifically noted 
that a courtesy period would make underwriting more difficult because 
card issuers would have to evaluate whether a cardholder is likely to 
take advantage of a courtesy period. This commenter indicated that this 
would cause card issuers to take a more conservative approach to ensure 
they are not exposed to undue financial risk.
    An individual commenter and an industry trade association indicated 
that courtesy periods provided for mortgage payments are not an 
applicable comparison to courtesy periods for credit card payments. The 
individual commenter indicated that for mortgage payments the monthly 
statement does not provide as much advance notice as is required for 
credit cards. Further, this individual commenter expressed concern 
about the comparison between mortgages and credit cards because the 
risks in mortgage transactions are different in that the mortgages have 
collateral to offset losses whereas credit cards are unsecured credit. 
Similarly, the trade association indicated that the CFPB did not 
adequately explain why mortgages, which are a form of secured lending, 
are compared to credit cards, a form of unsecured lending.
    A few trade associations and one law firm representing several card 
issuers expressed concerns that the CFPB does not have the authority 
under TILA to implement a courtesy period. One of these industry trade 
associations specifically indicated that the CARD Act authorizes the 
CFPB to regulate only the amount of penalty fees in connection with a 
violation of a cardholder agreement and not when a violation of such an 
agreement occurs. The law firm described above specifically expressed 
concerns that a 15-day courtesy period would redefine when an issuer 
can consider a payment to be late and this would run contrary to 
congressional intent and would eliminate limitations created by other 
statutory provisions.
    Several industry trade associations expressed concerns that the 
proposal lacked data or an overall explanation when the CFPB sought 
comments on whether Sec.  1026.52(b)(2) should be amended to provide 
for a courtesy period which would prohibit late fees imposed within 15 
calendar days after each payment due date. The trade association 
indicated that the CFPB did not provide quantification of consumer 
benefits or harm for the 15-day courtesy period or a courtesy period of 
any other length. One of the industry trade association commenters 
indicated that the CFPB, absent a new proposed rule with more 
specificity, could not implement the 15-day courtesy period because it 
was not detailed or formally proposed. Another of the trade association 
commenter indicated that the 15-day courtesy period did not include 
research specifically on any unintended negative consequences on 
consumers and credit access.
    Alternative suggestions to late fee courtesy period. Many consumer 
groups in a joint letter, one bank and one credit union, and an 
individual commenter provided the CFPB with alternative suggestions to 
a 15-day courtesy period. The individual commenter suggested that if a 
courtesy period was provided than the card issuer should be able to 
back-date the late fee to the original due date if the payment was not 
made by the end of the courtesy period. Alternatively, the individual 
commenter suggested that the card issuer could charge the late fee if 
the payment was not made by the due date; however, if the payment was 
made by the end of the courtesy period, then the fee could be 
automatically reversed on the next statement. The credit union 
suggested that a 15-day courtesy period in conjunction with maintaining 
the safe harbor fee at $30 would provide sufficient guardrails for card 
issuers who may be abusing late payment fees for profit. The bank 
indicated that there was not enough statistical evidence to support a 
15-day courtesy period and that a 10-day courtesy period may be more 
reasonable as it aligns with other industries, such as mortgages and 
other consumer products.
    Specific data provided on late fee courtesy periods. Many credit 
unions provided the CFPB with the number of days they currently offer 
consumers as a courtesy period. The number of days ranged from 4 days 
to 25 days.
    Courtesy period for penalty fees generally. Many consumer groups in 
a joint letter expressed support in response to the CFPB's solicitation 
of comments on whether Sec.  1026.52(b)(2) should be amended to provide 
for a courtesy period for all penalty fees. The consumer groups 
specifically expressed concerns that card issuers will engage in 
tactics that generate more of these credit card penalty fees.
    One bank and one industry trade association indicated they would 
not be supportive of extending the 15-day courtesy period to all other 
credit card penalty fees. These two commenters were generally concerned 
that extending the proposal to other penalty fees was not adequately 
addressed or analyzed in the CFPB's proposal and therefore should not 
be considered as a part of the final rule.
The Final Rule
    For the reasons stated below, the CFPB has determined it will not 
be implementing any courtesy period for late fees or other penalty fees 
at this time. In doing so, the CFPB acknowledges commenters who 
expressed concerns about the impact a 15-day courtesy period may have 
on consumers and issuers' costs. Specifically, commenters expressed 
concerns that a courtesy period would raise issuers' costs and create a 
substantial credit risk to card issuers including by making 
underwriting more difficult. Commenters also raised concerns that a 
courtesy period could cause consumer confusion about when a payment was 
actually due or that consumers may be confused by what consequences are 
triggered by missing the minimum payment on the due date versus paying 
it within the 15-day

[[Page 19180]]

courtesy period (e.g., when interest starts accumulating). The CFPB has 
determined that, absent additional evidence, the potential impacts to 
card issuers' costs and consumers outweigh the benefits of a mandatory 
15-day courtesy period. In addition to the concerns highlighted by 
commenters, the CFPB previously noted in the 2023 Proposal that a 15-
day courtesy period could cut the incidence of consumers charged the 
proposed $8 safe harbor amount by as much as half and, therefore, card 
issuers who use the safe harbor amount would have recovered an average 
of $4 in late fees per late payment. While the CFPB acknowledges the 
possible benefits raised by commenters, such as helping consumers who 
mail in their late payments avoid a penalty fee for any mail delivery 
issues, the potential for card issuers to recoup costs at half the safe 
harbor amount per late payment combined with other concerns about 
consumer confusion outweighs the possible benefits to consumers. 
Additionally, the CFPB understands that consumers who wish to have a 
courtesy period have that option available to them as some card 
issuers, primarily credit unions, currently offer courtesy periods for 
late payments. Based on comments received, the CFPB further 
acknowledges that some credit unions may offer courtesy periods that 
are more than 15 days.
    In recognizing the availability of courtesy periods, the CFPB 
acknowledges commenters who discussed the interaction between a 
courtesy period and Sec.  1026.5(b)(2)(ii)(A)'s requirement that a 
periodic statement be mailed or delivered at least 21 days prior to the 
payment due date disclosed on the statement. Specifically, many 
commenters believed that the 21-day notification of a payment due date 
was akin to providing a courtesy period. Other commenters noted that 
comparing courtesy periods for credit cards and mortgages was not an 
accurate comparison because the 21-day periodic statement provides a 
longer advance notice, and the risks are different. However, the CFPB 
notes that the requirement to provide a periodic statement at least 21 
days prior to the payment due date is not the same as a courtesy 
period. Further, although the CFPB is not implementing a 15-day 
courtesy period, it does reject the notion that it does not have the 
authority to do so.
    The CFPB also acknowledges commenters who provided alternative 
suggestions including (1) allowing card issuers to back-date late fees 
to the original due date if the payment was not made by the end of the 
courtesy period, (2) allowing card issuers to charge the late fee if 
the payment was not made by the due date but requiring a reversal of 
the charge if the payment was made within the courtesy period, (3) 
providing a courtesy period but maintaining a $30 safe harbor amount, 
and (4) providing for a 10-day courtesy period and not a 15-day period. 
The CFPB declines to adopt any of the alternative suggestions for the 
same reasons it is declining to adopt the courtesy period that the CFPB 
put forth in the 2023 Proposal. Absent additional evidence, the 
potential impacts to consumers and card issuers' costs outweigh the 
benefits at this time.

52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation

    Section 1026.52(b)(2)(i)(A) provides that a card issuer must not 
impose a fee for violating the terms or other requirements of a credit 
card account under an open-end (not home-secured) consumer credit plan 
that exceeds the dollar amount associated with the violation. For late 
fees, accompanying comment 52(b)(2)(i)-1 provides that the dollar 
amount associated with a late payment is the full amount of the 
required minimum periodic payment due immediately prior to assessment 
of the late payment. Thus, Sec.  1026.52(b)(2)(i)(A) prohibits a card 
issuer from imposing a late payment fee that exceeds the full amount of 
the required minimum periodic payment.
    In implementing TILA section 149, the Board noted that the 
prohibition of fees based on violations of the terms or other 
requirements of an account that exceed the dollar amount associated 
with the violation as set forth in its Regulation Z, Sec.  
226.52(b)(2)(i)(A) would be consistent with Congress' intent to 
prohibit penalty fees that are not reasonable and proportional to the 
violation.\198\ The Board in its reasoning addressed issuers' concerns 
that when the dollar amount associated with a violation is small, Sec.  
226.52(b)(2)(i)(A) could limit the penalty fee to an amount that is 
neither sufficient to cover the issuer's costs nor to deter future 
violations.\199\ The Board explained that while it is possible that an 
issuer could incur costs as a result of a violation that exceed the 
dollar amount associated with that violation, this would not be the 
case for most violations.\200\ Additionally, the Board noted that if 
card issuers could not recover all of their costs when a violation 
involves a small dollar amount, prohibiting late fees that exceed the 
full amount of the required minimum periodic payment would encourage 
them either to undertake efforts to reduce the costs incurred as a 
result of violations that involve small dollar amounts or to build 
those costs into upfront rates, which would result in greater 
transparency for consumers regarding the cost of using their credit 
card accounts.\201\ Furthermore, the Board considered the deterrent 
effect and believed that violations involving small dollar amounts are 
more likely to be inadvertent and therefore the need for deterrence is 
less pronounced.\202\
---------------------------------------------------------------------------

    \198\ 75 FR 37526 at 37544.
    \199\ Id. at 37545.
    \200\ Id.
    \201\ Id.
    \202\ Id.
---------------------------------------------------------------------------

    The Board also considered whether compliance with its Regulation Z, 
Sec.  226.52(b)(2)(i)(A) would be burdensome on card issuers and 
concluded that it would not be overly burdensome.\203\ The Board 
explained that, although card issuers may incur substantial costs at 
the outset, because Sec.  226.52(b)(2)(i)(A) required a mathematical 
determination, issuers should generally be able to program their 
systems to perform the determination automatically.\204\
---------------------------------------------------------------------------

    \203\ Id.
    \204\ Id.
---------------------------------------------------------------------------

    When implementing comment 52(b)(2)(i)-1, the Board clarified that 
the dollar amount associated with a late payment is the full amount of 
the required minimum periodic payment due immediately prior to the 
assessment of the late payment. Industry commenters had argued that the 
dollar amount associated with a late payment should be the outstanding 
balance on the account because that is the amount the issuer stands to 
lose if the delinquency continues and the account eventually becomes a 
loss.\205\ However, the Board explained that relatively few 
delinquencies result in losses, and the violation giving rise to a late 
payment fee is the consumer's failure to make the required minimum 
periodic payment by the payment due date.
---------------------------------------------------------------------------

    \205\ Id.
---------------------------------------------------------------------------

The CFPB's Proposal
    The CFPB proposed to amend Sec.  1026.52(b)(2)(i)(A) to limit the 
dollar amount associated with a late payment to 25 percent of the 
required minimum periodic payment due immediately prior to assessment 
of the late payment. The CFPB also proposed to revise comment 
52(b)(2)(i)-1 in the following two ways: (1) to clarify that the 
required minimum periodic payment due immediately prior to assessment 
of the

[[Page 19181]]

late payment is the amount that the consumer is required to pay to 
avoid the late payment fee, including as applicable any missed payments 
and fees assessed from prior billing cycles; and (2) to revise several 
examples consistent with the proposed 25 percent limitation.
    Like the Board's reasoning in the 2010 Final Rule, the proposal 
intended to ensure that late fees are reasonable and proportional, even 
late fees that are imposed when consumers are late in paying small 
minimum payments. However, the CFPB preliminarily determined that 
restricting the late fee to 25 percent of the minimum payment is more 
consistent with Congress' intent to prohibit penalty fees that are not 
reasonable and proportional to the violation than the current rule that 
allows for a card issuer to potentially charge a late fee that is 100 
percent of the minimum payment.
    For example, the proposal stated that when considering collection 
costs incurred by card issuers, it is likely that allowing a late fee 
that is 100 percent of the minimum payment is not reasonable and 
proportional to such costs. Generally, most card issuers do not incur 
collection costs that are 100 percent of the amount they are trying to 
collect. The CFPB preliminarily determined that lowering the limitation 
on late fees to 25 percent of the minimum payment due would still 
likely allow card issuers to cover contingency fees paid to third-party 
agencies for collecting the amount of the minimum payment prior to 
account charge-off. The CFPB understood, based on information obtained 
through orders pursuant to section 1022(c)(4) of the CFPA for purposes 
of compiling the CFPB's periodic CARD Act reports to Congress, that 
card issuers that contract with third-party agencies for pre-charge-off 
collections pay a contingency fee that is a percentage of the amount 
collected, which may include an amount (if collected) exceeding the 
minimum payment. These contingency fees can range from 9.5 percent to 
23 percent, further supporting that the proposed 25 percent of minimum 
payment due is more reasonable and proportional than permitting 100 
percent of the minimum payment.\206\ It appears that the Board did not 
consider or have access to such figures when it limited the dollar 
amount associated with a late payment to 100 percent of the required 
minimum periodic payment. With these additional data, the CFPB proposed 
a limitation on late fees that it preliminarily determined would be 
more reasonable and proportional than what was set forth in the Board's 
2010 Final Rule.
---------------------------------------------------------------------------

    \206\ 2021 Report, at 137.
---------------------------------------------------------------------------

    The CFPB recognized that the proposed 25 percent limitation would 
most likely impact the amount of the late fee a card issuer can charge 
when (1) the minimum payment is small, and (2) the card issuer is using 
the cost analysis provisions in Sec.  1026.52(b)(1)(i) generally to set 
the late fee amount. Based on the distribution of minimum payments in 
the Y-14 data, the CFPB estimated that this may occur infrequently. Y-
14 data from October 2021 to September 2022 show that for those months 
in which an account was late, only 12.7 percent of accounts had a 
minimum payment of $40 or less. Additionally for those months in which 
an account was late, at least 48.5 percent of accounts had a minimum 
payment above $100. If a card issuer had used the proposed late fee 
safe harbor of $8, however, the instances where 25 percent of the 
minimum payment may be less than the proposed $8 safe harbor appeared 
to have been even less frequent. For instance, based on the 
distribution of minimum payments due in the Y-14 on a monthly basis 
from October 2021 to September 2022, if card issuers could have only 
charged up to 25 percent of the minimum payment, only 7.7 percent of 
accounts would have been charged a late fee of less than $8. Figure 5 
below, which was provided in the 2023 Proposal, plots the cumulative 
distribution function \207\ of total payments due in the range of $1 to 
$100 in the account-level Y-14 data, for all months that payments were 
late between October 2021 and September 2022.
---------------------------------------------------------------------------

    \207\ The values plotted vertically are the shares of account-
months that paid late with minimum payments at or below the integer 
dollar amounts shown on the horizontal axis.
[GRAPHIC] [TIFF OMITTED] TR15MR24.005

    Additionally, when the dollar amount associated with the late 
payment is small, the CFPB recognized that the proposal could have had 
the potential to limit the late fee to an amount that is insufficient 
to cover a card issuer's costs

[[Page 19182]]

in collecting the late payment. However, permitting a late fee that is 
100 percent of the minimum payment did not appear to be reasonable and 
proportional to the consumer's conduct of paying late when the minimum 
payment is small. For instance, the proposal stated that in situations 
where the dollar amount associated with the late payment is small and 
the card issuer is permitted to charge a late fee that is 100 percent 
of the minimum payment then a consumer is essentially required to pay 
double the amount of a missed payment in the next billing cycle in 
addition to the minimum payment due for that next billing cycle. The 
CFPB preliminarily determined that this result would have been neither 
reasonable nor proportional to the consumer's conduct in paying late.
    Furthermore, as the Board noted in its 2010 Final Rule and which 
the CFPB preliminarily determined was still relevant in the 2023 
Proposal, to the extent card issuers cannot recover all of their costs 
through a late fee when a late payment involves a small dollar amount, 
the proposed limitation would have likely encouraged card issuers to 
undertake efforts to either reduce costs incurred as a result of 
violations that involve small dollar amounts or to build those costs 
into upfront rates, which had the additional benefit of resulting in 
greater transparency for consumers regarding the cost of using credit 
card accounts. Finally, in the 2023 Proposal, the CFPB preliminarily 
determined that the Board's explanation that compliance would not be 
overly burdensome also remained applicable to the CFPB's proposal. The 
proposal would have similarly required a mathematical determination 
that issuers should generally be able to program their systems to 
perform automatically.
    In addition, as discussed above, the CFPB proposed to revise 
comment 52(b)(2)(i)-1 to clarify that the required minimum periodic 
payment due immediately prior to assessment of the late payment is the 
amount that the consumer is required to pay to avoid the late payment 
fee, including as applicable any missed payments and fees assessed from 
prior billing cycles. The CFPB understood that card issuers report two 
payment amounts when responding to Y-14 collection efforts, a minimum 
payment calculated just for that billing cycle and the total amount 
that is required to be paid that billing cycle which includes missed 
payment amounts or fees assessed. The CFPB proposed this revision to 
comment 52(b)(2)(i)-1 to address any potential confusion about the 
payment amount to which the proposed 25 percent limitation would apply.
    The CFPB solicited comment on the proposed 25 percent limitation 
discussed above. The CFPB also solicited comment on whether the dollar 
amount associated with the other penalty fees covered by Sec.  
1026.52(b) should be limited to 25 percent of the dollar amount 
associated with the violation. The proposal inquired, for example, (1) 
should over-the-limit fees be limited to 25 percent of the amount of 
credit extended by the card issuer in excess of the credit limit during 
the billing cycle in which the over-the-limit fee is imposed; \208\ (2) 
should the returned-payment fee be limited to 25 percent of the amount 
of the required minimum periodic payment due immediately prior to the 
date on which the payment is returned to the card issuer; \209\ and (3) 
should the declined access check fee be limited to 25 percent of the 
amount of the check.\210\
---------------------------------------------------------------------------

    \208\ See comment 52(b)(2)(i)-3 for an explanation of the dollar 
amount associated with an over-the-limit violation.
    \209\ See comment 52(b)(2)(i)-2 for an explanation of the dollar 
amount associated with a returned-payment violation.
    \210\ See comment 52(b)(2)(i)-4 for an explanation of the dollar 
amount associated with a declined access check violation.
---------------------------------------------------------------------------

Comments Received
    Support for 25 percent restriction. Many individual commenters and 
many consumer groups expressed support for the CFPB's proposal to limit 
the dollar amount associated with a late payment to 25 percent of the 
required minimum periodic payment due immediately prior to assessment 
of the late payment. Many consumer groups and an individual commenter 
highlighted that, in particular, this proposal would prevent excessive 
late fees on small remaining balances. The consumer groups also 
commented that card issuers may raise minimum payments due as a result 
of the 25 percent limitation, but expressed to the CFPB that this would 
be a positive outcome because current minimum payments due result in 
long repayment periods and higher finance charges for consumers who 
only pay the minimum each billing cycle.
    Opposition to 25 percent restriction. As discussed below, many 
industry commenters, and a few individuals, urged the CFPB to 
reconsider implementing the proposal to limit the dollar amount 
associated with a late payment to 25 percent of the required minimum 
periodic payment due immediately prior to assessment of the late 
payment.
    Several trade associations, a few banks and credit unions, and an 
individual commenter urged the CFPB to consider the impact the 25 
percent limitation would have on card issuers' costs. Commenters 
expressed concerns that the 25 percent limitation would be an 
impediment to card issuers' ability to cover current or future 
increased costs associated with late payments. Two commenters 
specifically highlighted that many costs associated with a late payment 
are fixed and do not depend on the minimum payment due. A few of the 
trade associations urged the CFPB to consider the upfront costs card 
issuers could incur due to a change in the minimum payment requirement, 
namely that applications, solicitations, and initial disclosures would 
need to be amended along with the issuance of a change in terms notice 
to reflect the new minimum payment calculation. Another trade 
association reported that one of its credit union members indicated 
that for certain balances, its current minimum payment due is $40 so 
with the 25 percent limitation the late fee would be $10 which would 
not cover its costs (and it would be $2 higher than the proposed safe 
harbor amount). One bank highlighted that the CFPB indicated 7.7 
percent of accounts would have been charged a late fee of less than $8 
if card issuers could only charge up to 25 percent between October 2021 
to September 2022. This commenter indicated that the CFPB failed to 
explain why $8 would be a reasonable estimate of costs incurred if 
nearly 8 percent of late payment incidents would be subject to a fee 
lower than the proposed safe harbor due to the 25 percent limitation.
    A law firm representing several card issuers, an individual 
commenter, and two trade associations expressed concerns that the 25 
percent limitation would lead to a late fee amount that is not 
reasonable or proportional to a cardholder's omission or violation or 
otherwise did not properly consider the factors the CFPB is guided by 
when considering the appropriate safe harbor amount.\211\ One industry 
trade association and the law firm described above broadly indicated 
the CFPB did not acknowledge any of the guiding factors. A few banks 
and one industry trade association indicated that the CFPB did not 
consider the deterrent

[[Page 19183]]

effect in the 25 percent limitation proposal and a research group 
further indicated that the deterrent effect was not considered for a 
safe harbor amount below $8, to the extent that is a possibility due to 
the 25 percent limitation. One industry trade group and the law firm 
described above also indicated that the CFPB did not provide the 
underlying raw data it relied on, and therefore, they could not be sure 
that the analysis undertaken with respect to the 25 percent limitation 
set forth in the 2023 Proposal was accurate. An individual commenter 
indicated that the CFPB disregarded the legal meanings of ``reasonable 
and proportional'' and that it would be reasonable for card issuers to 
impose late fees that are up to the full amount of the payment past due 
using the same methodology as certain State laws on returned payments.
---------------------------------------------------------------------------

    \211\ In considering the appropriate safe harbor threshold 
amount, the CFPB is guided by factors including (1) the cost 
incurred by the creditor from an omission or violation; (2) the 
deterrence of omissions or violations by the cardholder; (3) the 
conduct of the cardholder; and (4) such other factors deemed 
necessary or appropriate. CARD Act section 102, 123 Stat. 1740 (15 
U.S.C. 1665d(c)).
---------------------------------------------------------------------------

    One credit union indicated that the CFPB inaccurately based the 25 
percent limitation on the cost of collecting delinquent accounts pre-
charge-off. The commenter expressed concerns with this analysis because 
accounts assessed late fees pose a higher risk of delinquency and thus 
charge-off. The commenter noted that all costs incurred on credit 
unions' credit card products are also incurred by all members and, 
therefore, all costs should be included in the analysis.
    Several banks and credit unions and many trade associations 
cautioned the CFPB that the 25 percent limitation could potentially 
cause negative consequences for consumers. One credit union and several 
trade associations indicated that the 25 percent limitation would cause 
card issuers to raise their minimum payment requirements in order to 
charge a higher late fee. Industry commenters and trade associations 
highlighted various potential consequences that could result from card 
issuers increasing their minimum payment requirements including an 
increase in delinquencies and defaults; damage to consumers' credit 
scores; higher rates for credit cards; decrease in credit availability, 
and an increase in consumers' future borrowing costs.
    Many trade associations also raised concerns that any potential 
effect that the 25 percent limitation may have on raising card issuers' 
costs, from upfront costs like additional computer programming needs to 
the late fee not covering issuers' costs, could cause card issuers to 
take actions that may have a negative effect on consumers. For example, 
these commenters asserted that card issuers may raise other fees 
associated with their credit card products, raise rates, be unable to 
issue credit cards, or be unable to provide credit access to as many 
consumers.
    One credit union trade association also cautioned the CFPB that the 
25 percent limitation may cause consumers to be less likely to try to 
avoid late fees by communicating with credit unions that they are 
experiencing financial difficulties which would ultimately cost both 
the consumer and the credit union.
    Alternative suggestions to 25 percent restriction. Many consumer 
groups in a joint letter, an individual commenter, and a bank provided 
the CFPB with alternative suggestions to the CFPB's 25 percent 
limitation proposal. The consumer groups urged the CFPB to consider 
alternatively limiting the late fee to 25 percent of the minimum 
payment remaining. Therefore, if a consumer had made a partial payment 
of the minimum payment due, the late fee would be limited to 25 percent 
of the remaining minimum amount due and not 25 percent of the total 
minimum payment.
    The individual commenter suggested that a card issuer should be 
permitted to charge a late fee that is 3 percent of the total 
underlying debt, similar to Sec.  1026.52(b)(1)(ii)(C). The individual 
commenter indicated that a card issuer who permits a consumer to pay 
the underlying debt off over time is taking on a higher credit risk 
than card issuers that require payments in full. Therefore, all card 
issuers, at a minimum, should be able to charge 3 percent of the total 
underlying debt. Similarly, a bank suggested the CFPB tie the late fee 
to the underlying balance rather than the minimum payment.
    Specific data provided on 25 percent restriction. Many individual 
commenters on behalf of a credit union, a few industry trade 
associations, and a few bank and credit union commenters provided the 
CFPB with specific data as it relates to the CFPB's proposal to limit 
the dollar amount associated with a late payment to 25 percent of the 
required minimum periodic payment due immediately prior to assessment 
of the late payment.
    An industry trade association and many individual commenters on 
behalf of a credit union indicated that the credit union's late fee of 
$25 would effectively be reduced to $6.25 under the proposal. The 
individual commenters also indicated that the CFPB's proposal would 
require the card issuer to elect the lesser of the proposed $8 safe 
harbor amount or 25 percent of the missed payment.
    One credit union indicated that according to estimates, the 25 
percent limitation would result in an average late fee amount of $4.61, 
which is a 62 percent decrease compared to the credit union's average 
late fee of $12.13. A bank commenter indicated that more than 53 
percent of its accounts have a minimum payment less than $32 and two-
thirds of its accounts have a minimum payment below $50.
    A few trade associations indicated that one bank reported that 40 
percent of its required minimum payments for consumer credit card 
accounts are under $32. These trade associations also indicated that a 
small card issuer reported to the trade associations that it estimated 
53 percent of its accounts and 29.1 percent of balances have minimum 
payments under $32.
    Application of 25 percent restriction to all penalty fees. Many 
consumer groups in a joint letter expressed support in response to the 
CFPB's solicitation of comments on whether the CFPB's proposal to limit 
the dollar amount associated with a late payment to 25 percent of the 
required minimum periodic payment due immediately prior to assessment 
of the late payment should extend to all other credit card penalty 
fees. The consumer groups specifically expressed concerns that card 
issuers otherwise will begin to engage in tactics to increase the 
amount of other credit card penalty fees.
    One bank and one industry trade association indicated they would 
not be supportive of extending the 25 percent limitation to all other 
credit card penalty fees. These two commenters were generally concerned 
that extending the proposal to other penalty fees was not adequately 
addressed or analyzed in the CFPB's proposal and therefore should not 
be considered as a part of the final rule.
The Final Rule
    For the reasons stated herein, the CFPB is not adopting, for either 
Larger Card Issuers or Smaller Card Issuers, the proposed amendment to 
Sec.  1026.52(b)(2)(i)(A) to limit the dollar amount associated with a 
late payment to 25 percent of the required minimum periodic payment due 
immediately prior to assessment of the late payment. Therefore, the 
CFPB is also not adopting the proposed revision to comment 52(b)(2)(i)-
1.\212\ In doing so, the CFPB acknowledges comments highlighting the 
impact a 25 percent limitation may have on issuers' costs. Many 
commenters specifically noted the impact the 25 percent limitation may 
have on credit unions and small card

[[Page 19184]]

issuers. The commenters expressed concerns that credit unions and small 
card issuers tend to have higher pre-charge-off collection costs and a 
lower minimum payment. It was also noted that restrictions on Federal 
credit unions on charging higher interest rates may further impact 
their potential to recoup pre-charge-off collections costs they cannot 
collect through late fees because of the 25 percent limitation. 
Commenters additionally expressed concerns that not only would the 25 
percent limitation prevent card issuers from covering pre-charge-off 
collection costs related to a late payment but there would also be 
upfront costs incurred. For example, for card issuers that choose to 
adjust its minimum payments due, a notice of change in terms would need 
to be issued.
---------------------------------------------------------------------------

    \212\ This final rule makes technical changes to cross 
references in comments 52(b)(2)(i)-1.ii, 52(b)(2)(i)-2.ii and iii, 
and 52(b)(2)(i)-3.ii to conform to OFR style requirements.
---------------------------------------------------------------------------

    The CFPB recognizes that some of the concerns discussed above could 
be addressed by only applying the 25 percent restriction to Larger Card 
Issuers. Nonetheless, the CFPB has determined that even with respect to 
Larger Card Issuers, the benefits the 25 percent limitation may have 
for consumers, such as requiring a more reasonable and proportional 
late fee for instances where the minimum payment due is small, do not 
outweigh considerations of card issuers' ability to recoup their pre-
charge-off collection costs when they are using the $8 safe harbor 
threshold amount. In addition to considering the comments noted above, 
the CFPB also acknowledges the specific data provided by commenters 
demonstrating potential late fee amounts based on current minimum 
payments due. Commenters here highlighted that some card issuers have a 
large percentage of their accounts with a minimum payment of less than 
$32. For these card issuers, the 25 percent limitation would be 
especially impactful because, as reported in comments, 40 to 53 percent 
of accounts would have charges under the $8 safe harbor. The CFPB is 
concerned that when a card issuer cannot charge a significant number of 
their accounts the $8 safe harbor amount, card issuers' pre-charge-off 
collection costs may not be covered.
    The CFPB also acknowledges commenters who highlighted the potential 
for card issuers to raise its minimum payments due in response to the 
25 percent limitation and the impacts this may have on consumers. These 
comments noted that in order to combat lower late payment fees that the 
25 percent limitation may impose, card issuers might raise minimum 
payments due. Conversely, other commenters explained that card issuers 
raising minimum payments would be a positive for consumers because, 
according to these commenters, current minimum payments due result in 
long repayment periods and higher finance charges.
    In weighing these considerations, the CFPB has determined not to 
adopt the 25 percent limitation proposal in order to minimize impacts 
to minimum balances due. While the CFPB agrees with commenters that 
raising minimum payments due could be a positive for some consumers, 
the potential negative impacts of higher minimum payments on consumers, 
like an increase in delinquencies and defaults in particular for 
consumers with limited cash flow, do not outweigh any benefits higher 
minimum payments due may have for consumers.
    The CFPB also acknowledges alternative suggestions provided by 
commenters such as limiting the late fee to 25 percent of the minimum 
payment remaining or permitting a late fee that is 3 percent of the 
total underlying debt. The CFPB declines to adopt alternatives 
suggested for the same reasons the CFPB is not adopting the proposed 25 
percent limitation. That is to say, the CFPB has determined that the 
potential impacts on card issuers' ability to recoup pre-charge-off 
collection costs does not outweigh the benefits to consumers, and the 
CFPB is concerned about the impact the 25 percent restriction may have 
on minimum payments due.
    As discussed above, the CFPB received only a few responses to its 
request for comment on whether the 25 percent limitation should be 
applied to all penalty fees covered by Sec.  1026.52(b). The CFPB has 
determined that, like the 25 percent limitation for late payments, the 
benefits to consumers do not outweigh the impact on card issuers' 
costs. Additionally, with respect to consumer groups' concern that card 
issuers will begin to engage in tactics to increase the number of those 
penalty fees if the CFPB lowers the safe harbor late fee amounts, the 
CFPB notes that this is less likely because it has not adopted the 25 
percent limitation for late fees. As such, a 25 percent limitation for 
all other credit card penalty fees will not be implemented. In doing 
so, the CFPB rejects the notion raised by industry commenters that the 
CFPB could not have adopted the 25 percent limitation with respect to 
these other penalty fees in this final rule because it did not 
establish a sufficient factual or legal analysis with respect to these 
penalty fees.

52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction

    Section 1026.52(b)(2)(ii) prohibits card issuers from imposing 
multiple penalty fees based on a single event or transaction.
The CFPB's Proposal
    The CFPB did not propose to amend the text of Sec.  
1026.52(b)(2)(ii). However, the CFPB proposed to revise comment 
52(b)(2)(ii)-1 to clarify several examples illustrating this 
requirement. Specifically, the 2023 Proposal would have amended several 
examples in comment 52(b)(2)(ii)-1 to reflect a late fee amount of $8, 
consistent with the proposed amendments to Sec.  1026.52(b)(1)(ii), and 
to make minor technical changes for consistency with the proposal.
Comments Received and the Final Rule
    The CFPB received no comments on the proposed revisions to comment 
52(b)(2)(ii)-1. This final rule adopts comment 52(b)(2)(ii)-1 as 
proposed with several revisions. Consistent with the proposal, this 
final rule amends comment 52(b)(2)(ii)-1 to reflect a late fee amount 
of $8 for purposes of the examples, consistent with the new late fee 
safe harbor amount applicable to Larger Card Issuers. This final rule 
also amends comment 52(b)(2)(ii)-1.i and ii to specify that the card 
issuer for purposes of the examples is not a Smaller Card Issuer 
pursuant to Sec.  1026.52(b)(3). This final rule also makes a technical 
change to a cross reference in comment 52(b)(2)(ii)-1.ii.B to conform 
to OFR style requirements. Even though Smaller Card Issuers are not 
subject to the $8 late fee safe harbor threshold in Sec.  
1026.52(b)(1)(ii), the CFPB has determined it is useful to revise the 
late fee amounts in the examples to be $8, consistent with the late fee 
safe harbor threshold amount that applies to Larger Card Issuers.

52(b)(3) Smaller Card Issuers

    As discussed in part VI, the CFPB is not adopting at this time 
certain proposed provisions with respect to Smaller Card Issuers. 
Specifically, with respect to such card issuers, the CFPB is not 
adopting: (1) the $8 late fee safe harbor threshold and the elimination 
of the higher late fee safe harbor amount for subsequent violations; 
and (2) the elimination of the annual adjustments for the safe harbor 
threshold. To implement that distinction, the CFPB is adopting a 
definition of Smaller Card Issuer in new Sec.  1026.52(b)(3). The 
CFPB's reasons for not adopting the provisions as to Smaller Card 
Issuers, including the reasons for setting the

[[Page 19185]]

Smaller Card Issuer definition at one million open credit card 
accounts, are discussed in detail in part VI. The CFPB's reasons for 
adopting specific aspects of the Smaller Card Issuer definition are 
discussed in the section-by-section analysis of Sec.  1026.52(b)(3)(i) 
and (ii) below.

52(b)(3)(i)

    Section 1026.52(b)(3)(i) sets forth the general definition of 
Smaller Card Issuer. It provides that, except as provided in Sec.  
1026.52(b)(3)(ii), a card issuer is a Smaller Card Issuer for purposes 
of the safe harbor late fee provisions in Sec.  1026.52(b)(1)(ii)(E) if 
the card issuer together with its affiliates had fewer than one million 
open credit card accounts, as defined in Sec.  1026.58(b)(6), for the 
entire preceding calendar year.\213\ Thus, a card issuer must include 
its affiliates' open credit card accounts along with its own in 
determining whether it meets the Smaller Card Issuer definition. The 
CFPB determines that requiring card issuers to include the open credit 
card accounts of their affiliates is consistent with the goal of 
ensuring coverage of Larger Card Issuers and preventing those Larger 
Card Issuers with more than one million open accounts from relying on 
affiliates to divide accounts in order to qualify as Smaller Card 
Issuers--and thus impose higher safe harbor late fee amounts. Section 
1026.52(b)(3)(i) further provides that for purposes of the Smaller Card 
Issuer definition, ``affiliate'' means any company that controls, is 
controlled by, or is under common control with another company, as set 
forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.). 
The CFPB is adopting this common definition of ``affiliate'' because it 
is one with which card issuers are familiar and, as such, will 
facilitate compliance.
---------------------------------------------------------------------------

    \213\ See supra note 5.
---------------------------------------------------------------------------

    The Smaller Card Issuer definition also incorporates the existing 
definition of open credit card account in Sec.  1026.58(b)(6) of 
Regulation Z, which is used for purposes of determining whether a card 
issuer meets certain exceptions to requirements for submitting card 
agreements to the CFPB. The CFPB is incorporating this open credit card 
account definition into the definition of Smaller Card Issuer because 
it is one with which card issuers are familiar and, as such, will 
facilitate compliance.
    Existing Sec.  1026.58(b)(6) defines open account, or open credit 
card account, broadly as a credit card account under an open-end (not 
home-secured) consumer credit plan for which either (1) the cardholder 
can obtain extensions of credit on the account; or (2) there is an 
outstanding balance on the account that has not been charged off. The 
definition further provides that an account that has been suspended 
temporarily is considered an open account or open credit card account. 
The CFPB notes that this broad definition generally encompasses open 
credit card accounts that a card issuer keeps on-balance sheet as well 
as those that a card issuer may have sold or otherwise keeps off-
balance sheet (except for accounts that have been charged off). The 
CFPB determines that this metric more accurately reflects the size of a 
card issuer's portfolio and ensures that card issuers cannot meet the 
Smaller Card Issuer definition, and thereby impose higher late fee safe 
harbor amounts, by simply securitizing their accounts and moving them 
off-balance sheet.
    The CFPB also notes that to meet the Smaller Card Issuer definition 
in Sec.  1026.52(b)(3), a card issuer together with its affiliates must 
have fewer than one million open credit card accounts for the entire 
preceding calendar year. Thus, as explained in new comment 52(b)(3)(i)-
1, if a card issuer together with its affiliates had more than one 
million open credit card accounts from January through October of the 
preceding calendar year, for example, but had fewer than that threshold 
number in November and December, the card issuer is not a Smaller Card 
Issuer in the next calendar year. Further, as also explained in the 
comment, the card issuer is not a Smaller Card Issuer until such time 
that the card issuer's number of open credit card accounts, together 
with those of its affiliates, remains below one million for an entire 
preceding calendar year.\214\ In order to provide clarity and certainty 
for card issuers, the comment provides that a card issuer must remain 
below the open credit card account threshold for the entire preceding 
calendar year in order to meet the Smaller Card Issuer definition. The 
requirement also provides certainty and consistency for consumers, who 
might otherwise experience significant fluctuations in their late fee 
amounts as their card issuer moves above and below the threshold.
---------------------------------------------------------------------------

    \214\ Consistent with Sec.  1026.9(c)(2)(i)(A), a Larger Card 
Issuer that becomes a Smaller Card Issuer would have to provide 
consumers a change-in-terms notice at least 45 days prior to 
imposing higher late fee amounts under the safe harbor.
---------------------------------------------------------------------------

52(b)(3)(ii)

    Section 1026.52(b)(3)(ii) sets forth an exception to the general 
definition of Smaller Card Issuer in Sec.  1026.52(b)(3)(i). It 
provides that if a card issuer together with its affiliates had fewer 
than one million open credit card accounts for the entire preceding 
calendar year but meets or exceeds that number of open credit card 
accounts in the current calendar year, then the card issuer will no 
longer be a Smaller Card Issuer for purposes of Sec.  
1026.52(b)(1)(ii)(E) as of 60 days after meeting or exceeding that 
number of open credit card accounts.\215\ Thus, as explained in new 
comment 52(b)(3)(ii)-1, the card issuer may not impose a late fee 
pursuant to Sec.  1026.52(b)(1)(ii)(E) as of 60 days after meeting or 
exceeding the threshold number of open credit card accounts, because at 
that point the card issuer is no longer a Smaller Card Issuer. Instead, 
for purposes of imposing a late fee pursuant to the safe harbor 
provisions, the card issuer may impose a late fee of no more than $8 
pursuant to Sec.  1026.52(b)(1)(ii) as of the 60th day.
---------------------------------------------------------------------------

    \215\ A Smaller Card Issuer that becomes a Larger Card Issuer 
would not be required to provide consumer a change-in-terms notice 
prior to imposing lower late amounts under the safe harbor, as the 
requirement generally does not apply to reductions in fee amounts. 
See Sec.  1026.9(c)(2)(v)(A).
---------------------------------------------------------------------------

    The CFPB notes that this approach is similar to the definition of 
creditor in Sec.  1026.2(a)(17). That definition generally provides, in 
relevant part, that a creditor is a person who regularly extends 
consumer credit that is subject to finance charge or is payable by 
written agreement in more than four installments. It further provides 
that a person regularly extends consumer credit if, with certain 
exceptions, that person extended consumer credit more than 25 times in 
the preceding calendar year. However, the definition also generally 
provides that if a person did not meet the numerical standard (i.e., 25 
extensions of consumer credit) in the preceding calendar year, the 
numerical standard must be applied in the current calendar year. As 
such, a person who begins a calendar year beneath the definitional 
threshold can become a creditor, and subject to all of the Regulation Z 
requirements that apply to creditors, during that calendar year if the 
person meets or exceeds the threshold.

[[Page 19186]]

    Similarly, under this final rule, the definition of Smaller Card 
Issuer generally provides that if a card issuer together with its 
affiliates did not meet the numerical standards (i.e., one million open 
credit card accounts) in the preceding calendar year, the numerical 
standard must be applied in the current calendar year. The CFPB is 
incorporating this concept into the definition of Smaller Card Issuer 
in order to ensure that the $8 limitation in Sec.  1026.52(b)(1)(ii) 
becomes applicable to formerly Smaller Card Issuers--and that 
cardholders of those issuers receive the benefits therefrom--as soon as 
practicable. To that end, the CFPB determines that a period of 60 days 
after a formerly Smaller Card Issuer meets or exceeds the threshold, as 
provided in the definition, is a sufficient amount of time for the card 
issuer to come into compliance with the limitation in Sec.  
1026.52(b)(1)(ii). The CFPB notes that 60 days is the same compliance 
period accorded to Larger Card Issuers under this final rule as 
discussed in part VIII.

Section 1026.58 Internet Posting of Credit Card Agreements

58(b) Definitions

58(b)(6) Open Account

    The CFPB is adopting a technical amendment to the definition of 
open account, or open credit card account, in Sec.  1026.58. As 
discussed in the section-by-section analysis of Sec.  1026.52(b)(3), 
the CFPB is adopting a definition of Smaller Card Issuer to implement 
its decision not to finalize certain provisions of this final rule with 
respect to card issuers with fewer than one million open credit card 
accounts. That definition incorporates the definition of open account, 
or open credit card account, in Sec.  1026.58(b)(6). The CFPB is 
revising Sec.  1026.58(b)(6) to clarify that the definition of open 
account, or open credit card account, is for purposes of both Sec.  
1026.58 and Sec.  1026.52.

Section 1026.60 Credit and Charge Card Applications and Solicitations

60(a) General Rules

60(a)(2) Form of Disclosures; Tabular Format

    Section 1026.60(a) provides that a card issuer must provide the 
disclosures set forth in Sec.  1026.60 on or with a solicitation or an 
application to open a credit or charge card account. Section 
1026.60(a)(2) provides certain format requirements for the disclosures 
required under Sec.  1026.60. Section 1026.60(a)(2)(i) provides that in 
certain circumstances the disclosures required by Sec.  1026.60 
generally must be disclosed in a tabular format. Section 
1026.60(a)(2)(ii) provides that when a tabular format is required, 
certain disclosures must be disclosed in the table using bold text, 
including any late fee amounts and any maximum limits on late fee 
amounts required to be disclosed under Sec.  1026.60(b)(9). Comment 
60(a)(2)-5.ii includes a late fee example to illustrate the requirement 
that any maximum limits on fee amounts must be disclosed in bold text. 
The current example assumes that a card issuer's late fee will not 
exceed $35.
The CFPB's Proposal
    The CFPB proposed to amend the example to assume that the late fee 
would not exceed $8, so that the maximum late fee amount in the example 
would have been consistent with the proposed $8 late fee safe harbor 
amount set forth in proposed Sec.  1026.52(b)(1)(ii).
Comments Received and the Final Rule
    The CFPB received no comments on the proposed revisions to comment 
60(a)(2)-5.ii. This final rule adopts comment 60(a)(2)-5.ii as proposed 
with minor revisions to specify that the card issuer in the example is 
not a Smaller Card Issuer as defined in Sec.  1026.52(b)(3). The CFPB 
has determined that revising the example to be consistent with the late 
fee safe harbor amount of $8 is necessary to reflect the changes to the 
late fee safe harbor dollar amount as set forth in Sec.  
1026.52(b)(1)(ii) for Larger Card Issuers. Notwithstanding the 
revisions to the late fee safe harbor amount in the example, Smaller 
Card Issuers as defined in Sec.  1026.52(b)(3) are not subject to the 
$8 late fee safe harbor threshold adopted in this final rule and may 
use the relevant safe harbor thresholds set forth in Sec.  
1026.52(b)(1)(ii)(A) through (C). This final rule also makes a 
technical change to a cross reference in comment 60(a)(2)-6.i to 
conform to OFR style requirements.

Appendix G to Part 1026--Open-End Model Forms and Clauses

    Appendix G to part 1026 generally provides model or sample forms or 
clauses for complying with certain disclosure requirements applicable 
to open-end credit plans, including a credit card account under an 
open-end (not home-secured) consumer credit plan. The following five 
sample forms or clauses set forth an example of the maximum late fee 
amount of ``Up to $35'' under the heading ``Late Payment'': (1) G-
10(B); (2) G-10(C); (3) G-10(E); (4) G-17(B); and (5) G-17(C). The 
following two sample forms set forth an example of the maximum late fee 
amount of ``Up to $35'' under the heading ``Late Payment Warning'': (1) 
G-18(D); and (2) G-18(F). Sample form G-21 sets forth an example of the 
maximum late fee amount of ``Up to $35'' under the heading ``Late 
Payment Fee.'' The following two sample forms or clauses set forth an 
example of the late fee amount ($35) a consumer may incur if the 
consumer does not pay the required amount by the due date under the 
heading ``Late Payment Warning'': (1) G-18(B); and (2) G-18(G). The 
following three sample forms set forth an example of the late fee 
amount ($35) that the consumer was charged in the particular billing 
cycle under the heading ``Fees'': (1) G-18(A); (2) G-18(F); and (3) G-
18(G).
    The CFPB solicited comment on whether the late fee amount of $35 in 
these sample forms or clauses, as applicable, should be revised to set 
forth a late fee amount of $8, and whether the maximum late fee amount 
of ``Up to $35'' in these sample forms or clauses, as applicable, 
should be revised to set forth a maximum late fee amount of ``Up to 
$8'' so that the late fee amount and maximum late fee amount in the 
examples are consistent with the proposed $8 late fee safe harbor 
amount set forth in proposed Sec.  1026.52(b)(1)(ii). The CFPB noted 
that the 11 forms or clauses discussed above are just samples; card 
issuers would need to disclose the late fee amount that they charge or 
the maximum late fee amount on the account, as applicable, consistent 
with the restrictions in Sec.  1026.52(b).
    In addition, as discussed in the section-by-section analysis of 
Sec.  1026.52(b)(2)(i), in the 2023 Proposal, the CFPB solicited 
comment on whether to restrict card issuers from imposing a late fee on 
a credit card account, unless the consumer has not made the required 
payment within 15 calendar days following the due date. The CFPB 
solicited comment on whether the following 10 sample forms or clauses 
that currently disclose an example of the late fee amount ($35) or 
maximum late fee amount (``Up to $35'') that could be incurred on the 
account should be revised to disclose that a late fee will only be 
charged if the consumer does not make the required payment within 15 
calendar days of the due date: (1) G-10(B); (2) G-10(C); (3) G-10(E); 
(4) G-17(B); (5) G-17(C); (6) G-18(B); (7) G-

[[Page 19187]]

18(D); (8) G-18(F),\216\ (9) G-18(G); \217\ and (10) G-21.\218\ The 
CFPB also solicited comment on effective ways to help ensure that 
consumers understand that a 15-day courtesy period only relates to the 
late fee, and not to other possible consequences of paying late, such 
as the loss of a grace period or the application of a penalty rate.
---------------------------------------------------------------------------

    \216\ Sample Form G-18(F) contains two examples of late fees--
one example is the maximum late fee of ``Up to $35'' under the 
heading ``Late Fee Warning'' and the other example is the late fee 
($35) that was charged to the consumer in the particular billing 
cycle under the heading ``Fees.'' The CFPB solicited comment only on 
whether the 15-day courtesy period should be incorporated into the 
``Late Fee Warning'' to indicate the late fee would only be charged 
if the consumer does not make the required payment within 15 
calendar days after each due date. The 15-day courtesy period 
disclosure would not have been appropriate for the example of the 
late fee under the heading ``Fee.''
    \217\ Sample Form G-18(G) contains two examples of late fees--
one example is the late fee of ``$35'' under the heading ``Late Fee 
Warning'' and the other example is the late fee ($35) that was 
charged to the consumer in the particular billing cycle under the 
heading ``Fees.'' The CFPB solicited comment only on whether the 15-
day courtesy period should be incorporated into the ``Late Fee 
Warning'' to indicate the late fee would only be charged if the 
consumer does not make the required payment within 15 calendar days 
after each due date. The 15-day courtesy period disclosure would not 
have been appropriate for the example of the late fee under the 
heading ``Fee.''
    \218\ Sample Form G-18(A) only provides an example of a late fee 
that has been charged on the account in that billing cycle (see late 
fee disclosed under the ``Fees'' heading), so a disclosure of the 
15-day courtesy period would not have been appropriate for this 
disclosure.
---------------------------------------------------------------------------

    In addition, the CFPB noted that the following five samples forms 
also include disclosures about maximum penalty fee amounts of ``Up to 
$35'' for over-the-limit fees \219\ and returned-payment fees: (1) G-
10(B); (2) G-10(C); (3) G-10(E); (4) G-17(B); and (5) G-17(C). As 
discussed in the section-by-section analysis of Sec.  
1026.52(b)(1)(ii), in the 2023 Proposal, the CFPB solicited comment on 
whether the $8 safe harbor threshold amount that it proposed for late 
fees should also apply to other penalty fees, including over-the-limit 
fees and returned-payment fees. If the CFPB were to adopt the $8 safe 
harbor threshold amount for all penalty fees, the CFPB solicited 
comment on whether the CFPB should revise the maximum amount of the 
over-the-limit fees and returned-payment fees shown on these forms to 
be ``Up to $8.'' Moreover, as discussed in the section-by-section 
analysis of Sec.  1026.52(b)(2), in the 2023 Proposal, the CFPB 
solicited comment on whether the 15-day courtesy period should be 
provided with respect to all penalty fee, including the over-the-limit 
fees and returned-payment fees. If the CFPB were to adopt the 15-day 
courtesy period for all penalty fees, the CFPB solicited comment on 
whether the 15-day courtesy period should be disclosed in the five 
sample forms discussed above with respect to the over-the-limit fee and 
the returned-payment fee.
---------------------------------------------------------------------------

    \219\ These sample forms refer to over-the-limit fees as ``over-
the-credit-limit fees.''
---------------------------------------------------------------------------

Comments Received and the Final Rule
    The CFPB received no comments on the revisions to the relevant 
sample forms or clauses in appendix G on which it solicited comment and 
is adopting the revisions as discussed below. The final rule amends the 
applicable sample forms or clauses to include a late fee amount of $8 
and a maximum late fee amount of ``Up to $8'' consistent with the late 
fee safe harbor amount set forth in Sec.  1026.52(b)(1)(ii) applicable 
to Larger Card Issuers. Specifically, the final rule amends the 
following 11 sample forms or clauses: (1) G-10(B); (2) G-10(C); (3) G-
10(E); (4) G-17(B); (5) G-17(C); (6) G-18(A); (7) G-18(B); (8) G-18(D); 
(9) G-18(F); (10) G-18(G); and (11) G-21.
    Notwithstanding the changes to the late fee amount in the sample 
forms or clauses, Smaller Card Issuers as defined in Sec.  
1026.52(b)(3) are not subject to the $8 late fee safe harbor threshold 
adopted in this final rule and may use the relevant safe harbor 
thresholds set forth in Sec.  1026.52(b)(1)(ii)(A) through (C). The 11 
revised forms or clauses are samples and card issuers are required to 
disclose the late fee amounts, or maximum late fee amount, that it 
charges consistent with Sec.  1026.52(b).
    The CFPB did not receive comments regarding other changes to the 
sample forms or clauses on which it solicited comment, such as whether 
the 15-day courtesy period for imposing late fees or other penalty 
fees, if adopted, should be disclosed in the sample forms or clauses. 
As discussed in the section-by-section analysis of Sec.  1026.52(b)(2), 
the CFPB is not adopting the 15-day courtesy period for late fees or 
other penalty fees. Therefore, the CFPB is not adopting any edits to 
the sample forms or clauses to disclose a courtesy period related to 
late fees or any other penalty fees. In addition, as discussed in the 
section-by-section analysis of Sec.  1026.52(b)(1)(ii), this final rule 
does not adopt the $8 safe harbor threshold for penalty fees other than 
late fees imposed by Larger Card Issuers including over-the-limit fees 
and return payment fees, so this final rule does not adopt any changes 
to the sample forms or clauses for penalty fees other than late fees.

VIII. Effective Date

The CFPB's Proposal

    The CFPB proposed that the final rule, if adopted, would take 
effect 60 days after publication in the Federal Register. The CFPB 
solicited comment on whether the CFPB should provide a mandatory 
compliance date that is after the effective date for the proposed 
changes. The CFPB indicated in the 2023 Proposal that if a mandatory 
compliance date were adopted, it would be limited to the prohibitions 
on late fees in Sec.  1026.52(b)(1) and (2), except for the proposed 
change to Sec.  1026.52(b)(1)(ii)(D) which would provide that future 
annual adjustments for safe harbor amounts based on changes in the CPI 
do not apply to the late fee safe harbor amount. The CFPB sought 
comment on whether card issuers would need additional time after the 
effective date to make changes to their disclosures to reflect the 
changes in the late fee amounts that they are charging on credit card 
accounts. And, if so, when compliance with the proposed changes, if 
adopted, should be mandatory.
    Separately, under TILA section 105(d), CFPB regulations requiring 
any disclosure which differs from disclosures previously required by 
TILA part A, part D, or part E must have an effective date of October 1 
which follows by at least six months the date of promulgation subject 
to certain exceptions.\220\
---------------------------------------------------------------------------

    \220\ 15 U.S.C. 1604(d).
---------------------------------------------------------------------------

    The 2023 Proposal noted that, TILA section 105(d) only applies to 
any proposed changes requiring disclosures, if adopted, it would not 
necessitate the October 1 effective date for purposes of the late fee 
disclosure for two reasons. First, the 2023 Proposal noted that under 
Regulation Z, card issuers are currently required to disclose the late 
fees amounts, or maximum late fees amounts, as applicable, that apply 
to credit card accounts in certain disclosures, and the disclosure of 
those late fee amounts must reflect the terms of the legal obligation 
between the parties.\221\ In other words, the proposal, if finalized, 
would not require any disclosure that differed from the current 
requirement because the proposed change is not substantive but a mere 
alteration of the disclosed maximum late fee amounts. Second, the 
change in amount would apply to the safe harbor,

[[Page 19188]]

which is an amount that card issuers may elect but are not required to 
use.
---------------------------------------------------------------------------

    \221\ Section 1026.5(c) requires that ``disclosures shall 
reflect the terms of the legal obligation between the parties.''
---------------------------------------------------------------------------

    In addition, if the CFPB were to finalize the proposed 15-day 
courtesy period, as discussed in the 2023 Proposal, the CFPB solicited 
comment on whether the 15-day courtesy period and potential disclosure 
language should have an effective date of ``October 1 which follows by 
at least six months the date of promulgation,'' consistent with TILA 
section 105(d).\222\
---------------------------------------------------------------------------

    \222\ 15 U.S.C. 1604(d).
---------------------------------------------------------------------------

Comments Received

    Disclosure and operational changes. One industry trade association 
commenter advised that the CFPB provide a reasonable date within which 
issuers could adjust their practices and systems, update disclosures 
and conduct internal evaluations in order to determine whether they 
would continue to rely on the safe harbor or use the cost analysis 
provisions in Sec.  1026.52(b)(1)(i) to set the late fee amount. One 
credit union commenter asserted that an implementation period of at 
least six months from the effective date of the rule is necessary to 
allow smaller institutions time to comply with the new requirements. 
One credit union trade association commenter stressed that smaller 
issuers would need an extended compliance window to accurately 
implement the necessary changes to their systems and consumer 
disclosures. This commenter further advised that the CFPB adopt a 
staggered implementation strategy such that larger issuers are required 
to comply before smaller issuers.
    One credit union and several industry trade association commenters 
asserted that the proposed changes, if adopted, would require major 
adjustments to multiple disclosures, cost calculations and cost 
composition, and not just adjustments to the $8 late fee in the 
disclosures as stated in the CFPB's 2023 Proposal. These commenters 
indicated that issuers would also need to disclose and explain the 
proposed fee cap of 25 percent of the minimum required payment and how 
it relates to the proposed $8 late fee, eliminate disclosures for the 
higher late payment fee for recurring late payments within a six-month 
period and update their systems to reflect the changes as detailed in 
the CFPB's proposal. The commenters further asserted that the CFPB's 
proposed 60-day effective date ignores the full impact of the proposed 
revisions, if adopted, and the substantial changes to disclosures and 
systems that would be necessary to comply with the revised regulation. 
Furthermore, some of these commenters mentioned that the CFPB's 
assertion that card issuers are not mandated to use the safe harbor 
failed to take into account the fact that most card issuers rely on the 
existing safe harbor and would need to change their disclosures 
regardless of whether they continue to rely on the safe harbor or opt 
to disclose late fees calculated under the cost analysis provisions in 
Sec.  1026.52(b)(1)(i). These commenters concluded that either option 
would require extensive changes to required disclosures and that the 
60-day effective period is impracticable and unworkable.
    One financial institution asserted that the CFPB's proposal for the 
60-day effective date would be problematic for issuers whose portfolios 
significantly consist of private label and co-branded credit cards, due 
to existing contractual limitations that will need to be renegotiated 
with partners to effectuate changes in account-pricing terms. This 
commenter asserted that the 60-day effective date provides an 
unreasonably short amount of time to renegotiate existing contracts and 
implement new terms and the proposal, if finalized, would 
disproportionately affect private label and co-branded credit card 
issuers.
    Impact of TILA section 105(d) on the effective date. One law firm 
commenter on behalf of several card issuers and several industry trade 
association commenters asserted that the CFPB's proposed effective date 
was in violation of section 105(d) of TILA. These commenters asserted 
that because the CFPB's 2023 Proposal, if adopted, would require 
changes to multiple mandatory consumer disclosures, the effective date 
must be October 1 which follows by at least six months the date of 
promulgation consistent with TILA section 105(d). One of the trade 
association commenters indicated that under section 105(d), any 
proposed changes finalized after March 31, 2023, is statutorily 
required to have an effective date of October 1, 2024. They explained 
that the only statutory exception provided to the CFPB under section 
105(d) to shorten the effective date is ``when it makes a specific 
finding that such action is necessary to comply with the findings of a 
court or to prevent unfair or deceptive disclosure practices,'' neither 
of which the CFPB mentioned in its proposal. Furthermore, the law firm 
commenter and several of the industry trade association commenters 
explained that the two grounds provided by the CFPB for the non-
applicability of section 105(d) mischaracterized the proposed changes 
and that, as long as any changes are to be made to the disclosures, 
section 105(d) of TILA would apply. These commenters concluded that it 
would be arbitrary and capricious for the CFPB to reduce the amount of 
time statutorily required to amend existing disclosure requirements, or 
to reclassify existing late fee practices and disclosures as ``unfair 
or deceptive'' when they are fully consistent with TILA and the CFPB's 
Regulation Z current penalty fee safe harbor provision. The law firm 
described above and several of the industry trade association 
commenters asserted that the delayed effective date requirements of 
section 105(d) of TILA are necessary not only to accommodate the 
changes in disclosures, but also to provide issuers sufficient time to 
put in place systems to calculate the late fee amounts they can charge 
customers, which then become the subject of the disclosures. These 
commenters asserted that the final rule should take effect no earlier 
than October 1, 2024.

The Final Rule

    For the reasons discussed below, the CFPB has determined that this 
final rule will take effect 60 days after publication in the Federal 
Register. The 60-day effective date applies to the following revisions, 
among others, with respect to late fees imposed by Larger Card Issuers; 
(1) the repeal of the current safe harbor threshold amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B); (2) the adoption of a late fee safe 
harbor dollar amount of $8 in Sec.  1026.52(b)(1)(ii); (3) the 
elimination of a higher safe harbor dollar amount for subsequent late 
fees that occur during the same billing cycle or in one of the next six 
billing cycles; \223\ and (4) the elimination of the annual adjustment 
provisions for the safe harbor dollar amounts so that those provisions 
do not apply to the $8 late fee safe harbor amount.
---------------------------------------------------------------------------

    \223\ This final rule does not amend the safe harbor set forth 
in Sec.  1026.52(b)(1)(ii)(C) applicable to charge card accounts.
---------------------------------------------------------------------------

    Disclosure and operational changes. With respect to the commenters 
asserting that the 2023 Proposal, if adopted, would require complex 
changes to their operating systems, the CFPB has determined that Larger 
Card Issuers likely have the capacity and resources to comply with the 
revisions discussed above within 60-days of when this final rule is 
published in the Federal Register.
    The CFPB notes that several provisions proposed, and for which the 
CFPB sought comments, have not been adopted under this final rule. For 
example, the CFPB is not adopting the proposed provisions to restrict 
late fee amounts to 25 percent of the required minimum payment. In 
addition, this

[[Page 19189]]

final rule does not adopt the following provisions on which the CFPB 
sought comment: (1) a 15-day courtesy period; (2) the elimination of 
safe harbor threshold amounts for other penalty fees; and (3) imposing 
additional conditions on using the safe harbor threshold amounts (such 
as providing auto payment options). The CFPB has determined that not 
adopting these changes in this final rule reduces the extent of 
operational and disclosure changes referenced by industry commenters. 
The full impact of this final rule on card issuers' operations is 
therefore much more limited than the possible revisions discussed in 
the CFPB's 2023 Proposal. In sum, Larger Card Issuers would have 60 
days to delete the existing late fee figure in their disclosures and 
replace it with $8 or another number computed using the cost analysis 
provisions, and this change would only have to appear on disclosures 
mailed or delivered to consumers 60 days after publication of this 
final rule in the Federal Register. The CFPB expects that this 
effective date will provide Larger Card Issuers with sufficient time to 
accomplish this task.
    With respect to commenters' assertions that card issuers would need 
to conduct a comprehensive cost analysis to determine whether the new 
safe harbor late fee adequately covers their cost, the CFPB maintains 
that this final rule does not mandate Larger Card Issuers to conduct 
any cost analysis. Due to safety and soundness regulation and general 
good corporate governance principles, the CFPB expects that Larger Card 
Issuers have more sophisticated cost accounting systems than Smaller 
Card Issuers and should be able to calculate a late fee amount based on 
the cost analysis provisions within 60 days. However, if Larger Card 
Issuers choose to use the cost analysis provisions as set forth in 
Sec.  1026.52(b)(1)(i), including the requirement to exclude post-
charge off collection costs from its analysis, they must do so and 
comply with the changes in this final rule by this final rule's 
effective date. Alternatively, Larger Card Issuers may choose to 
initially adopt the $8 late fee safe harbor amount while separately 
conducting a more extensive cost analysis.
    With respect to comments on the impact of the 60-day effective date 
on private label and co-branded card issuers, the CFPB notes that many 
private label and co-branded card issuers are likely to be Larger Card 
Issuers (i.e., card issuers that together with their affiliates have 
one million or more open credit card accounts), and these issuers, 
whose business focuses on credit cards, likely have the capacity and 
resources to make the required disclosures within the 60-day timeframe. 
In addition, such issuers have the option to initially adopt the $8 
late fee safe harbor as they separately renegotiate contract terms with 
their partners.
    With respect to the commenters' requests for a staggered 
implementation strategy and additional time to comply with the final 
rule by smaller issuers, the CFPB has determined that this request is 
not needed. The CFPB notes that Smaller Card Issuers as defined in 
Sec.  1026.52(b)(3) are not subject to the safe harbor reduction.
    Impact of TILA section 105(d) on the effective date. Under TILA 
section 105(d), CFPB regulations requiring any disclosure which differs 
from disclosures previously required by TILA part A, part D, or part E, 
or by any regulation of the Bureau promulgated thereunder must have an 
effective date of October 1 which follows by at least six months the 
date of promulgation subject to certain exceptions.\224\ The CFPB 
maintains that TILA section 105(d) does not necessitate the October 1, 
2024 effective date for purposes of the late fee disclosure for three 
reasons. First, as noted in the proposal, under Regulation Z, card 
issuers are currently required to disclose the late fee amount, or 
maximum late fee amount, as applicable, that apply to credit card 
accounts in certain disclosures, and the disclosure of those late fee 
amounts must reflect the terms of the legal obligation between the 
parties.\225\ This final rule does not change these requirements nor 
alter any existing disclosure of the maximum late fee amounts; instead, 
it would solely result in a change to the amount of the late fee 
disclosed by Larger Card Issuers using the safe harbor, i.e., from a 
current amount of up to $41 to the new safe harbor of $8.
---------------------------------------------------------------------------

    \224\ 15 U.S.C. 1604(d).
    \225\ See supra note 221.
---------------------------------------------------------------------------

    Second, while the CFPB recognizes that this rule will result in 
Larger Card Issuers changing the numerical value for late fees in their 
disclosures for consumers, the CFPB notes that such changes to the 
numerical amount of late fees are something that card issuers 
frequently do. For example, card issuers change the disclosure of late 
fee amounts after the CFPB adjusts the safe harbors for inflation 
without waiting until the next October 1. Third, the change in amount 
applies to the safe harbor, which is an amount that card issuers may 
elect but are not ``required'' to use.

IX. CFPA Section 1022(b) Analysis

A. Overview

    This final rule is summarized in part I. In developing this final 
rule, the CFPB has considered this final rule's potential benefits, 
costs, and impacts in accordance with section 1022(b)(2)(A) of the 
CFPA.\226\ The CFPB requested comment on the preliminary analysis 
presented in the 2023 Proposal and submissions of additional data that 
could inform the CFPB's analysis of the benefits, costs, and impacts, 
and the discussion below reflects comments received. In developing this 
final rule, the CFPB consulted with the appropriate prudential 
regulators and other Federal agencies, including regarding the 
consistency of this final rule with any prudential, market, or systemic 
objectives administered by those agencies, in accordance with section 
1022(b)(2)(B) of the CFPA.\227\ The CFPB also consulted with agencies 
described in TILA section 149.\228\
---------------------------------------------------------------------------

    \226\ 12 U.S.C. 5512(b)(2)(A).
    \227\ 12 U.S.C. 5512(b)(2)(B).
    \228\ 15 U.S.C. 1665d(b) and 1665d(e).
---------------------------------------------------------------------------

B. Data Limitations and Quantification of Benefits, Costs, and Impacts

    The discussion below relies on information that the CFPB has 
obtained from industry, other regulatory agencies, and publicly 
available sources, including reports published by the CFPB. These 
sources form the basis for the CFPB's consideration of the likely 
impacts of this final rule. The CFPB provides estimates, to the extent 
possible, of the potential benefits and costs to consumers and covered 
persons of this final rule, given available data.
    Specifically, this discussion relies on the CFPB's analysis of both 
portfolio and account data from the Y-14 collection, as described in 
part V above. The discussion also relies on data collected directly 
from a diverse set of credit card issuers to support the CFPB's 
biennial report on the state of the consumer credit card market as 
required by the CARD Act.\229\ The CFPB also consulted the academic 
literature, as well as public comments in response to the Board's 2010 
Final Rule, the CFPB's ANPR, and the CFPB's 2023 Proposal that preceded 
this final rule.
---------------------------------------------------------------------------

    \229\ See supra note 87.
---------------------------------------------------------------------------

    The CFPB acknowledges limitations that prevent an exhaustive 
determination of benefits, costs, and impacts. Quantifying the 
benefits, costs, and impacts requires quantifying future consumer and 
card issuer responses to the changes. It is impossible to predict these 
responses with certainty given

[[Page 19190]]

available data and research methods. This reflects in part the fact 
that the effects of this final rule will depend on choices made by 
independent actors in response to this final rule, which are inherently 
difficult to predict with certainty. In particular, the available 
evidence does not permit a definitive prediction of how changes to late 
fees will affect late payments and delinquencies or the expected 
substitution effects across credit cards and between credit cards and 
other forms of credit. Similarly, the evidence available does not 
permit definitive conclusions about the cost and effectiveness of steps 
Larger Card Issuers might take to facilitate timely repayment, collect 
efficiently, reprice any of their services, remunerate their staff, 
suppliers, or sources of capital differently, or enter or exit any 
segment of the credit card market. Having said that, the data and 
research available is relatively significant and helpful for 
understanding the likely general effects of this final rule.
    In light of these data limitations, the analysis below provides 
quantitative estimates where possible and a qualitative discussion of 
this final rule's benefits, costs, and impacts. General economic 
principles and the CFPB's expertise, together with the available data, 
provide insight into these benefits, costs, and impacts.

C. Baseline for Analysis

    In evaluating this final rule's benefits, costs, and impacts, the 
CFPB considered the impacts against a baseline in which the CFPB takes 
no action. This baseline includes existing regulations and the current 
state of the market. In particular, it assumes (1) the continuation of 
the existing safe harbor amounts for credit card late fees, currently 
$30 generally and $41 for each subsequent late payment occurring in one 
of the next six billing cycles; and (2) that these amounts will be 
adjusted when there are changes to the CPI in accordance with the 
current provision in Sec.  1026.52(b)(1)(ii)(D).

D. Comments Received

General Comments on the 1022(b)(2)(A) Analysis
    Several industry trade associations and one academic commenter 
generally asserted that the cost-benefit analysis for the 2023 Proposal 
was inadequate. The academic commenter asserted that the cost-benefit 
analysis was not based on academically vetted and scrutinized economic 
justifications for a specific safe harbor of $8 in distinction to 
another level, whether lower or higher than $30.
    One credit union trade association commenter asserted that the 2023 
Proposal lacked a sufficient cost-benefit analysis, and the proposal 
did not contain a comprehensive outline of potential effects. This 
commenter further asserted that the proposal did not contain a 
systematic economic analysis of a ``but-for world'' in which the rule 
is implemented. This commenter provided the views of a consulting firm 
hired by the commenter indicating that in the consultant's view, the 
CFPB did not provide a valid economic analysis of the impact of the 
2023 Proposal on: (1) the increased frequency of late payments caused 
by lower late fees; (2) the changes in APRs, credit limits, minimum 
payments and other credit card terms caused by lower late fees; (3) the 
increased risk of charge-offs and losses faced by credit card issuers 
resulting from the increased frequency of late and skipped payments 
caused by lower late fees; (4) the much greater difficulty in adapting 
to lower late fees faced by Federal credit unions that cannot charge 
APRs of more than 18 percent; (5) which consumers will benefit from, 
and which consumers will be harmed by, the decrease in late fees and 
the resulting changes in other credit card terms; and (6) the decrease 
in access to credit, and the reduction in credit limits for consumers 
with lower credit scores caused by lower late fees.
    The CFPB disagrees with the general assertion that its 
consideration of benefits and costs of the 2023 Proposal under section 
1022(b) of the CFPA was inadequate. The CFPB in its 1022(b) analysis 
for the 2023 Proposal conducted a thorough analysis of the reasonably 
available data to estimate, quantify, and monetize benefits and costs 
to the extent possible. As noted above, the CFPB has limited evidence 
to predict fully how changes to late fees will affect late payments and 
delinquencies or the expected substitution effects across credit cards 
and between credit cards and other forms of credit. While some 
commenters assumed that such predictions can be made with a high degree 
of certainty, no commenter offered new and reliable evidence or 
research to corroborate their assertions. Given the difficulties of 
precisely foreseeing future impacts, the most viable approach involves 
a careful examination of the effects from analogous historical events. 
In developing this final rule, the CFPB undertook a thorough review of 
available research and data analyzing the impacts of comparable 
regulatory changes in recent decades that allow some reasonable 
extrapolation regarding potential outcomes.
Comments Concerning Proposal's Impact on Consumers
    One financial regulatory advocacy group asserted that reducing the 
amount of late fees charged would have a positive effect on the 
financial health of consumers especially those who carry over credit 
balances each month. This commenter asserted that the financial 
distress suffered by consumers due to the high cost of late fees was 
further compounded by the limited amount of a consumer's payment that 
is applied to the principal.
    One trade association commenter asserted that the CFPB failed to 
properly quantify the benefits to consumers, and the commenter claimed 
that the 2023 Proposal would disproportionately benefit a small portion 
of consumers at the expense of others. This commenter also asserted 
that the CFPB's proposal (1) evinced a lack of understanding with 
respect to issuers' obligations to manage credit risk, which the 
commenter claimed would require issuers to take actions that may result 
in a reduction in access to credit, and (2) assumed that the proposed 
changes would incentivize issuers to do more to encourage on-time 
payments.
    One credit union trade association claimed that the cost-benefit 
analysis in the 2023 Proposal indicated that there would be many 
possible negative consequences to consumers of the proposed changes, 
which the commenter stated would include higher interest rates on 
credit cards and negative changes to other terms and fee amounts. This 
commenter claimed that the CFPB indicated that many consumers will be 
``harmed'' by these changes without experiencing any of the benefits. 
This commenter urged the CFPB to re-examine the cost/benefit balance of 
the proposal and recognize that it will ultimately cause more harm to 
more consumers than the benefits to those it will favor.
    Several industry trade associations asserted that the CFPB did not 
adequately reflect the cost of the 2023 Proposal to consumers. These 
commenters claimed that the vast majority of consumer cardholders will 
be harmed by the proposal. These commenters also claimed that the 
proposal (1) would limit the ability of issuers to allocate the cost 
and risk of late payments to the late paying population and would 
require issuers to spread these costs across all consumer cardholders; 
(2) would increase late payments and associated costs; and (3) would 
cause the cost of credit to

[[Page 19191]]

increase, credit availability to drop, and rewards and other credit 
card features to decline or disappear. These commenters also claimed, 
somewhat contradictorily, that the CFPB ``expressly acknowledges'' 
these consequences with no rebuttal.
    One law firm representing several card issuers claimed that while 
the CFPB acknowledged various costs imposed by the 2023 Proposal, it 
did not provide adequate support for its assessment that the 2023 
Proposal would result in a ``net benefit for consumers.'' This 
commenter asserted that the 2023 Proposal would benefit only the ``very 
small subset'' of the consumer population that regularly pays late fees 
and claimed that the 2023 Proposal acknowledges that cardholders who 
never make late payments ``would not benefit and would be worse off'' 
due to potential increases in maintenance fees and APRs. This commenter 
asserted that with respect to the population of consumers with subprime 
credit scores that regularly pay late fees, the proposal did not 
adequately consider that any benefits received ``would ultimately be 
offset'' by any of the possible outcomes articulated by the CFPB in the 
2023 Proposal: increases in the APR; reduced access to credit; 
increased delinquencies and negative credit reporting; or increases in 
other credit card fees.
    As an initial matter, this rule is intended to tailor the safe 
harbor to a more reasonable approximation of the existing statutory 
standard of ``reasonable and proportional.'' In other words, this rule 
brings the regulations closer in line with the statutory text. The 
requirement that penalty fees be reasonable and proportional to 
violations reflects Congress' judgment that penalty fees should not be 
higher, even if higher fees might have led to lower prices for 
consumers who do not incur penalties. The CFPB is not in a position to 
dispute Congress' conclusion that the benefits of the statutory scheme 
were worth the trade-offs. The CFPB's analysis of the costs, benefits, 
and impacts of this rule inform the agency's decision, but ultimately, 
the decision to finalize this rule is based on a conclusion that the 
rule is more closely aligned with the statute.
    The CFPB disagrees with the assertion that its consideration of 
benefits and costs to consumers was inadequate in the 2023 Proposal. As 
noted by several commenters, the CFPB discussed in the 2023 Proposal 
not only the proposed rule's potential benefits to consumers who often 
incur late fees but also the potential costs to some consumers, in 
particular those who seldom incur late fees, from potential offsetting 
changes to the terms of credit card agreements, such as increases in 
the interest rate, increases in the amount of other fees, or changes in 
rewards.\230\ For example, the 2023 Proposal explained the decrease in 
late fees would affect different consumers differently depending on how 
often they pay late and whether they carry a balance. The 2023 Proposal 
further noted that: (1) Cardholders who never pay late will not benefit 
from the reduction in late fees and could pay more for their account if 
maintenance fees in their market segment rise in response--or if their 
interest rate increases in response and these on-time cardholders also 
carry a balance; (2) Frequent late payers are likely to benefit 
monetarily from reduced late fees, even if their higher interest rates 
or maintenance fees offset some of the benefits; (3) Cardholders who do 
not regularly carry a balance but occasionally miss a payment would 
benefit from the proposed changes so long as any increase in the cost 
of finance charges (including the result of late payments that 
eliminate their grace period) is smaller than the drop in fees; and (4) 
Cardholders who carry a balance but rarely miss a payment are less 
likely to benefit on net.\231\
---------------------------------------------------------------------------

    \230\ 88 FR 18906 at 18932-36.
    \231\ Id. at 18934.
---------------------------------------------------------------------------

    The CFPB also notes that APRs and other prices reflect the issuer's 
assessment of individual consumers' likely usage and risk profiles, 
particularly at Larger Card Issuers. If an issuer prices its product 
knowing that a consumer is very unlikely to make late payments, then a 
reduction in late fees will make little difference to the optimal 
pricing for that consumer, and there is no reason to expect meaningful 
offsetting price changes for such a consumer. Any offsetting price 
changes are likely to be more significant for categories of consumers 
that issuers anticipate are more likely to pay late fees.
    These expectations can be correct only as averages for broader 
groups based on factors the issuer can observe when setting prices for 
an account, meaning that the effects of the rule on consumers will 
still depend on whether they make more or fewer late payments relative 
to others who appear similar. Nonetheless, individualized pricing based 
on risk profiles limits the extent to which consumers who infrequently 
pay late are likely to pay more as a result of the rule.
    In the 2023 Proposal, the CFPB also considered that for consumers 
who incur late fees the possibility that the dollar value of additional 
consumer costs from offsetting price changes could be equal to or 
greater than the savings to consumers from lower late fees. The CFPB 
explained that it was unlikely that the fee reductions would be fully 
offset because (1) offsetting price increases are most likely where 
markets are most competitive since, in competitive markets where profit 
margins are low, any reduction in revenue is likely to lead some firms 
to exit the market, limiting supply and driving prices up for 
consumers; and (2) recent evidence suggests that profits from credit 
card issuance are significant, making it unlikely that reduced fee 
revenue would lead to exit.\232\ This reasoning has been empirically 
validated by the very limited offset found by studies of the fee 
reductions from the implementation of the CARD Act. The 2023 Proposal 
cited a prominent academic study as well as its own internal research. 
Some commenters cited research on the effects of debit card interchange 
fee limits in the Durbin Amendment.\233\ The latest revision of this 
working paper estimates that banks offset less than half of the lost 
interchange revenue through increases in checking account fees. 
Although these findings relate to a different product market, they are 
generally consistent with the conclusion that lost bank revenue from 
reduced credit card late fees would not be fully offset.\234\
---------------------------------------------------------------------------

    \232\ Id. at 18933-34.
    \233\ Vladimir Mukharlyamov & Natasha Sarin, Price Regulation in 
Two-Sided Markets: Empirical Evidence from Debit Cards (Dec. 24, 
2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3328579.
    \234\ The authors also note that the Durbin amendment's limits 
on debit card interchange fees may have led banks to issue credit 
cards more actively, which generate larger interchange fees, which 
would tend to lessen any reduction in total interchange fees for 
merchants.
---------------------------------------------------------------------------

    The CFPB considered the evidence that it deemed to be reliable and 
that was reasonably available, and commenters did not provide 
additional sources of reliable data about the effects of late fees on 
consumers and covered persons that materially alters the CFPB's 
assessment of the benefits and costs to consumers and covered persons 
of the 2023 Proposal.
    In the 2023 Proposal, the CFPB also considered general economic 
principles in its analysis. For example, economic principles imply that 
private firms will weigh costs and benefits of different actions, and 
that if the benefit of an action is exogenously reduced, those firms 
will generally change their actions in response. Thus, for example, in 
the 2023 Proposal, the CFPB considered that firms considering 
investments in

[[Page 19192]]

reminders or other mechanisms to discourage late payment would balance 
the cost of such investments against the benefit, and that the 
reduction of late fee amounts would affect that cost/benefit 
calculation.\235\
---------------------------------------------------------------------------

    \235\ Id. at 18935.
---------------------------------------------------------------------------

Comments Concerning Proposal's Impact on Card Issuers
    One industry trade association asserted that the CFPB inadequately 
weighed the costs and reduced deterrent effect of the lower safe harbor 
described in the 2023 Proposal. In doing so, the commenter also claimed 
that the CFPB (1) underweighted the costs of compliance with a lower 
safe harbor regime; and (2) did not adequately quantify the various 
impacts that its $9 billion estimated reduction in fee revenue will 
have on the pricing and availability of credit cards. This commenter 
claimed that the CFPB's inadequate evaluation of the costs associated 
with the 2023 Proposal render the proposal arbitrary and capricious in 
violation of the APA.
    One bank asserted that the CFPB in the 2023 Proposal did not 
adequately consider the reduction of access to consumer financial 
products in its cost-benefit analysis under 1022(b); rather, the bank 
claimed that the CFPB stated the 2023 Proposal is ``likely to drive 
some firms out of the market.'' This commenter also claimed that the 
CFPB in the 2023 Proposal did not adequately consider the impact on 
covered persons in rural areas.
    One law firm representing several clients claimed that the 2023 
Proposal's consideration of costs and burdens did not adequately 
consider the cost of compliance for card issuers. This commenter 
claimed that the 2023 Proposal would impose disproportionately high 
costs on credit card issuers that service borrowers with subprime 
credit scores, many of whom may need to exceed the $8 safe harbor, and 
such issuers would need to spend significant resources to build 
internal processes and procedures for calculating and documenting the 
costs of late fees if they want to use cost analysis provisions set 
forth in Sec.  1026.52(b)(1)(i). This commenter also claimed that the 
2023 Proposal would require such issuers to spend significant resources 
building out an evidentiary record in order to use the cost analysis 
provisions, particularly in light of the CFPB's continued public 
scrutiny of credit card late fees.
    One individual commenter claimed that the CFPB has acted 
arbitrarily and capriciously in not adequately considering the 
potential costs to issuers. This commenter asserted that the CFPB did 
not adequately estimate the possible increase in compliance burden as 
more credit card issuers would find it necessary to prove their 
collection costs exceed the safe harbor limits.
    One industry trade association questioned whether the CFPB had 
evidence to support the claim that card issuers could mitigate late 
payment using other steps. For example, this commenter claimed that the 
CFPB did not have adequate evidence for the CFPB's statement that card 
issuers can mitigate the lost revenue by launching additional programs 
to reduce the incidence of late payments, such as sending reminders and 
offering automatic or convenient payment options. The commenter 
asserted that its members report that such measures are common practice 
now and are not likely to be more effective if cardholders are 
contacted more frequently.
    Two credit union trade associations asserted that the CFPB should 
not have suggested in the 2023 Proposal that issuers can mitigate the 
loss of revenue from late fees by taking other measures such as 
increasing interest rates. For example, these commenters indicated that 
credit unions face different compliance costs and challenges than 
larger card issuers particularly as related to use of the cost analysis 
provisions set forth in Sec.  1026.52(b)(1)(i). Several credit union 
trade associations and credit union commenters further asserted that 
Federally chartered credit unions may be prohibited from raising 
interest rates because they are subject to a statutory interest rate 
cap so that may not be a feasible mechanism to recover lost 
revenue.\236\
---------------------------------------------------------------------------

    \236\ See supra note 104.
---------------------------------------------------------------------------

    The CFPB disagrees with the claim that its analysis pursuant to 
section 1022(b)(2)(A) of the CFPA in the 2023 Proposal does not 
adequately address the costs to card issuers. As discussed in the 
1022(b) analysis of the 2023 Proposal, the CFPB considered a range of 
potential costs to issuers of complying with the 2023 Proposal.\237\ 
For example, the 2023 Proposal noted that because the proposal would 
significantly reduce the aggregate value of late fees paid by 
consumers, the proposal would significantly reduce late fee revenue for 
issuers.\238\ Nor does the CFPB agree with commenters suggesting that 
affected credit card issuers lack adequate existing means to track 
pertinent costs in a manner sufficient to conduct reliable cost 
analysis as set forth in Sec.  1026.52(b)(1)(i). Given the general 
sophistication and scale of the Larger Card Issuers covered under the 
final rule, these institutions have access to substantial data on 
internal costs and operations.
---------------------------------------------------------------------------

    \237\ Id. at 18935-36.
    \238\ Id. at 18935.
---------------------------------------------------------------------------

    The CFPB also disagrees with the claim that it did not adequately 
consider in the 2023 Proposal the potential effects on the pricing and 
availability of credit cards, as it discussed a range of possible 
effects on the terms of credit cards and availability of credit cards 
as a result of reduced late fee revenue. For example, the 2023 Proposal 
explained that (1) issuers can mitigate the costs of the proposal to 
some extent by taking other measures (e.g., increasing interest rates 
or changing rewards); and (2) it is also possible that some consumers' 
access to credit could fall if issuers could adequately offset lost fee 
revenue expected from them only by increasing APRs to a point at which 
a particular card is not viable, for example, because the APR exceeds 
applicable legal limits.\239\ The CFPB also noted that economic theory 
as well as relevant empirical evidence convinced it that full pass-
through to consumers was not likely.
---------------------------------------------------------------------------

    \239\ Id. at 18934-35.
---------------------------------------------------------------------------

    With respect to the criticism by the two credit union trade 
associations that credit unions face different compliance costs and 
challenges than larger card issuers particularly as related to use of 
the cost analysis provisions set forth in Sec.  1026.52(b)(1)(i), the 
CFPB notes that this final rule will not cover most credit unions 
because they are Smaller Card Issuers as defined in new Sec.  
1026.52(b)(3). As discussed in part VI, the CFPB recognizes that it 
relied on Y-14 data from certain Larger Card Issuers in the 2023 
Proposal, and as discussed in that part, the CFPB also recognizes that 
smaller credit unions could face different challenges in using the cost 
analysis provisions in Sec.  1026.52(b)(1)(i) because of economies of 
scale and other issues.
    The CFPB acknowledges that at least four Federal credit unions are 
likely to be impacted by the final rule. The APR caps reduce these 
firms' ability to risk-price to certain customers, especially in an 
environment with higher inflation and prevailing nominal rates of 
interest. This fact will be heightened by the final rule, which will be 
a further constraint on credit card pricing for these firms, consistent 
with the intent of Congress to ensure that penalty fees are reasonable 
and proportional.

[[Page 19193]]

E. Potential Benefits and Costs to Consumers and Covered Persons

    This section discusses the benefits and costs to consumers and 
covered persons of the following changes applicable to late fees 
charged by Larger Card Issuers: (1) the repeal of the current safe 
harbor threshold amounts, the adoption of a lower safe harbor dollar 
amount of $8, and the elimination of a higher safe harbor dollar amount 
for subsequent violations of the same type that occur during the same 
billing cycle or in one of the next six billing cycles; and (2) the 
elimination of the annual adjustments for the safe harbor dollar 
amounts to reflect changes in the CPI set forth in current Sec.  
1026.52(b)(1)(ii)(D) to the $8 late fee safe harbor. These two 
amendments will only apply with respect to late fees charged by Larger 
Card Issuers (i.e., card issuers that together with their affiliates 
have million or more open credit card accounts). This final rule does 
not adopt these two amendments for Smaller Card Issuers.
    Pursuant to the annual adjustments for safe harbor dollar amounts 
in Sec.  1026.52(b)(1)(ii)(D), this final rule also revises the safe 
harbor threshold amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) to $32, 
except that it sets forth a safe harbor of $43 for each subsequent 
violation of the same type that occurs during the same billing cycle or 
in one of the next six billing cycles. These revised safe harbor 
threshold amounts of $32 and $43 apply to penalty fees other than late 
fees for all card issuers (i.e., Smaller Card Issuers and Larger Card 
Issuers) as well as late fees imposed by Smaller Card Issuers, as noted 
above.
    This final rule also amends certain sample forms and clauses in, 
and commentary to, Regulation Z to clarify the application of the rule 
and make conforming adjustments. The CFPB does not separately discuss 
the benefits and costs of these other amendments but has determined 
that they will generally lower compliance costs for card issuers and 
facilitate consumer understanding of the rule. Finally, the discussion 
below also considers the benefits and costs of certain other 
alternatives that the CFPB considered.
Potential Benefits and Costs to Consumers and Covered Persons of the $8 
Late Fee Safe Harbor Changes
    The CFPB is amending Sec.  1026.52(b)(1)(ii) to repeal the current 
safe harbor amounts for late fees charged by Larger Card Issuers--
currently set at $30 and $41 for a first and subsequent violation, 
respectively--and to adopt a late fee amount of $8 for the first and 
subsequent violations.\240\ This final rule will eliminate the higher 
safe harbor amount for subsequent late payment violations with respect 
to late fees charged by Larger Card Issuers.
---------------------------------------------------------------------------

    \240\ As discussed in the section-by-section analysis of Sec.  
1026.52(b)(1)(ii)(C) in part VII, the CFPB is not lowering or 
otherwise changing the safe harbor amount of a late fee that card 
issuers may impose when a charge card account becomes seriously 
delinquent.
---------------------------------------------------------------------------

    As discussed in part VI, based on its review of both public and 
confidential data, the CFPB estimates that these revised provisions 
would apply to approximately the largest 30 to 35 issuers by 
outstanding balances (out of around 4,000 financial institutions that 
offer credit cards). This would cover over 95 percent of the total 
outstanding balances in the credit card market. Thus, these revised 
provisions would cover all of the Y-14+ issuers for which the CFPB has 
total collections and late fee revenue data, as well as about a dozen 
other similar issuers with large credit card portfolios.
Potential Benefits and Costs to Consumers of the $8 Late Fee Safe 
Harbor Changes
    In general, this final rule's lower safe harbor amount for late 
fees of $8 for first and subsequent violations will benefit consumers 
doing business with Larger Card Issuers who pay late by reducing their 
late fee amounts. This direct benefit may be offset to the extent that 
Larger Card Issuers respond to lost fee revenue from consumers in 
specific risk tiers with price increases elsewhere (like APR) to 
consumers in that same risk tier, and potentially if consumers respond 
to reduced late fees in ways that harm them in the long run. The 
discussion below begins with the direct benefits from lower late fees, 
then turns to the possibility that those benefits are offset through 
changes to other prices, and then addresses the potential effects on 
consumers of changes to late payment behavior.
    The direct benefits to consumers who pay late could be as high as 
the fees saved with the $8 fee amount on violations without or with a 
recent prior violation--that is, the difference between fees currently 
charged and the lower $8 amount. For example, for a consumer who would 
incur a $31 late fee, the savings will be $23. Based on data considered 
in the 2023 Proposal, the CFPB estimates that aggregate late fees 
assessed for issuers in the Y-14+ data were $14 billion in 2019 and $12 
billion in 2020 and that the average late fee charged was $31 in 
2020.\241\ Thus, if fees had been reduced to $8, it would have reduced 
aggregate late fees charged to consumers by several billion dollars.
---------------------------------------------------------------------------

    \241\ Late Fee Report, at 4. As discussed in part V, the Y-14+ 
data includes information from the Board's Y-14 data and a diverse 
group of specialized issuers. After issuing the 2023 Proposal, the 
CFPB also published its 2023 CARD Act report on credit cards, which 
reports $11.5 billion and $14.5 billion late fee revenue for Y-14+ 
issuers in 2021 and 2022, respectively. 2023 Report, at 65.
---------------------------------------------------------------------------

    To estimate the extent of the reduction, based on data considered 
in the 2023 Proposal, the CFPB examines Y-14 account-level data for the 
12-month period from September 2021 to August 2022. The issuers in this 
sample represent an estimated 73 percent of aggregate credit card 
balances and reported collecting $5.688 billion in late fees during the 
period, and the CFPB estimates that the collected fees would have been 
$1.451 billion, or 74.6 percent lower, if fees had been $8 rather than 
the fees actually collected.\242\ As noted in the 2023 Proposal, the 
CFPB does not have account-level data for any issuers other than those 
included in the Y-14 data. In the 2023 Proposal, the CFPB assumed that 
the 73 percent of balances covered by these issuers with collection 
costs in the Y-14 data collection most recently is representative of 
the fee structure and incidence of the entire market, and provided that 
these figures would have implied $5.8 billion savings for consumers 
(not including any fees charged but not ultimately collected). However, 
as noted in the 2023 Proposal, the Y-14+ data suggest that late fee 
revenue per account at these Y-14 issuers is less than for other 
issuers in the Y-14+. This implies an even greater reduction in fee 
revenue and, in turn, greater consumer savings from Larger Card Issuers 
not included in the Y-14 data, meaning that $5.8 billion is therefore 
likely to be an underestimate of the potential reduction in fees. As 
discussed in the 2023 Proposal, if the 74.6 percent reduction in fee 
revenue were applied to the total estimated $12 billion in late fees at 
the Larger Card Issuers included in the Y-14+ from 2020, it would have 
implied a reduction

[[Page 19194]]

in fee revenue of approximately $9 billion.\243\
---------------------------------------------------------------------------

    \242\ By adjusting the collected late fee revenue with how 
assessed fee amounts would have changed, this analysis disregards 
the apparent but immaterial benefits to accounts whose assessed fees 
are not collected (but charged off). The CFPB estimates that this 
affects as much as 14 percent of late fee incidents. Also, as many 
as 5 percent of assessed late fees are reversed in later months 
(within-month waivers and reversals might already be netted out in 
the account data the Y-14 collection collects). The analysis here 
applied the same cap to reversals as to the original fees, thus 
minimizing the overcounting of benefits.
    \243\ The CFPB notes that the estimated reduction of fee revenue 
of approximately $9 billion was for the Y-14+ issuers only and did 
not factor in additional reduction of fee revenue for other card 
issuers (namely, Larger Card Issuers that are not included in the Y-
14+ and are covered by this final rule, and Smaller Card Issuers 
that would have been covered by the $8 late fee safe harbor under 
the proposal but are not covered by the $8 late fee safe harbor 
under this final rule).
---------------------------------------------------------------------------

    The benefits to consumers, however, will be lower if issuers choose 
to rely on the cost analysis provisions in Sec.  1026.52(b)(1)(i) in 
order to set late fees at amounts higher than the $8 safe harbor. By 
using estimates of pre-charge-off collection costs per paid incident 
using the Y-14 data from September 2021 to August 2022 (consistent with 
the data used in the 2023 Proposal), the CFPB expected that fewer than 
four of the 12 issuers might use the cost analysis provisions to charge 
late fee amounts above $8 based on their reported pre-charge-off 
collection costs per paid violation. The CFPB's calculations suggested 
that if these major issuers rely on the cost analysis provisions in 
Sec.  1026.52(b)(1)(i) while the others in the Y-14 data use the $8 
safe harbor amount, it would lower the mechanical impact of the new 
safe harbor amounts by 3 percent relative to the case of all Y-14 
issuers charging late fees of $8 (from an estimated fee reduction of 
$4.23 billion for these Y-14 issuers to an estimated $4.11 billion), 
representing a reduction in fees collected of 72.3 percent for these 
issuers.\244\ In the 2023 Proposal, the CFPB assumed that the 73 
percent of balances covered by these issuers with collection costs in 
the Y-14 data collection is representative of the fee structure and 
incidence of the entire market, and provided that these figures would 
have implied $5.6 billion savings for consumers (not including any fees 
charged but not ultimately collected). However, as discussed above and 
in the 2023 Proposal, the Y-14+ data suggest that late fee revenue per 
account at these Y-14 issuers is less than for other issuers in the Y-
14+. This implies a larger reduction in fee revenue at Larger Card 
Issuers not in the Y-14 data, meaning that $5.6 billion is therefore 
likely to be an underestimate of the potential reduction in fees. As 
discussed in the 2023 Proposal, if the 72.3 percent reduction in fee 
revenue were applied to the total estimated $12 billion in late fees at 
Larger Card Issuers in the Y-14+ from 2020, it will imply a reduction 
in fee revenue of approximately $9 billion.\245\
---------------------------------------------------------------------------

    \244\ This analysis assumes each issuer sets late fees for all 
their credit card products using only the safe harbor in Sec.  
1026.52(b)(1)(ii) or only the cost analysis provisions in Sec.  
1026.52(b)(1)(i). In practice, some issuers may use the safe harbor 
amount for some credit card products and the cost analysis 
provisions for others, which could lead the revenue impact of the 
new safe harbor amount to be different among issuers in the Y-14.
    \245\ See supra note 243.
---------------------------------------------------------------------------

    After issuance of the 2023 Proposal, the CFPB collected quarterly 
data on Larger Card Issuers in the Y-14+ sample for 2021 and 2022. 
Thus, for a similar period, but from October 2021 to September 2022, 
the CFPB now can compare late fee revenue of the Y-14 analysis sample 
to the Y-14+ total. The Y-14 issuers whose account level data was used 
reported $5.8 billion in late fee revenue over this period, which is 53 
percent of the $11 billion total for that time period in the Y-14+ 
data. These data are consistent with the CFPB's expectation as noted 
above and in the 2023 Proposal that the late fee revenue per account at 
these Y-14 issuers is less than for other issuers in the Y-14+.
    Also, since the issuance of the 2023 Proposal, the CFPB published 
new estimates for late fee revenue at Larger Card Issuers in the Y-14+ 
from 2021 and 2022. These data are consistent with the consumer 
benefits discussed above and in the 2023 Proposal of the $8 safe harbor 
as applied to the Y-14+ issuers, and in fact, suggest that the consumer 
benefits may be higher than the $9 billion estimated in the 2023 
Proposal. Based on the $14.5 billion estimated late fee revenue for the 
Y-14+ in 2022, the CFPB estimates that the total consumer benefits at 
Y-14+ issuers from the mechanical effect (based on a drop-in late fee 
revenue proportional to the simulated effects in the account-level 
data) would be $10.5 billion instead of the estimated consumer benefit 
of $9 billion based on the lower $12 billion total in 2020. In 
addition, total benefits for consumers holding cards of Larger Card 
Issuers will be even higher than the estimate based on the Y-14+ data, 
given that the CFPB estimates that there are about a dozen Larger Card 
Issuers that are not included in the Y-14+ data.\246\
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    \246\ The CFPB is not aware of estimates of late fee revenue of 
Larger Card Issuers not in the Y-14+ data. Consumers doing business 
with Smaller Card Issuers would not be directly impacted by the $8 
late fee safe harbor adopted in this final rule.
---------------------------------------------------------------------------

    The above analysis is based on collection expenses as reported in 
the Y-14 data. Some commenters reported that some issuers that report 
Y-14 data have collection expenses that they do not account for in 
their Y-14 reporting of collection expenses. If some Larger Card 
Issuers have greater costs than they report in the Y-14 data and such 
costs can be included for purposes of the cost analysis provisions in 
Sec.  1026.52(b)(1)(i), it is possible that more Y-14 issuers than 
reflected above would use the cost analysis provisions, reducing both 
potential benefits to cardholders and potential costs to issuers.
    The above estimates do not consider potential responses by 
consumers to lower late fees--in particular, the possibility that 
consumers are more likely to miss a payment due date if the fee for 
doing so is reduced. If this occurs and more consumers make untimely 
payments, consumers could face costs for doing so, including costs like 
increased penalty interest rates or lower credit scores. Such a 
response will affect the estimates above, as well as the final 
incidence of the benefits and costs.
    As discussed in part VII above concerning deterrence and in the 
2023 Proposal's 1022(b) analysis, however, the available evidence leads 
the CFPB to expect that a $8 late fee will still have a deterrent 
effect on late payments, although that effect may be lessened by the 
change to some extent, and other factors may be more relevant (or may 
become more relevant) towards creating deterrence. Even with a late fee 
of $8 at Larger Card Issuers, consumers will have incentives to make 
their minimum payment on time to avoid the late fee and other potential 
consequences of paying late, such as the potential loss of the grace 
period, and potential credit reporting consequences. To the extent 
consumers are late in paying because they are inattentive to their 
account or because they are so cash-constrained that they are unable to 
make a minimum payment, the amount of the late fee may have little 
effect on whether they pay late.
    To the extent consumers who pay on time when faced with current 
late fees will instead rationally choose to make a late payment in 
response to lower late fees that will result from this final rule, 
those consumers will benefit from the additional flexibility that a 
lower late fee will afford. For such consumers, the benefit of delaying 
the minimum payment past the due date, net of the perceived other 
financial consequences of missing the due date, must be less than their 
account's existing late fees but greater than the fees that will result 
from this final rule. Their benefit from this final rule will be less 
than the difference between the two fees, but it will still add to the 
total consumer gains from this final rule. More generally, all 
consumers will benefit from the option value of managing a potential 
episode of financial distress at lower costs if and when necessary.

[[Page 19195]]

    Since this final rule will reduce Larger Card Issuers' revenue from 
late fees, these issuers may respond by adjusting interest rates or 
other card terms to offset the lost income. Issuers' responses will 
affect both the sum of consumer gains and their distribution across 
consumers within pricing tiers. Total consumer gains would be the 
lowest in the unlikely case that Larger Card Issuers made up for all 
lost revenue and any potential cost increase by changing other consumer 
prices. Any such offset could manifest in higher maintenance fees, 
lower rewards, or higher interest on interest-paying accounts.
    Offsetting price increases are most likely where markets are most 
competitive since, in competitive markets, any reduction in revenue is 
likely to drive some firms out of the market, limiting supply and 
driving prices up for consumers. As the recent profitability of 
consumer credit card businesses suggests that these markets are 
imperfectly competitive, the CFPB expects less than full offset, with 
consumers gaining in total from reduced late fees.\247\ The same 
observation indicates that the market is unlikely to see any exits and 
no fewer entries, especially as the final rule directly impacts the 
late fee revenue of Larger Card Issuers only, who are even less likely 
to be on the margin of exit or entry. The two pieces of evidence most 
relevant to set the CFPB's expectations for offset are an academic 
publication and a CFPB report that includes an analysis of the effects 
of the fee changes resulting from the Board's 2010 Final Rule 
implementing the CARD Act.\248\ The academic study used a precursor of 
the Y-14 data and expanded on the CFPB's analysis in its 2013 CARD 
report \249\ that also compared average outcomes for consumer and small 
business credit cards but did not conduct a formal causal analysis. The 
identifying assumption of the academic work is that in the absence of 
the CARD Act, outcomes for consumer and small business accounts would 
have maintained parallel trends. The authors found late fees dropping 
in the subprime segment (with FICO scores below 660 at origination) by 
1.5 percentage point of average daily balances as a result of the rule, 
and around a tenth as large a response at accounts with FICO credit 
scores above 660.\250\ The authors also found that fees that were not 
subject to the CARD Act restrictions for consumer accounts did not 
increase to offset lost revenue from regulated fees. The frequency of 
late payments did not change around the August 2010 implementation 
date, which suggested to the authors that cardholders did not respond 
to the reduction in the late fee amount by increasing the frequency of 
late payments, and thus late fee revenue changed one-for-one with the 
late fee amounts.
---------------------------------------------------------------------------

    \247\ In its latest annual report on credit card profitability 
to Congress, the Board found that ``[c]redit card earnings have 
almost always been higher than returns on all bank activities, and 
earnings patterns for 2022 were consistent with historical 
experience.'' Bd. of Governors of the Fed. Rsrv. Sys., Profitability 
of Credit Card Operations of Depository Institutions (July 2023), at 
4, https://www.federalreserve.gov/publications/files/ccprofit2023.pdf. The Board also found that the quarterly average 
return on credit card assets (ROA) using Y-14 data was stable at 
around 1.10 percent during the 2014-19 period before the pandemic, 
while the quarterly average credit card bank ROA using Call Report 
data was 1.03 percent. These measures dipped below zero early in the 
COVID-19 pandemic but rebounded to around 2 percent by 2021 for the 
Y-14. Late and other fees accounted for slightly less than 10 to 30 
percent of ROA at reporting firms during the 2014-2021 period. 
Robert Adams et al., Credit Card Profitability, FEDS Notes, Bd. of 
Governors of the Fed. Rsrv. Sys. (Sept. 9, 2022), https://doi.org/10.17016/2380-7172.3100.
    \248\ Sumit Agarwal et al., Regulating Consumer Financial 
Products: Evidence from Credit Cards, 130 Quarterly J. of Econ., at 
111-164 (Feb. 2015), https://doi.org/10.1093/qje/qju037; 2013 
Report, at 20-37.
    \249\ 2013 Report, at 35-36.
    \250\ See Agarwal et al., supra note 248.
---------------------------------------------------------------------------

    To attempt to identify potential offsetting price changes, the 
authors develop a theoretical model of pricing offset under imperfect 
competition and imperfect salience (at the end of their appendix, 
extended in a separate publication \251\), and calibrate the model to 
market benchmarks. They conclude from this model that for every dollar 
in fee reduction, credit card issuers will increase prices by about 19 
cents. The empirical investigation rules out offset effects of greater 
than 61 cents on the dollar with 95 percent confidence.
---------------------------------------------------------------------------

    \251\ See Agarwal et al., supra note 248; see Sumit Agarwal et 
al., A Simple Framework for Estimating Consumer Benefits from 
Regulating Hidden Fees, 43 J. of Legal Studies (Jun. 2014), https://www.journals.uchicago.edu/doi/abs/10.1086/677856?journalCode=jls.
---------------------------------------------------------------------------

    A third study that some commenters deemed relevant focuses on the 
effects of debit card interchange fee limits in the Durbin Amendment, 
which applied to large institutions, and found that less than half of 
lost interchange revenue was offset through increases to consumer 
checking account fees.\252\ Although these findings relate to a 
different product market, they are generally consistent with the 
conclusion that lost bank revenue from reduced credit card late fees 
would not be fully offset.\253\
---------------------------------------------------------------------------

    \252\ Supra note 233.
    \253\ Another study cited by commenters compares the credit card 
limits relative to total debt of consumers with subprime scores to 
consumers with better scores and finds that credit cards made up a 
smaller share of available credit for consumers with subprime scores 
during the period when the CARD Act was proposed, passed and 
implemented. Yiwei Dou, Julapa Jagtiani, Joshua Ronen and Ramain 
Quinn Maingi (2022), ``The Credit Card Act and Consumer Debt 
Structure,'' Journal of Law, Finance, and Accounting: Vol. 7: No. 1, 
pp 91-126. http://dx.doi.org/10.1561/108.00000058. The CFPB is not 
convinced that this comparison can establish the causal effect of 
the CARD Act for consumers with subprime credit scores, as consumers 
in all credit score categories are likely to have been affected by 
the provisions of the CARD Act and market responses.
---------------------------------------------------------------------------

    The CFPB reads this evidence as strongly suggesting less than full 
offset, if any. In considering offsetting changes, Larger Card Issuers 
will also face competitive pressures from Smaller Card Issuers, which 
will not be required by this final rule to reduce late fee amounts and 
therefore may not face similar pressure to increase other fees or APRs.
    To illustrate a realistic level of the potential offsetting effect, 
consider the increase in interest income required to offset 19 percent 
lost late fee income, using the same calibration as in the academic 
study.\254\ As discussed above, over the 12 months between September 
2021 and August 2022, limiting late fees to $8 could have reduced the 
late fee revenue of Y-14 issuers with cost data by 72.3 percent, or 
$4.11 billion, even if some issuers use the cost analysis provisions to 
determine the amount of the late fee as discussed above. Total interest 
income at the issuers with collection costs in the Y-14 data was $71.4 
billion over the same 12 months, so offsetting 19 percent of the lost 
fee revenue would require increasing interest revenue by $780 million, 
or 1.1 percent. Were such a proportional change uniform across all 
accounts, it would be less than 40 basis points on any APR that is 
below 36 percent.\255\ Differentiated, for instance, ``risk-based'' 
pricing might imply interest rates rising more than this average in 
some groups (presumably those who are predicted to generate more late 
fee revenue) and less

[[Page 19196]]

in other groups, if at all--essentially limiting any offset to within 
pricing tiers.
---------------------------------------------------------------------------

    \254\ The available evidence suggests that issuers compete 
fiercely with more salient (though not necessarily transparent) 
rewards and, to a lesser extent, annual or account maintenance fees. 
(Other types of penalty fees, such as over-the-limit or returned 
check fees, are subject to existing CARD Act limits, and in any case 
apply only in particular circumstances and generate relatively 
little revenue.) This leads the CFPB to estimate an interest-only 
response as the full-offset benchmark. See, for instance, the 
academic research cited in supra note 248, or Figure 44 of the 2013 
Report, at 82.
    \255\ For data related to total interest income in the Y-14 
collection, see Revenue-Cost Report, at 6-9.
---------------------------------------------------------------------------

    Economic theory also suggests the potential for a pass-through 
greater than what would be required to offset lost fee revenue, if the 
credit card market is sufficiently adversely selected on APRs.\256\ 
Intuitively, if the offsetting change in APRs leads low-risk consumers 
to leave the pool of credit card borrowers to a greater degree than it 
leads higher-risk consumers to leave the pool of credit card borrowers, 
then the resulting change in average credit risk could lead to further 
increases in APRs in market equilibrium. However, the CFPB notes that 
existing evidence on adverse selection in the credit card market 
suggests that adverse selection is unlikely to be this severe. Most 
notably, the aforementioned research paper studying the effects of the 
safe-harbor fee levels in the Board's 2010 Final Rule finds that this 
high pass-through scenario can be rejected with high statistical 
confidence.\257\ Complementary academic research finds less than full 
pass-through of other shocks to credit card lenders' costs,\258\ and 
that the effects of adverse selection after the Board's 2010 Final Rule 
took effect were generally modest.\259\ Overall, the CFPB concludes 
that concerns about adverse selection are unlikely to alter the above 
analysis's conclusion that any offsetting changes to APRs are likely to 
be limited.
---------------------------------------------------------------------------

    \256\ Neale Mahoney & E. Glen Weyl, Imperfect Competition in 
Selection Markets, 99 Review of Economics and Statistics, MIT Press 
at 637-51 (Oct. 1, 2017), https://doi.org/10.1162/REST_a_00661.
    \257\ Agarwal et al., supra note 248.
    \258\ Tal Gross et al., The Economic Consequences of Bankruptcy 
Reform, 111 (7) American Economic Review, 2309-41 (July 2021), 
https://www.aeaweb.org/articles?id=10.1257/aer.20191311.
    \259\ Scott Thomas Nelson, Essays on Household finance and 
credit market regulation, Ph.D. Thesis, Massachusetts Institute of 
Technology, Department of Economics (2018), https://dspace.mit.edu/handle/1721.1/118066.
---------------------------------------------------------------------------

    This middle-of-the-road interest offset estimate for Larger Card 
Issuers, at least on one that reprices all accounts by the same 
percentage to recover all lost late fee revenue with higher finance 
charges, suggests that any losses to credit access will be limited. 
However, the CFPB acknowledges that late fee revenue has been 
concentrated on certain market segments, suggesting that any price 
responses are also likely to be focused in those segments. Risk-based 
pricing is likely to work by tiers. In particular, interest rates or 
other charges of subprime credit cards might increase more than for 
other cards, and some consumers might find these cards too expensive 
due to higher interest rate offers. Even if this were to happen, it 
would not result from a higher average consumer cost of using credit 
cards but from greater transparency about the cards' actual expected 
cost of ownership.\260\ To the extent consumers consciously decline 
offers because of the card's actual price becoming more salient, this 
will constitute a benefit to those consumers.
---------------------------------------------------------------------------

    \260\ As discussed below, however, the cost of ownership of 
cards could go up for some consumers and down for others, depending 
on their usage patterns.
---------------------------------------------------------------------------

    On the other hand, it is also possible that some consumers' access 
to credit could fall if Larger Card Issuers could adequately offset 
lost fee revenue expected from them only by increasing APRs to a point 
at which a particular card is not viable, for example, because the APR 
exceeds applicable legal limits.
    Any offsetting changes, like the decrease in late fees, would 
affect different consumers differently depending, for example, on how 
often they pay late and whether they carry a balance. For example, 
within any market segment there will be some cardholders who never pay 
late; such consumers will not benefit from the reduction in late fees 
and could pay more for their account if maintenance fees in their 
market segment rise in response--or if interest rates increase in a 
segment in response and some on-time cardholders in that segment also 
carry a balance. Frequent late payers are likely to benefit monetarily 
from reduced late fees, even if higher interest rates or maintenance 
fees offset some of the benefits. Cardholders who do not regularly 
carry a balance but occasionally miss a payment will benefit from the 
changes so long as any increase in the cost of finance charges 
(including the result of late payments that eliminate their grace 
period) is smaller than the drop in fees.\261\ Cardholders who carry a 
balance but rarely miss a payment are less likely to benefit on net. 
Any consumers potentially harmed by changes to terms of credit cards at 
Larger Card Issuers could potentially switch to cards issued by Smaller 
Card Issuers, which in turn could deter offsetting salient price 
responses at the Larger Card Issuers.
---------------------------------------------------------------------------

    \261\ If a consumer pays late and loses the grace period, the 
consumer will pay interest on the balances. The analysis here 
focuses on whether an increased interest as a result of the increase 
in the rate to offset some of the reduction in late fee revenue is 
greater than the reduction in the late fee.
---------------------------------------------------------------------------

    Though the late fee changes most directly benefit those who make 
late payments, the CFPB notes that late fees are collected only from 
those delinquent cardholders who eventually pay at least the late fee 
amount. Some collection costs and charge-off losses are caused by 
delinquent customers who do not recover before account closure and 
charge-off. These cardholders will not receive any of the benefits of 
the lower fees they are nominally assessed but do not pay in 
practice.\262\ Using a subsample of Y-14 account data, the CFPB 
estimated that around 14 percent of late fees are assessed to accounts 
that never make another payment.
---------------------------------------------------------------------------

    \262\ This holds as long as the additional charged-off balance 
due to higher late fees does not change the amount the holder of the 
debt can eventually collect after charge-off, including through 
litigation or wage garnishment. Even defaulting consumers would 
benefit otherwise.
---------------------------------------------------------------------------

    As mentioned above in part II.E, consumers may not fully consider 
late fees when shopping for a credit card.\263\ This is true in the 
baseline and is most likely to remain the case once this final rule is 
implemented. To the extent this is or will be true, the actual cost of 
using a credit card is or will be greater than consumers' expected cost 
and reducing late fees will reduce the difference between the two. 
Whether or not changes to other prices offset a reduction in late fee 
revenue, consumers may benefit if, when choosing a credit card, they 
have a more accurate view of the expected total costs of using the 
card. To the extent that some consumers become better informed about 
the terms of credit cards, issuers may respond by offering improved 
terms, which could benefit even consumers who do not shop around. In 
addition, consumers might benefit or incur costs from further repricing 
and restructuring other financial products cross-marketed by credit 
card issuers and their holding companies. The CFPB is not aware of data 
that could help quantify such effects.
---------------------------------------------------------------------------

    \263\ Under the final rule, these consumers might also 
mistakenly choose a credit card of a Smaller Card Issuer, when they 
would have preferred an offer from a Larger Card Issuers that has 
lower late fees.
---------------------------------------------------------------------------

    Recent studies in psychology and economics highlight some patterns 
likely to affect consumer welfare in the credit card market, depending 
on how accurately cardholders forecast the likelihood that they will 
incur late fees. A seminal theoretical study \264\ identified and 
coined the term for na[iuml]vet[eacute]-based discrimination, in which 
firms recognize that some potential consumers are prone to such 
systematic mistakes. If this is indeed a feature of credit card 
markets, ``na[iuml]ve'' and ``sophisticated'' consumers, using the

[[Page 19197]]

terminology of this scholarship, could be affected by this final rule 
differently. Na[iuml]ve consumers may mistakenly expect high fees to be 
unimportant to them, as they are overly optimistic about not missing a 
payment. Such consumers will benefit from the changes to late fee 
amounts, which lower the cost of this mistake. Sophisticated consumers, 
inasmuch they would have been cross subsidized by na[iuml]ve customers' 
costly mistakes, may pay higher maintenance fees or interest or collect 
fewer rewards if the issuer offsets the revenue lost to na[iuml]ve 
consumers. The CFPB considers that to the extent there are offsetting 
changes to card terms, some of these effects are likely but has not 
quantified their magnitude.
---------------------------------------------------------------------------

    \264\ Paul Heidhues & Botond K[ouml]szegi, Na[iuml]vet[eacute]-
Based Discrimination, 132 (2) The Quarterly Journal of Economics, at 
1019-1054 (May 2017), https://doi.org/10.1093/qje/qjw042.
---------------------------------------------------------------------------

    The CFPB acknowledges the possibility that consumers who were more 
likely to pay attention to late fees than to other consequences of 
paying late, like interest charges, penalty rates, credit reporting, 
and the loss of a grace period, might be harmed in the short run if a 
reduction in late fees makes it more likely that they mistakenly miss 
payments. The CFPB has not quantified this effect but notes that 
reducing late fees may increase issuer incentives to find other 
approaches to make the consequences of late payment salient to 
consumers, including reminders or warnings.
    Other studies in psychology and economics might suggest that 
penalties can serve as a valuable commitment device, for example 
helping them to make choices that they prefer in the long term despite 
the temptation to make different choices in the short term.\265\ If 
some consumers were to value high fees for late payment in this way, 
then they might experience some harm if lower fees make it harder to 
responsibly manage their credit card debt. To the extent that late fees 
benefit some consumers in this way, any harm to such consumers may be 
mitigated to the extent that this final rule creates additional 
incentives for issuers to emphasize reminders, automatic payment, and 
other mechanisms that maintain similar or better payment behavior, as 
discussed below.
---------------------------------------------------------------------------

    \265\ For a discussion of commitment devices most relevant to 
this context, see section 10.2 of John Beshears et al., Behavioral 
Household Finance, Handbook of Behavioral Economics: Applications 
and Foundations 1, at 177-276 (2018), https://doi.org/10.1016/bs.hesbe.2018.07.004.
---------------------------------------------------------------------------

    This final rule may benefit consumers indirectly by making late 
payments less profitable to Larger Card Issuers and thereby increasing 
Larger Card Issuer incentives to take steps that will encourage on-time 
payment. Consumers may benefit from issuer practices such as more 
effective reminders or convenient payment options. If issuers bear no 
net cost from late payments, or even profit from them, then they have 
no incentive to take even inexpensive steps to reduce the incidence of 
late payments. Even with this final rule changes, Larger Card Issuers 
will not have incentives to take all steps they could that would 
efficiently reduce the incidence of late payment since the late fees 
they do charge mean they do not bear the full cost of late payments. 
Nonetheless, by limiting Larger Card Issuer revenue from violations 
that exceeds cost, this final rule changes Larger Card Issuer 
incentives in a way that benefits consumers.
    Relative to the 2023 Proposal, this final rule introduces an 
incentive for credit card issuers that together with their affiliates 
have close to one million open credit card accounts to stay or get 
below that threshold for the sake of higher late fee revenues as a 
Smaller Card Issuer than as a Larger Card Issuer. If this results in 
the closure of some accounts, maybe dormant accounts, those cardholders 
will have less liquidity immediately available as well as a potentially 
worse credit score. Similarly, consumers whose credit card applications 
are turned down, or who do not receive card offers, because of more 
stringent underwriting standards by issuers just below the size 
threshold could incur additional costs of shopping for an additional 
card and perhaps pay a slightly higher cost of applying for the next 
best credit card. The CFPB expects few issuers, if any, to be close to 
the threshold at any given time and change practices just because of 
this incentive.
Potential Benefits and Costs to Covered Persons of the $8 Late Fee Safe 
Harbor Changes
    Because this final rule will significantly reduce the aggregate 
value of late fees paid by consumers, this final rule will 
significantly reduce late fee revenue for Larger Card Issuers. As noted 
above in part II.F, late fee revenue constitutes over one-tenth of the 
$120 billion issuers in the Y-14+ charged to consumers in interest and 
fees in 2019, totaling over $14 billion in that year.\266\ Since the 
CPFB issued the 2023 Proposal, this remains true as late fees 
represented over one-tenth of the more than $130 billion issuers in the 
Y-14+ charged to consumers in interest and fees in 2022, totaling over 
$14 billion that year.\267\ As discussed below, Larger Card Issuers can 
offset losses to consumer revenue to some extent by taking other 
measures (e.g., increasing interest rates or changing rewards), and the 
reduction in late fees could affect consumer choices or market 
competition in ways that may create benefits or costs to Larger Card 
Issuers.
---------------------------------------------------------------------------

    \266\ Late Fee Report, at 4.
    \267\ 2023 Report, at 65.
---------------------------------------------------------------------------

    Larger Card Issuers' costs and revenue will also be affected by 
changes in consumer behavior in response to the reduced late fee 
amounts. In particular, lower late fees at Larger Card Issuers could 
make some consumers somewhat more likely to make late payments. As 
discussed above in the section-by-section analysis of Sec.  
1026.52(b)(1)(ii) in part VII, the CFPB expects that a $8 late fee will 
still have a deterrent effect on late payments, although that effect 
may be lessened by the lower late fee to some extent, and other factors 
may be more relevant (or may become more relevant) to creating 
deterrence. For example, as discussed in the 2023 Proposal, and in this 
final rule (the section-by-section of Sec.  1026.52(b)(1)(ii)), the 
CFPB expects that consumers may be deterred by factors other than the 
fee amount, like higher interest rates and potential credit reporting.
    As noted in the 2023 Proposal and this final rule, the CFPB also 
expects that any additional late payments due to the reduced late fee 
safe harbor amount will generate both additional fee income and 
additional collection costs relative to an outcome with lower fee 
amounts but no additional incidents. Even if more consumers pay late 
because of the decreased late fee amount, the cost of collecting any 
such additional late payments is unlikely to be greater, per incident, 
than the cost of collecting late payments under the existing safe 
harbor. Therefore, the CFPB expects that collection costs to Larger 
Card Issuers will not increase by more than fee income derived from any 
additional late payments.
    The CFPB recognizes that an increased number of late payments could 
result in additional delinquencies and ultimately increase credit 
losses for Larger Card Issuers. But the CFPB is not aware of evidence 
showing that higher late fees prevent consumers from eventually 
defaulting on their accounts.\268\ Further, if this is a concern,

[[Page 19198]]

the CFPB notes that Larger Card Issuers can take other steps to help 
reduce the likelihood of consumers missing payments, which would 
mitigate potential costs of this final rule from increased 
delinquencies. For example, as noted in the 2023 Proposal and this 
final rule, Larger Card Issuers could increase investments in payment 
reminders or automatic payments or provide lower-friction methods of 
payment, payment rescheduled for soon after regular deposits, or 
rewards for paying on time.\269\ Larger Card Issuers could also 
increase minimum payment amounts or adjust credit limits to reduce 
credit risk associated with consumers who make late payments.
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    \268\ For some consumers, a high late fee may contribute to 
default by increasing their overall debt burden and making it more 
difficult to recover from delinquency. For example, the 2023 paper 
by Grodzicki et al., described above in the section-by-section 
analysis of Sec.  1026.52(b)(1)(ii) in part VII, with all the 
caveats noted there, found that a decrease in late fees increases 
borrowing for prime borrowers but triggers repayment for subprime 
cardholders. This paper explained that this latter effect on 
subprime cardholders might result from the lower late fee amount 
lessening the need for subprime cardholders to focus on avoiding 
late fees and instead allowing some subprime cardholders to start to 
pay more attention to the high cost of their revolving debt.
    \269\ A joint comment in response to the ANPR submitted by 
several industry trade associations stated that issuers promote 
on[hyphen]time payments through a variety of means in addition to 
late fees, including multiple payment reminders sent via mail, 
email, or text notification depending on consumer preference. These 
commenters further stated that one issuer reported that as of five 
months after rollout of its new alert system, the issuer's gross 
monthly late fees were 20 percent lower and the late fee incidence 
rate per balance had fallen by nearly 25 percent. Similarly, a large 
credit union trade association noted that some credit unions already 
have systems in place or are currently contracting with third-party 
vendors to offer their members convenient reminders for upcoming 
payment due dates via text message and email.
---------------------------------------------------------------------------

    As discussed above, Larger Card Issuers could also increase other 
prices in a way that would offset some revenue lost from reduced late 
fees. In general, Larger Card Issuers will set the terms of credit 
cards to maximize profits, and it is not clear that limiting late fees 
will directly affect the existing profit-maximizing finance charge or 
account maintenance fee, for example. However, a reduction in late fee 
revenue could cause Larger Card Issuers to change other terms if the 
lost late fee revenue reduced the profitability of issuing credit cards 
to the point at which issuers are faced with a choice between raising 
new revenue by changing other card terms or exiting the market segment. 
As discussed above, such offsetting price increases are most likely 
where profit margins are low since any reduction in revenue is likely 
to drive risk-adjusted returns on capital below market expectations, 
limiting supply and driving prices up for consumers. The recent 
profitability of consumer credit card businesses makes the CFPB expect 
the market to see exceedingly few exits and no change in entries.\270\
---------------------------------------------------------------------------

    \270\ See supra note 247.
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    Larger Card Issuers' revenue loss from this final rule could be 
mitigated by the ability to use the cost analysis provisions in Sec.  
1026.52(b)(1)(i) rather than setting late fees at the safe harbor 
amount. Any Larger Card Issuer with costs greater than $8 per late 
payment will be able to set a higher fee using the cost analysis 
provisions, although doing so would likely involve some expense to 
conduct the relevant analysis, ensure that it complies with the 
existing rule's requirements and potential changes from this final 
rule, and ensure that the relevant data and analysis are documented in 
a way that would permit the issuer to demonstrate compliance to 
regulators. The CFPB understands that Larger Card Issuers already 
conduct sophisticated analyses of credit card operations, and the CFPB 
expects the cost of additional analyses to be small, with most 
additional costs to come from procedures needed to demonstrate 
compliance.
    The $8 late fee safe harbor in this final rule will only apply to 
Larger Card Issuers, but changes to the terms of credit cards at these 
institutions could affect demand for similar products at financial 
institutions not covered by the $8 late fee safe harbor, and this could 
affect Smaller Card Issuers and their customers in turn. In general, 
Smaller Card Issuers will benefit from new limitations on the types of 
products that competing firms can offer. For example, if Larger Card 
Issuers were to increase account annual fees to offset some lost 
revenue from late fees, the credit cards of other issuers would become 
more attractive. The ability of consumers to switch to these products 
could mitigate any costs to consumers from offsetting interest or fee 
changes at Larger Card Issuers or from reduced access to credit cards. 
On the other hand, significant reductions in credit card late fees at 
Larger Card Issuers might create competitive pressure for Smaller Card 
Issuers to lower their own late fees, in which case their consumers 
could experience effects similar to those at Larger Card Issuers. Given 
the difficulty in predicting the market response of Larger Card Issuers 
to this final rule, it is uncertain whether cardholders of Smaller Card 
Issuers will experience net benefits or costs from this final rule, and 
whether Smaller Card Issuers will experience net benefits or costs from 
this final rule.
Potential Benefits and Costs to Consumers and Covered Persons From Not 
Applying the Annual Adjustments to the $8 Safe Harbor Amount for Late 
Fees at Larger Card Issuers
    The CFPB will not apply the annual adjustments to reflect changes 
in the CPI to the $8 safe harbor amount for late fees imposed by Larger 
Card Issuers. Instead, the CFPB will continue to monitor the market and 
adjust the safe harbor amount as the CFPB determines is appropriate to 
reflect changes to pre-charge-off collection costs and other factors. 
The discussion below considers the effects of this change relative to a 
baseline in which the new $8 safe harbor amount applicable to late fees 
charged by Larger Card Issuers is adjusted to reflect changes in the 
CPI; however, the effects would be qualitatively similar at other safe 
harbor amounts.
    The benefits and costs of this final rule to consumers and covered 
persons depend on whether future adjustments by the CFPB would be 
greater or less than the changes that would result from the CPI 
adjustments that are currently used. As discussed in the section-by-
section analysis of Sec.  1026.52(b)(1)(ii)(D) in part VII and 
illustrated in Figure 3, trends in collection costs for Larger Card 
Issuers and the CPI do not appear to be closely related.\271\ If the 
safe harbor amount were to fall or to grow less rapidly through the 
CFPB's future adjustments than the current CPI adjustments, then 
consumers would benefit from the reduced real cost of late fees, and 
Larger Card Issuers using the late fee safe harbor amount would see 
lower revenue. Conversely, if the late fee safe harbor amount were 
adjusted in the future by more than it would be through the current CPI 
adjustments, consumers could face costs from the change, and Larger 
Card Issuers using the late fee safe harbor amount would see increased 
revenue.
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    \271\ The 2023 Proposal looked at costs and the CPI-U price 
index, as in Figure 3. As discussed elsewhere, the CFPB uses the 
CPI-W index to make adjustments pursuant to Sec.  
1026.52(b)(1)(ii)(D) and thus, this final rule considers the impact 
of eliminating the adjustment based on the CPI-W price index. As 
Figure 4 attests, the relationship between costs and this price 
index is fundamentally the same as the one in Figure 3.
---------------------------------------------------------------------------

    Under this final rule, it is likely that the $8 late fee safe 
harbor amount applicable to late fees charged by Larger Card Issuers 
will be adjusted less frequently than under the current rule. Some 
consumers will benefit from the transparency and administrative ease of 
these late fee amounts changing less often. The cardholders who will 
benefit are those whose late fee amount is not

[[Page 19199]]

set using the cost analysis provisions in Sec.  1026.52(b)(1)(i), 
because the provision does not affect how often fees could be adjusted 
pursuant to the cost analysis provisions. The CFPB also notes that even 
if the CPI-based adjustments were to continue to apply to the late fee 
safe harbor threshold amount applicable to Larger Card Issuers, the 
lower $8 safe harbor amount combined with the requirement that if the 
cumulative change in the adjusted value derived from applying the 
annual CPI-W to the safe harbor amounts has risen by a whole dollar, 
means that the $8 would be adjusted less frequently using the annual 
adjustments than how often the late fee safe harbor amounts have 
changed recently. Similarly, the lower $8 safe harbor amount combined 
with the requirement that if the cumulative change in the adjusted 
value derived from applying the annual CPI-W level to the safe harbor 
amounts has decreased by a whole dollar, means that this $8 safe harbor 
amount would likely change less frequently using the annual adjustments 
than the current late fee safe harbor amounts.
    To the extent that some Larger Card Issuers experience increases in 
collection costs that would have been addressed through CPI-based 
adjustments, these issuers will retain the option under this final rule 
to use the cost analysis provisions in Sec.  1026.52(b)(1)(i) and thus 
recover their higher costs with higher late fee amounts. Their 
cardholders will still benefit from the elimination of the annual 
adjustments to the $8 late fee safe harbor amount if the cost analysis 
provisions result in less substantial increase than would have been the 
case under the CPI adjustments. If a rise in a fee stemming from the 
cost analysis provision were faster, the consumer would have seen the 
same fee rise from this issuer determining the late fee using the cost 
analysis provisions in Sec.  1026.52(b)(1)(i), irrespective of this 
provision.
    Larger Card Issuers with decreasing costs will lose out on a 
mechanical increase in their revenue above cost to reflect CPI 
adjustments unless the late fee safe harbor amount is otherwise 
adjusted. As shown in Figure 3 above in part VII, recent collection 
cost totals from the Y-14 portfolio data suggest that some issuers have 
been experiencing decreasing nominal collection costs even in the 
inflationary period of 2021-2022.
Potential Benefits and Costs to Consumers and Covered Persons of 
Applying Annual Adjustments to Safe Harbor Threshold Amounts for 
Penalty Fees Other Than Late Fees for All Card Issuers and for Late 
Fees at Smaller Card Issuers
    This final rule revises the safe harbor threshold amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) to $32, except that it sets forth a safe 
harbor of $43 for each subsequent violation of the same type that 
occurs during the same billing cycle or in one of the next six billing 
cycles. These revised safe harbor threshold amounts of $32 and $43 
apply to penalty fees other than late fees for all card issuers as well 
as late fees imposed by Smaller Card Issuers.
    Based on a 2023 survey of credit card agreements submitted to the 
CFPB's Credit Card Agreement Database as discussed in part II.E, the 
CFPB estimates that 1 percent of Smaller Card Issuers charge the 
current safe harbor threshold amounts for late fees, representing far 
less than 1 percent of balances of consumer credit cards. The 
cardholders of these issuers will pay 6.7 percent more in fees for late 
payments, and 4.9 percent more for each subsequent late payment in one 
of the next six billing cycles. These Smaller Card Issuers will collect 
correspondingly higher revenue from these late fees.
    The CFPB does not have specific data on the percentage of Larger 
and Smaller Card Issuers that charge the safe harbor amount for penalty 
fees other than late fees. The cardholders of these issuers will pay 
6.7 percent more in fees for violations.
    Annual adjustments in the future will operate the same way as in 
the baseline and thus have no additional impact.
Potential Benefits and Costs to Consumers and Covered Persons of 
Proposed Alternatives Lowering the Limitation on Late Fees to 25 
Percent of the Minimum Payment Due
    The CFPB considered whether to amend Sec.  1026.52(b)(2)(i)(A) to 
limit the dollar amount associated with a late payment to 25 percent of 
the required minimum periodic payment due immediately before the 
assessment of the late fee. Currently, late fee amounts must not exceed 
100 percent of the required payment. As discussed in part VII, the CFPB 
is not finalizing this proposed amendment for either Larger Card 
Issuers or Smaller Card Issuers because the CFPB determined the 
benefits the 25 percent limitation may have for consumers, such as 
requiring a more reasonable and proportional late fee for instances 
where the minimum payment due is small, do not outweigh considerations 
of card issuers' ability to recoup their pre-charge-off collection 
costs when they are using the $8 safe harbor threshold amount. The CFPB 
also determined not to adopt the 25 percent limitation proposal in 
order to minimize impacts to minimum balances due.
A Courtesy Period That Would Prohibit Late Fees Imposed Within 15 
Calendar Days After the Payment Due Date
    In the 2023 Proposal, the CFPB considered an alternative approach 
in which Sec.  1026.52(b)(2) would be amended to provide for a courtesy 
period that would prohibit late fees imposed within 15 calendar days 
after the payment due date. Such a courtesy period could apply only to 
late fees assessed if the card issuer is using the late fee safe harbor 
amount or, alternatively, could be applicable generally (regardless of 
whether the card issuer assesses late fees according to the safe harbor 
amount set forth in Sec.  1026.52(b)(1)(ii) or the cost analysis 
provisions in Sec.  1026.52(b)(1)(i)). The CFPB is not finalizing this 
alternative.
    The CFPB has determined that, absent additional evidence, the 
potential impacts to card issuers' costs and consumers outweigh the 
benefits of a mandatory 15-day courtesy period. While the CFPB 
acknowledges the possible benefits raised by commenters, such as 
helping consumers who mail in their late payments avoid a penalty fee 
for any mail delivery issues, the potential for card issuers to recoup 
costs at half the safe harbor amount per late payment combined with 
other concerns about consumer confusion outweighs the possible benefits 
to consumers.
Eliminating the Safe Harbors for Late Fees
    As discussed in part VII, the CFPB solicited comment on the 
alternative of proposing to eliminate the safe harbor provisions for 
late fees in Sec.  1026.52(b)(1)(ii) altogether, in which case card 
issuers could only impose late fees under the cost analysis provisions 
in Sec.  1026.52(b)(1)(i). The CFPB is not finalizing this alternative 
to revoke the late fees for Larger Card Issuers without replacing it 
with another safe harbor amount and thus, requiring Larger Card issuers 
to use the cost analysis provisions to determine the amount of late 
fees. As discussed in part VII, the CFPB has determined that revoking 
the safe harbor and then adopting the $8 late fee safe harbor amount 
for Larger Card Issuers--as this final rule does--better achieves its 
goals.

[[Page 19200]]

Applying the Changes to the Safe Harbor Provision With Respect to Other 
Penalty Fees
    The CFPB considered an alternative that would apply the $8 safe 
harbor to other penalty fees, such as over-the-limit fees, returned-
payment fees, and declined access check fees. In particular, the CFPB 
considered whether the new $8 late safe harbor threshold should apply 
to other penalty fees and whether, alternatively, if the CFPB were to 
eliminate the safe harbor provisions in Sec.  1026.52(b)(1)(ii) for 
late fees charged, the CFPB should also eliminate the safe harbor for 
other penalty fees charged. This final rule does not adopt this 
alternative.

F. Potential Specific Impacts of This Final Rule on Depository 
Institutions and Credit Unions With $10 Billion or Less in Total 
Assets, As Described in CFPA Section 1026

    As the lower $8 safe harbor amount in this final rule applies only 
to Larger Card Issuers (i.e., card issuers that together with their 
affiliates have one million or more open credit card accounts), the 
CFPB expects no specific impact on Smaller Card Issuers as defined in 
Sec.  1026.52(b)(3) (i.e., card issuers that have less than one million 
open credit card accounts for the entire preceding calendar year) 
directly.\272\
---------------------------------------------------------------------------

    \272\ See supra note 5.
---------------------------------------------------------------------------

    Based on its review of both public and confidential data, the CFPB 
expects that there are approximately 30-35 Larger Card Issuers that 
together with their affiliates have one million or more open credit 
card accounts, and one dozen or fewer among them with $10 billion or 
less in assets.
    As with other Larger Card Issuers, depository institutions and 
credit unions that together with their affiliates have one million or 
more open credit card accounts but the depository institutions and 
credit unions have $10 billion or less in total assets will generally 
lose fee revenue as a result of this final rule. The CFPB has no reason 
to believe that depository institutions and credit unions that are 
Larger Card Issuers and have $10 billion or less in total assets will 
experience effects qualitatively different from those discussed above 
in part IX.E.
    Institutions with $10 billion or less in assets might experience 
indirect effects of the new $8 late fee safe harbor amount adopted in 
this final rule. As noted above, changes to the terms of credit cards 
at Larger Card Issuers could affect demand for similar products at 
financial institutions not covered by the new $8 late fee safe harbor 
amount adopted in this final rule. For example, if some Larger Card 
Issuers were to increase some account APRs to offset some lost revenue 
from late fees, the credit cards of other institutions could become 
more attractive. On the other hand, significant reductions in late fees 
at Larger Card Issuers might create competitive pressure for financial 
institutions not directly affected by this final rule to lower their 
own late fees, and thus lose revenue. Given the difficulty in 
predicting the market response of Larger Card Issuers, it is uncertain 
whether financial institutions not covered by the $8 safe harbor 
threshold adopted in this final rule will experience net benefits or 
costs from this final rule.

G. Potential Specific Impacts of This Final Rule on Consumer Access to 
Credit and on Consumers in Rural Areas

    The CFPB is concerned about the geographic concentration of current 
late fees and that areas with higher incidence of late fees tend to 
also be areas with higher numbers of consumers from disadvantaged 
groups, as summarized in part II.F above. While the CFPB has not 
analyzed the incidence of late fees in rural areas specifically, as 
explained in the 2023 Proposal, CFPB research has found that consumers 
in rural areas are somewhat less likely than other Americans to have a 
credit card, and not significantly more likely than other Americans to 
have a credit card delinquency.\273\ These findings suggest that the 
effects of the rule on late fees paid by rural consumers may generally 
be similar to those of other Americans.
---------------------------------------------------------------------------

    \273\ CFPB, Consumer Finances in Rural Appalachia, at 12 (Sept. 
1, 2022) (Appalachia Report), https://www.consumerfinance.gov/data-research/research-reports/consumer-finances-in-rural-appalachia/.
---------------------------------------------------------------------------

    On the other hand, as discussed in the 2023 Proposal, consumers in 
rural areas have lower median household income, and lower median credit 
card balances, than consumers in non-rural areas.\274\ Though high-
income Americans have more credit cards, low-income areas have more 
late payments per card. As a result, there is no clear indication 
whether savings from this final rule will be greater or lesser for 
consumers in rural areas; however, reductions in fee amounts that are 
similar in dollar terms may be more meaningful on average for consumers 
with lower incomes, and given that consumers in rural areas may have 
lower median income, the reduction in late fees could result in more 
meaningful on average benefits for consumers in rural areas.
---------------------------------------------------------------------------

    \274\ Id. at 8, 12.
---------------------------------------------------------------------------

    As discussed above in part IX.D and in the 2023 Proposal, the CFPB 
acknowledges that late fee revenue has been concentrated in certain 
market segments, suggesting that any price responses to this final rule 
are also likely to be focused in those segments. In particular, 
interest rates or other terms could be less advantageous for subprime 
consumers or certain consumers in specific regions; for these 
consumers, some types of cards may become too expensive due to higher 
interest rates or less advantageous terms. Although, even if this were 
to happen, it would not result from a higher expected consumer cost of 
using credit cards but from greater transparency about the cards' 
actual anticipated cost of ownership. Lost credit to consumers 
consciously declining offers because the cards are too expensive is 
unlikely to harm and potentially may benefit consumers, particularly 
given the ability of consumers to shop and compare costs between cards.

X. Regulatory Flexibility Act Analysis

    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis of any rule subject to notice-and-comment 
rulemaking requirements unless the agency certifies that the rule will 
not have a SISNOSE.\275\ The CFPB is also subject to specific 
additional procedures under the RFA involving convening a panel to 
consult with small business representatives before proposing a rule for 
which an IRFA is required.\276\
---------------------------------------------------------------------------

    \275\ 5 U.S.C. 601 et seq.
    \276\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    Small institutions, for the purposes of the Small Business 
Regulatory Enforcement Fairness Act (SBREFA) of 1996, are defined by 
SBA. Effective March 17, 2023, depository institutions with less than 
$850 million in total assets are determined to be small for the period 
used in the subsequent analysis.\277\
---------------------------------------------------------------------------

    \277\ See Small Business Administration, Table of size 
standards, https://www.sba.gov/document/support--table-size-
standards (last visited on December 18, 2023).
---------------------------------------------------------------------------

A. The CFPB's Proposal

    In the 2023 Proposal, the CFPB determined that an IRFA is not 
required for the proposal because it would not have a SISNOSE.
    The 2023 Proposal would have affected small entities that issue 
credit cards most directly by reducing late fee revenue from credit 
cards. To assess

[[Page 19201]]

whether the 2023 Proposal, if adopted, would have had a SISNOSE, the 
CFPB considered the significance of credit card late fee revenue as a 
share of the total revenue of affected small entities. As discussed in 
part VII of the 2023 Proposal, the CFPB did not have data with which to 
precisely estimate the effect of the 2023 Proposal on late fee revenue. 
The CFPB analyzed available information on total late fee revenue below 
because the CFPB considered total late fee revenue to be an upper bound 
on potential impacts of the 2023 Proposal, if adopted, on small 
entities.
    In the 2023 Proposal, the CFPB estimated that there were 
approximately 3,780 small banks, of which approximately 498 reported 
outstanding credit card debt on their balance sheets.\278\ In addition, 
the CFPB estimated that there were approximately 4,586 small credit 
unions, of which approximately 2,785 reported credit card assets.\279\ 
Detailed information about sources of credit card revenue was not 
available for most small banks. However, FFIEC Call Reports included a 
measure of outstanding credit card debt held as assets. Revenue for 
banks was reported on the FFIEC Call Reports as net-interest income 
plus non-interest income. Interest income was partially reported by 
product type. For example, all banks were required to report ``all 
interest, fees, and similar charges levied against or associated with 
all extensions of credit to individuals for household, family, or other 
personal expenditures arising from credit cards (in domestic 
offices).'' \280\ The CFPB considered this interest and fee income on 
outstanding credit card balances as a proxy for credit card revenue.
---------------------------------------------------------------------------

    \278\ These estimates and others for small banks were based on 
data from the quarterly Federal Financial Institutions Examination 
Council (FFIEC) Consolidated Reports of Condition and Income (FFIEC 
Call Reports), and refer to the fourth quarter of 2021, unless 
otherwise noted. Fed. Fin. Insts. Examination Council, Call Reports, 
https://cdr.ffiec.gov/public/ManageFacsimiles.aspx (last visited 
Dec. 14, 2022).
    \279\ These estimates and others for small credit unions were 
based on data from NCUA Call Reports, and refer to the fourth 
quarter of 2021, unless otherwise noted. Nat'l Credit Union Admin., 
Call Report Quarterly Data, https://www.ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data (last visited Dec. 
14, 2022).
    \280\ See the Board's Micro Data Reference Manual, B485, https://www.federalreserve.gov/apps/mdrm/data-dictionary (last visited Dec. 
14, 2022).
---------------------------------------------------------------------------

    As discussed in the 2023 Proposal, credit cards represented a small 
fraction of both assets and revenue for small banks. Thus, for the vast 
majority of small banks, even a large reduction in credit card late fee 
revenue would have represented well below 1 percent of bank revenue 
and, therefore, would not have had a significant economic impact.
    As discussed in the 2023 Proposal, the CFPB did not have equivalent 
data on credit card revenue for small credit unions because credit 
unions were not required to separately report income from their credit 
card business in the NCUA Call Reports. However, NCUA Call Reports 
provided information on credit card assets as a share of total assets.
    To obtain a rough estimate of credit card revenue shares at small 
credit unions, in the 2023 Proposal, the CFPB extrapolated using the 
relationship between credit card revenue share and credit card asset 
share in bank call report data. As with small banks, the small share of 
revenue coming from credit cards, together with the fact that late fees 
made up only a fraction of credit card revenue, implied that even a 
significant drop-in late fee revenue would not have had a significant 
economic impact for the large majority of small credit unions.
    Accordingly, the Director certified that the 2023 Proposal would 
not have had a significant economic impact on a substantial number of 
small entities. Thus, neither an IRFA nor a small business review panel 
was required for the proposal.

B. Comments Received

    Many banks and credit unions, industry trade associations, and 
individuals on behalf of credit unions, the Office of Advocacy, an 
independent office within the SBA, and one law firm representing card 
issuers asserted that the 2023 Proposal, if adopted, would have a 
SISNOSE and thus the CFPB is required to hold a SBREFA panel under the 
RFA prior to finalizing the rulemaking. Many banks and credit unions, 
industry trade associations, and individuals on behalf of credit unions 
(1) expressed concern that the CFPB did not conduct a SBREFA panel to 
seek feedback from smaller issuers that would be significantly impacted 
by the proposal; (2) asserted that lowering the safe harbor as proposed 
would have a significant impact on small financial institutions; and 
(3) urged the CFPB to withdraw the proposal and convene a SBREFA panel 
in fulfillment of its statutory obligation under the SBREFA Act of 
1996.
    The agency that advocates for small businesses asserted that (1) 
the CFPB does not have the necessary data to develop an adequate 
factual basis for its SISNOSE certification and does not have 
sufficient information to indicate that small institutions contribute 
to the problem that is the target of the proposal; and (2) without a 
factual basis, the CFPB may not certify under section 605(b) and must 
publish an Initial Regulatory Flexibility Analysis under section 603 of 
the RFA.
    One law firm representing card issuers asserted that CFPB's failure 
to convene a SBREFA panel renders the 2023 Proposal not only 
statutorily unsound, but also arbitrary and capricious under the APA.

C. The Final Rule

    In the 2023 Proposal, the CFPB determined that an IRFA was not 
needed because the 2023 Proposal would not have had a SISNOSE. As 
described in the analysis included in the 2023 Proposal, the CFPB 
estimated that credit card assets and revenue held by small banks and 
small credit unions represent a small fraction of both total assets and 
revenue for those small entities.
    As discussed in more detail in part VI, the CFPB is not finalizing 
the following provisions in this final rule for Smaller Card Issuers: 
(1) the repeal of the current safe harbor threshold amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B), adoption of $8 late fee safe harbor 
threshold amount, and elimination of a higher late fee safe harbor 
dollar amount for subsequent violations of the same type that occur 
during the same billing cycle or in one of the next six billing cycles; 
and (2) the elimination of the annual adjustments for the safe harbor 
threshold dollar amounts set forth Sec.  1026.52(b)(1)(ii)(D). This 
final rule defines the term ``Smaller Card Issuer'' in Sec.  
1026.52(b)(3) to mean a card issuer that together with its affiliates 
had fewer than one million open credit card accounts for the entire 
preceding calendar year.\281\ For purposes of the definition of 
``Smaller Card Issuer,'' this final rule incorporates the definition of 
``open credit card account'' from Sec.  1026.58(b)(6), which defines 
the term to mean a credit card account under an open-end (not home-
secured) consumer credit plan and either: (1) the cardholder can obtain 
extensions of credit on the account; or (2) there is an outstanding 
balance on the account that has not been charged off. As discussed 
below, the safe harbors in Sec.  1026.52(b)(1)(ii)(A) and (B), as 
revised pursuant to the annual automatic adjustments in Sec.  
1026.52(b)(1)(ii)(D) in this final rule, will apply to late fees 
imposed by Smaller Card Issuers.
---------------------------------------------------------------------------

    \281\ See supra note 5.
---------------------------------------------------------------------------

    Pursuant to the annual adjustments for safe harbor dollar amounts 
in Sec.  1026.52(b)(1)(ii)(D), this final rule revises the safe harbor 
threshold

[[Page 19202]]

amounts in Sec.  1026.52(b)(1)(ii)(A) and (B) to $32, except that it 
sets forth a safe harbor of $43 for each subsequent violation of the 
same type that occurs during the same billing cycle or in one of the 
next six billing cycles. These revised safe harbor threshold amounts of 
$32 and $43 apply to penalty fees other than late fees for all card 
issuers (i.e., Smaller Card Issuers and Larger Card Issuers) as well as 
late fees imposed by Smaller Card Issuers, as noted above.
    Small institutions, for the purposes of the SBREFA of 1996, are 
defined by SBA. Effective March 17, 2023, financial institutions with 
less than $850 million in total assets are determined to be small.\282\
---------------------------------------------------------------------------

    \282\ See Small Business Administration, Table of size 
standards, https://www.sba.gov/document/support--table-size-
standards (last visited on October 24, 2023).
---------------------------------------------------------------------------

    The CFPB has determined that nearly all small entities for purposes 
of the RFA will qualify as a ``Smaller Card Issuer'' as defined in this 
final rule, and therefore, the new, lower $8 late fee safe harbor 
amount and the elimination of the annual adjustments to the $8 late fee 
safe harbor amount will not apply to them. Accordingly, this final rule 
will not directly reduce revenue of a substantial number of small 
entities.
    Accordingly, the Director hereby certifies that this final rule 
will not have a significant economic impact on a substantial number of 
small entities.
    The CFPB notes that it is unconvinced by the comments related to 
the SISNOSE, and as explained in part VI, and that it appropriately 
certified in the 2023 Proposal that the 2023 Proposal would not have 
had a SISNOSE. As described above in the initial regulatory flexibility 
analysis included in the 2023 Proposal, the CFPB described the credit 
card market data that it used to develop an adequate basis for the 
Director's SISNOSE certification. Using this data, the CFPB estimated 
that credit card assets and revenue held by small banks and small 
credit unions (as defined by the RFA) represent a small fraction of 
both total assets and revenue for those small entities. Thus, pursuant 
to the RFA, the CFPB was not required to conduct a SBREFA panel prior 
to releasing the 2023 Proposal.
    In fact, as discussed in part VI, the CFPB's determination that 
credit cards are not a significant revenue source for Smaller Card 
Issuers (in terms of total revenue for the institution) played a part 
in the CFPB's decision not to apply certain provisions of the 2023 
Proposal to Smaller Card Issuers at this time.

XI. Paperwork Reduction Act

    The information collections contained within TILA and Regulation Z 
are approved under Office of Management and Budget (OMB) Control Number 
3170-0015. The current expiration date for this approval is May 31, 
2025. The CFPB has determined that this final rule would not impose any 
new information collections or revise any existing recordkeeping, 
reporting, or disclosure requirements on covered entities or members of 
the public that would be collections of information requiring approval 
by OMB under the Paperwork Reduction Act.\283\
---------------------------------------------------------------------------

    \283\ 44 U.S.C. 3506; 5 CFR part 1320.
---------------------------------------------------------------------------

XII. Severability

    If any provision of this rule, or any application of a provision, 
is stayed or determined to be invalid, the remaining provisions or 
applications are severable and shall continue in effect. In particular, 
if the $8 safe harbor for Larger Card Issuers is stayed or determined 
to be invalid, the conclusion to repeal the existing safe harbor is 
severable and shall continue in effect.

List of Subjects in 12 CFR Part 1026

    Advertising, Banks, Banking, Consumer protection, Credit, Credit 
unions, Mortgages, National banks, Reporting and recordkeeping 
requirements, Savings associations, Truth-in-lending.

Authority and Issuance

    For the reasons set forth above, the CFPB amends Regulation Z, 12 
CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students

0
2. Section 1026.52 is amended by revising paragraph (b)(1)(ii) and 
adding paragraph (b)(3) to read as follows:


Sec.  1026.52  Limitation on fees.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Safe harbors. Except as provided in paragraph (b)(1)(ii)(E) of 
this section, a card issuer may impose a fee for a late payment on an 
account if the dollar amount of the fee does not exceed $8. A card 
issuer may impose a fee for other types of violations of the terms or 
other requirements of an account if the dollar amount of the fee does 
not exceed, as applicable:
    (A) $32;
    (B) $43 if the card issuer previously imposed a fee pursuant to 
paragraph (b)(1)(ii)(A) of this section for a violation of the same 
type that occurred during the same billing cycle or one of the next six 
billing cycles; or
    (C) Three percent of the delinquent balance on a charge card 
account that requires payment of outstanding balances in full at the 
end of each billing cycle if the card issuer has not received the 
required payment for two or more consecutive billing cycles, 
notwithstanding the limitation on the amount of a late payment fee in 
paragraph (b)(1)(ii) of this section.
    (D) The amounts in paragraphs (b)(1)(ii)(A) and (B) of this section 
will be adjusted annually by the Bureau to reflect changes in the 
Consumer Price Index.
    (E) A smaller card issuer, as defined in paragraph (b)(3) of this 
section, may impose a fee for a late payment on an account if the 
dollar amount of the fee does not exceed the amount in paragraph 
(b)(1)(ii)(A) or (B) of this section, as applicable, notwithstanding 
the limitation on the amount of a late payment fee in this paragraph 
(b)(1)(ii).
* * * * *
    (3) Smaller card issuer. (i) Except as provided in paragraph 
(b)(3)(ii) of this section, a card issuer is a smaller card issuer for 
purposes of paragraph (b)(1)(ii)(E) of this section if the card issuer 
together with its affiliates had fewer than one million open credit 
card accounts, as defined in Sec.  1026.58(b)(6), for the entire 
preceding calendar year. For purposes of this paragraph (b)(3), 
affiliate means any company that controls, is controlled by, or is 
under common control with another company, as set forth in the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
    (ii) If a card issuer together with its affiliates had fewer than 
one million open credit card accounts for the entire preceding calendar 
year but meets or exceeds that number of open credit card accounts in 
the current calendar year, the card issuer will no longer be a smaller 
card issuer for purposes of paragraph (b)(1)(ii)(E) of this section as 
of 60 days after meeting or exceeding that number of open credit card 
accounts.

0
3. Section 1026.58 is amended by revising paragraph (b)(6) to read as 
follows:

[[Page 19203]]

Sec.  1026.58  internet posting of credit card agreements.

* * * * *
    (b) * * *
    (6) Open accounts. For purposes of this section and Sec.  1026.52, 
an account is an ``open account'' or ``open credit card account'' if it 
is a credit card account under an open-end (not home-secured) consumer 
credit plan and either:
    (i) The cardholder can obtain extensions of credit on the account; 
or
    (ii) There is an outstanding balance on the account that has not 
been charged off. An account that has been suspended temporarily (for 
example, due to a report by the cardholder of unauthorized use of the 
card) is considered an ``open account'' or ``open credit card 
account.''
* * * * *

0
4. Appendix G to part 1026 is amended by revising the entries for G-
10(B), G-10(C), G-10(E), G-17(B), G-17(C), G-18(A), G-18(B), G-18(D), 
G-18(F), G-18(G), and G-21 to read as follows:

Appendix G to Part 1026--Open-End Model Forms and Clauses

* * * * *
BILLING CODE 4810-AM-P
G-10(B) APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS)
[GRAPHIC] [TIFF OMITTED] TR15MR24.006

G-10(C) APPLICATIONS AND SOLICITATIONS SAMPLE (CREDIT CARDS)

[[Page 19204]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.007

* * * * *
G-10(E) APPLICATIONS AND SOLICITATIONS SAMPLE (CHARGE CARDS)

[[Page 19205]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.008

* * * * *
G-17(B) ACCOUNT-OPENING SAMPLE

[[Page 19206]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.009

G-17(C) ACCOUNT-OPENING SAMPLE

[[Page 19207]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.010

* * * * *
G-18(A) PERIODIC STATEMEMT TRANSACTIONS; INTEREST CHARGES; FEES SAMPLE

[[Page 19208]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.011

G-18(B) LATE PAYMENT FEE SAMPLE
[GRAPHIC] [TIFF OMITTED] TR15MR24.012

* * * * *
G-18(D) PERIODIC STATEMENT NEW BALANCE, DUE DATE, LATE PAYMENT AND 
MINIMUM PAYMENT SAMPLE (CREDIT CARDS)

[[Page 19209]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.013

* * * * *
G-18(F) PERIODIC STATEMENT FORM

[[Page 19210]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.014


[[Page 19211]]


[GRAPHIC] [TIFF OMITTED] TR15MR24.015

G-18(G) PERIODIC STATEMENT FORM

[[Page 19212]]

[GRAPHIC] [TIFF OMITTED] TR15MR24.016


[[Page 19213]]


[GRAPHIC] [TIFF OMITTED] TR15MR24.017

* * * * *
G-21 CHANGE-IN-TERMS SAMPLE (INCREASE IN FEES)
[GRAPHIC] [TIFF OMITTED] TR15MR24.018

BILLING CODE 4810-AM-C
* * * * *

0
5. Supplement I to part 1026 is amended by:
0
a. Under Section 1026.7--Periodic Statement, revising 7(b)(11) Due 
Date; Late Payment Costs;
0
b. Under Section 1026.52--Limitations on Fees:
0
i. Revising 52(a)(1) General rule, 52(b) Limitations on Penalty Fees, 
52(b)(1) General Rule, 52(b)(1)(i) Fees Based on Costs, 52(b)(1)(ii) 
Safe Harbors, 52(b)(2) Prohibited fees, 52(b)(2)(i) Fees That Exceed 
Dollar Amount Associated With Violation, and 52(b)(2)(ii) Multiple Fees 
Based on a Single Event or Transaction; and
0
ii. Adding 52(b)(3) Smaller card issuer, 52(b)(3)(i), and 52(b)(3)(ii) 
in alphanumerical order; and
0
c. Under Section 1026.60--Credit and Charge Card Applications and 
Solicitations, revising 60(a)(2) Form of Disclosures; Tabular Format.
    The revisions and additions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.7--Periodic Statement

* * * * *

7(b)(11) Due Date; Late Payment Costs

    1. Informal periods affecting late payments. Although the terms 
of the account agreement may provide that a card issuer may assess a 
late payment fee if a payment is not received by a certain date, the 
card issuer may have an informal policy or practice that delays the 
assessment of the late

[[Page 19214]]

payment fee for payments received a brief period of time after the 
date upon which a card issuer has the contractual right to impose 
the fee. A card issuer must disclose the due date according to the 
legal obligation between the parties, and need not consider the end 
of an informal ``courtesy period'' as the due date under Sec.  
1026.7(b)(11).
    2. Assessment of late payment fees. Some State or other laws 
require that a certain number of days must elapse following a due 
date before a late payment fee may be imposed. In addition, a card 
issuer may be restricted by the terms of the account agreement from 
imposing a late payment fee until a payment is late for a certain 
number of days following a due date. For example, assume a payment 
is due on March 10 and the account agreement or State law provides 
that a late payment fee cannot be assessed before March 21. A card 
issuer must disclose the due date under the terms of the legal 
obligation (March 10 in this example), and not a date different than 
the due date, such as when the card issuer is restricted by the 
account agreement or State or other law from imposing a late payment 
fee unless a payment is late for a certain number of days following 
the due date (March 21 in this example). Consumers' rights under 
State law to avoid the imposition of late payment fees during a 
specified period following a due date are unaffected by the 
disclosure requirement. In this example, the card issuer would 
disclose March 10 as the due date for purposes of Sec.  
1026.7(b)(11), but could not, under State law, assess a late payment 
fee before March 21.
    3. Fee or rate triggered by multiple events. If a late payment 
fee or penalty rate is triggered after multiple events, such as two 
late payments in six months, the card issuer may, but is not 
required to, disclose the late payment and penalty rate disclosure 
each month. The disclosures must be included on any periodic 
statement for which a late payment could trigger the late payment 
fee or penalty rate, such as after the consumer made one late 
payment in this example. For example, if a cardholder has already 
made one late payment, the disclosure must be on each statement for 
the following five billing cycles.
    4. Range of late fees or penalty rates. A card issuer that 
imposes a range of late payment fees or rates on a credit card 
account under an open-end (not home-secured) consumer credit plan 
may state the highest fee or rate along with an indication lower 
fees or rates could be imposed. For example, a phrase indicating the 
late payment fee could be ``up to $8'' complies with this 
requirement.
    5. Penalty rate in effect. If the highest penalty rate has 
previously been triggered on an account, the card issuer may, but is 
not required to, delete the amount of the penalty rate and the 
warning that the rate may be imposed for an untimely payment, as not 
applicable. Alternatively, the card issuer may, but is not required 
to, modify the language to indicate that the penalty rate has been 
increased due to previous late payments (if applicable).
    6. Same day each month. The requirement that the due date be the 
same day each month means that the due date must generally be the 
same numerical date. For example, a consumer's due date could be the 
25th of every month. In contrast, a due date that is the same 
relative date but not numerical date each month, such as the third 
Tuesday of the month, generally would not comply with this 
requirement. However, a consumer's due date may be the last day of 
each month, even though that date will not be the same numerical 
date. For example, if a consumer's due date is the last day of each 
month, it will fall on February 28th (or February 29th in a leap 
year) and on August 31st.
    7. Change in due date. A creditor may adjust a consumer's due 
date from time to time provided that the new due date will be the 
same numerical date each month on an ongoing basis. For example, a 
creditor may choose to honor a consumer's request to change from a 
due date that is the 20th of each month to the 5th of each month, or 
may choose to change a consumer's due date from time to time for 
operational reasons. See comment 2(a)(4)-3 for guidance on 
transitional billing cycles.
    8. Billing cycles longer than one month. The requirement that 
the due date be the same day each month does not prohibit billing 
cycles that are two or three months, provided that the due date for 
each billing cycle is on the same numerical date of the month. For 
example, a creditor that establishes two-month billing cycles could 
send a consumer periodic statements disclosing due dates of January 
25, March 25, and May 25.
    9. Payment due date when the creditor does not accept or receive 
payments by mail. If the due date in a given month falls on a day on 
which the creditor does not receive or accept payments by mail and 
the creditor is required to treat a payment received the next 
business day as timely pursuant to Sec.  1026.10(d), the creditor 
must disclose the due date according to the legal obligation between 
the parties, not the date as of which the creditor is permitted to 
treat the payment as late. For example, assume that the consumer's 
due date is the 4th of every month, and the creditor does not accept 
or receive payments by mail on Thursday, July 4. Pursuant to Sec.  
1026.10(d), the creditor may not treat a mailed payment received on 
the following business day, Friday, July 5, as late for any purpose. 
The creditor must nonetheless disclose July 4 as the due date on the 
periodic statement and may not disclose a July 5 due date.
* * * * *

Section 1026.52--Limitations on Fees

52(a) Limitations During First Year After Account Opening

52(a)(1) General Rule

    1. Application. The 25 percent limit in Sec.  1026.52(a)(1) 
applies to fees that the card issuer charges to the account as well 
as to fees that the card issuer requires the consumer to pay with 
respect to the account through other means (such as through a 
payment from the consumer's asset account, including a prepaid 
account as defined in Sec.  1026.61, to the card issuer or from 
another credit account provided by the card issuer). For example:
    i. Assume that, under the terms of a credit card account, a 
consumer is required to pay $120 in fees for the issuance or 
availability of credit at account opening. The consumer is also 
required to pay a cash advance fee that is equal to five percent of 
the cash advance and a late payment fee of $8 if the required 
minimum periodic payment is not received by the payment due date 
(which is the twenty-fifth of the month). The card issuer is not a 
smaller card issuer as defined in Sec.  1026.52(b)(3). At account 
opening on January 1 of year one, the credit limit for the account 
is $500. Section 1026.52(a)(1) permits the card issuer to charge to 
the account the $120 in fees for the issuance or availability of 
credit at account opening. On February 1 of year one, the consumer 
uses the account for a $100 cash advance. Section 1026.52(a)(1) 
permits the card issuer to charge a $5 cash-advance fee to the 
account. On March 26 of year one, the card issuer has not received 
the consumer's required minimum periodic payment. Section 
1026.52(a)(2) permits the card issuer to charge a $8 late payment 
fee to the account. On July 15 of year one, the consumer uses the 
account for a $50 cash advance. Section 1026.52(a)(1) does not 
permit the card issuer to charge a $2.50 cash advance fee to the 
account. Furthermore, Sec.  1026.52(a)(1) prohibits the card issuer 
from collecting the $2.50 cash advance fee from the consumer by 
other means.
    ii. Assume that, under the terms of a credit card account, a 
consumer is required to pay $125 in fees for the issuance or 
availability of credit during the first year after account opening. 
At account opening on January 1 of year one, the credit limit for 
the account is $500. Section 1026.52(a)(1) permits the card issuer 
to charge the $125 in fees to the account. However, Sec.  
1026.52(a)(1) prohibits the card issuer from requiring the consumer 
to make payments to the card issuer for additional non-exempt fees 
with respect to the account during the first year after account 
opening. Section 1026.52(a)(1) also prohibits the card issuer from 
requiring the consumer to open a separate credit account with the 
card issuer to fund the payment of additional non-exempt fees during 
the first year after the credit card account is opened.
    iii. Assume that a consumer opens a prepaid account accessed by 
a prepaid card on January 1 of year one and opens a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
by Sec.  1026.61 that is a credit card account under an open-end 
(not home-secured) consumer credit plan on March 1 of year one. 
Assume that, under the terms of the covered separate credit feature 
accessible by the hybrid prepaid-credit card, a consumer is required 
to pay $50 in fees for the issuance or availability of credit at 
account opening. At credit account opening on March 1 of year one, 
the credit limit for the account is $200. Section 1026.52(a)(1) 
permits the card issuer to charge the $50 in fees to the credit 
account. However, Sec.  1026.52(a)(1) prohibits the card issuer from 
requiring the consumer to make payments to the card issuer for 
additional non-exempt fees with respect to the credit account during 
the first year after account opening. Section 1026.52(a)(1) also 
prohibits

[[Page 19215]]

the card issuer from requiring the consumer to open an additional 
credit feature with the card issuer to fund the payment of 
additional non-exempt fees during the first year after the covered 
separate credit feature is opened.
    iv. Assume that a consumer opens a prepaid account accessed by a 
prepaid card on January 1 of year one and opens a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
in Sec.  1026.61 that is a credit card account under an open-end 
(not home-secured) consumer credit plan on March 1 of year one. 
Assume that, under the terms of the covered separate credit feature 
accessible by the hybrid prepaid-credit card, a consumer is required 
to pay $120 in fees for the issuance or availability of credit at 
account opening. The consumer is also required to pay a cash advance 
fee that is equal to 5 percent of any cash advance and a late 
payment fee of $8 if the required minimum periodic payment is not 
received by the payment due date (which is the 25th of the month). 
The card issuer is not a smaller card issuer as defined in Sec.  
1026.52(b)(3). At credit account opening on March 1 of year one, the 
credit limit for the account is $500. Section 1026.52(a)(1) permits 
the card issuer to charge to the account the $120 in fees for the 
issuance or availability of credit at account opening. On April 1 of 
year one, the consumer uses the account for a $100 cash advance. 
Section 1026.52(a)(1) permits the card issuer to charge a $5 cash 
advance fee to the account. On April 26 of year one, the card issuer 
has not received the consumer's required minimum periodic payment. 
Section 1026.52(a)(2) permits the card issuer to charge a $8 late 
payment fee to the account. On July 15 of year one, the consumer 
uses the account for a $50 cash advance. Section 1026.52(a)(1) does 
not permit the card issuer to charge a $2.50 cash advance fee to the 
account, because the total amount of non-exempt fees reached the 25 
percent limit with the $5 cash advance fee on April 1 (the $8 late 
fee on April 26 is exempt pursuant to Sec.  1026.52(a)(2)(i)). 
Furthermore, Sec.  1026.52(a)(1) prohibits the card issuer from 
collecting the $2.50 cash advance fee from the consumer by other 
means.
    2. Fees that exceed 25 percent limit. A card issuer that charges 
a fee to a credit card account that exceeds the 25 percent limit 
complies with Sec.  1026.52(a)(1) if the card issuer waives or 
removes the fee and any associated interest charges or credits the 
account for an amount equal to the fee and any associated interest 
charges within a reasonable amount of time but no later than the end 
of the billing cycle following the billing cycle during which the 
fee was charged. For example, assuming the facts in the example in 
comment 52(a)(1)-1.i, the card issuer complies with Sec.  
1026.52(a)(1) if the card issuer charged the $2.50 cash advance fee 
to the account on July 15 of year one but waived or removed the fee 
or credited the account for $2.50 (plus any interest charges on that 
$2.50) at the end of the billing cycle.
    3. Changes in credit limit during first year.
    i. Increases in credit limit. If a card issuer increases the 
credit limit during the first year after the account is opened, 
Sec.  1026.52(a)(1) does not permit the card issuer to require the 
consumer to pay additional fees that would otherwise be prohibited 
(such as a fee for increasing the credit limit). For example, assume 
that, at account opening on January 1, the credit limit for a credit 
card account is $400 and the consumer is required to pay $100 in 
fees for the issuance or availability of credit. On July 1, the card 
issuer increases the credit limit for the account to $600. Section 
1026.52(a)(1) does not permit the card issuer to require the 
consumer to pay additional fees based on the increased credit limit.
    ii. Decreases in credit limit. If a card issuer decreases the 
credit limit during the first year after the account is opened, 
Sec.  1026.52(a)(1) requires the card issuer to waive or remove any 
fees charged to the account that exceed 25 percent of the reduced 
credit limit or to credit the account for an amount equal to any 
fees the consumer was required to pay with respect to the account 
that exceed 25 percent of the reduced credit limit within a 
reasonable amount of time but no later than the end of the billing 
cycle following the billing cycle during which the credit limit was 
reduced. For example, assume that, at account opening on January 1, 
the credit limit for a credit card account is $1,000 and the 
consumer is required to pay $250 in fees for the issuance or 
availability of credit. The billing cycles for the account begin on 
the first day of the month and end on the last day of the month. On 
July 30, the card issuer decreases the credit limit for the account 
to $600. Section 1026.52(a)(1) requires the card issuer to waive or 
remove $100 in fees from the account or to credit the account for an 
amount equal to $100 within a reasonable amount of time but no later 
than August 31.
    4. Date on which account may first be used by consumer to engage 
in transactions.
    i. Methods of compliance. For purposes of Sec.  1026.52(a)(1), 
an account is considered open no earlier than the date on which the 
account may first be used by the consumer to engage in transactions. 
A card issuer may consider an account open for purposes of Sec.  
1026.52(a)(1) on any of the following dates:
    A. The date the account is first used by the consumer for a 
transaction (such as when an account is established in connection 
with financing the purchase of goods or services).
    B. The date the consumer complies with any reasonable activation 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use of a new account (such as requiring the consumer to 
provide information that verifies his or her identity), provided 
that the account may be used for transactions on that date.
    C. The date that is seven days after the card issuer mails or 
delivers to the consumer account-opening disclosures that comply 
with Sec.  1026.6, provided that the consumer may use the account 
for transactions after complying with any reasonable activation 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use of the new account (such as requiring the consumer 
to provide information that verifies his or her identity). If a card 
issuer has reasonable procedures designed to ensure that account-
opening disclosures that comply with Sec.  1026.6 are mailed or 
delivered to consumers no later than a certain number of days after 
the card issuer establishes the account, the card issuer may add 
that number of days to the seven-day period for purposes of 
determining the date on which the account was opened.
    ii. Examples. A. Assume that, on July 1 of year one, a credit 
card account under an open-end (not home-secured) consumer credit 
plan is established in connection with financing the purchase of 
goods or services and a $500 transaction is charged to the account 
by the consumer. The card issuer may consider the account open on 
July 1 of year one for purposes of Sec.  1026.52(a)(1). Accordingly, 
Sec.  1026.52(a)(1) ceases to apply to the account on July 1 of year 
two.
    B. Assume that, on July 1 of year one, a card issuer approves a 
consumer's application for a credit card account under an open-end 
(not home-secured) consumer credit plan and establishes the account 
on its internal systems. On July 5, the card issuer mails or 
delivers to the consumer account-opening disclosures that comply 
with Sec.  1026.6. If the consumer may use the account for 
transactions on the date the consumer complies with any reasonable 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use, the card issuer may consider the account open on 
July 12 of year one for purposes of Sec.  1026.52(a)(1). 
Accordingly, Sec.  1026.52(a)(1) ceases to apply to the account on 
July 12 of year two.
    C. Same facts as in comment 52(a)(1)-4.ii.B except that the card 
issuer has adopted reasonable procedures designed to ensure that 
account-opening disclosures that comply with Sec.  1026.6 are mailed 
or delivered to consumers no later than three days after an account 
is established on its systems. If the consumer may use the account 
for transactions on the date the consumer complies with any 
reasonable procedures imposed by the card issuer for preventing 
fraud or unauthorized use, the card issuer may consider the account 
open on July 11 of year one for purposes of Sec.  1026.52(a)(1). 
Accordingly, Sec.  1026.52(a)(1) ceases to apply to the account on 
July 11 of year two. However, if the consumer uses the account for a 
transaction or complies with the card issuer's reasonable procedures 
for preventing fraud or unauthorized use on July 8 of year one, the 
card issuer may, at its option, consider the account open on that 
date for purposes of Sec.  1026.52(a)(1), and therefore Sec.  
1026.52(a)(1) ceases to apply to the account on July 8 of year two.
* * * * *

52(b) Limitations on Penalty Fees

    1. Fees for violating the account terms or other requirements. 
For purposes of Sec.  1026.52(b), a fee includes any charge imposed 
by a card issuer based on an act or omission that violates the terms 
of the account or any other requirements imposed by the card issuer 
with respect to the account, other than charges attributable to 
periodic interest rates. Accordingly, for purposes of Sec.  
1026.52(b), a fee does not include charges attributable to an 
increase in an annual percentage rate based on an act or omission 
that violates the terms or other requirements of an account.

[[Page 19216]]

    i. The following are examples of fees that are subject to the 
limitations in Sec.  1026.52(b) or are prohibited by Sec.  
1026.52(b):
    A. Late payment fees and any other fees imposed by a card issuer 
if an account becomes delinquent or if a payment is not received by 
a particular date. A late payment fee or late fee is any fee imposed 
for a late payment. See Sec.  1026.60(b)(9) and accompanying 
commentary.
    B. Returned payment fees and any other fees imposed by a card 
issuer if a payment received via check, automated clearing house, or 
other payment method is returned.
    C. Any fee or charge for an over-the-limit transaction as 
defined in Sec.  1026.56(a), to the extent the imposition of such a 
fee or charge is permitted by Sec.  1026.56.
    D. Any fee imposed by a card issuer if payment on a check that 
accesses a credit card account is declined.
    E. Any fee or charge for a transaction that the card issuer 
declines to authorize. See Sec.  1026.52(b)(2)(i)(B).
    F. Any fee imposed by a card issuer based on account inactivity 
(including the consumer's failure to use the account for a 
particular number or dollar amount of transactions or a particular 
type of transaction). See Sec.  1026.52(b)(2)(i)(B).
    G. Any fee imposed by a card issuer based on the closure or 
termination of an account. See Sec.  1026.52(b)(2)(i)(B).
    ii. The following are examples of fees to which Sec.  1026.52(b) 
does not apply:
    A. Balance transfer fees.
    B. Cash advance fees.
    C. Foreign transaction fees.
    D. Annual fees and other fees for the issuance or availability 
of credit described in Sec.  1026.60(b)(2), except to the extent 
that such fees are based on account inactivity. See Sec.  
1026.52(b)(2)(i)(B).
    E. Fees for insurance described in Sec.  1026.4(b)(7) or debt 
cancellation or debt suspension coverage described in Sec.  
1026.4(b)(10) written in connection with a credit transaction, 
provided that such fees are not imposed as a result of a violation 
of the account terms or other requirements of an account.
    F. Fees for making an expedited payment (to the extent permitted 
by Sec.  1026.10(e)).
    G. Fees for optional services (such as travel insurance).
    H. Fees for reissuing a lost or stolen card.
    2. Rounding to nearest whole dollar. A card issuer may round any 
fee that complies with Sec.  1026.52(b) to the nearest whole dollar. 
For example, if Sec.  1026.52(b) permits a card issuer to impose a 
late payment fee of $5.50, the card issuer may round that amount up 
to the nearest whole dollar and impose a late payment fee of $6. 
However, if the late payment fee permitted by Sec.  1026.52(b) were 
$5.49, the card issuer would not be permitted to round that amount 
up to $6, although the card issuer could round that amount down and 
impose a late payment fee of $5.
    3. Fees in connection with covered separate credit features 
accessible by hybrid prepaid-credit cards. With regard to a covered 
separate credit feature and an asset feature on a prepaid account 
that are both accessible by a hybrid prepaid-credit card as defined 
in Sec.  1026.61 where the credit feature is a credit card account 
under an open-end (not home-secured) consumer credit plan, Sec.  
1026.52(b) applies to any fee for violating the terms or other 
requirements of the credit feature, regardless of whether those fees 
are imposed on the credit feature or on the asset feature of the 
prepaid account. For example, assume that a late fee will be imposed 
by the card issuer if the covered separate credit feature becomes 
delinquent or if a payment is not received by a particular date. 
This fee is subject to Sec.  1026.52(b) regardless of whether the 
fee is imposed on the asset feature of the prepaid account or on the 
separate credit feature.
    4. Fees imposed on the asset feature of a prepaid account that 
are not charges imposed as part of the plan. Section 1026.52(b) does 
not apply to any fee or charge imposed on the asset feature of the 
prepaid account that is not a charge imposed as part of the plan 
under Sec.  1026.6(b)(3). See Sec.  1026.6(b)(3)(iii)(D) and (E) and 
related commentary regarding fees imposed on the asset feature 
prepaid account that are not charges imposed as part of the plan 
under Sec.  1026.6(b)(3) with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards and non-covered 
separate credit features as those terms are defined in Sec.  
1026.61.
    5. Examples. Any dollar amount examples in the commentary to 
Sec.  1026.52(b) relating to the safe harbors in Sec.  1026.52(b)(1) 
are based on the original historical safe-harbor thresholds of $25 
and $35 for penalty fees other than late fees, and on the threshold 
of $8 for late fees applicable to card issuers other than smaller 
card issuers as defined in Sec.  1026.52(b)(3).

52(b)(1) General Rule

    1. Relationship between Sec.  1026.52(b)(1)(i) and (ii) and 
(b)(2).
    i. Relationship between Sec.  1026.52(b)(1)(i) and (ii). A card 
issuer may impose a fee for violating the terms or other 
requirements of an account pursuant to either Sec.  1026.52(b)(1)(i) 
or (ii).
    A. A card issuer that complies with the safe harbors in Sec.  
1026.52(b)(1)(ii) is not required to determine that its fees 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of a type of violation under Sec.  
1026.52(b)(1)(i).
    B. A card issuer may impose a fee for one type of violation 
pursuant to Sec.  1026.52(b)(1)(i) and may impose a fee for a 
different type of violation pursuant to Sec.  1026.52(b)(1)(ii). For 
example, a card issuer may impose a late payment fee of $9 based on 
a cost determination pursuant to Sec.  1026.52(b)(1)(i) but impose 
returned payment and over-the-limit fees of $25 or $35 pursuant to 
the safe harbors in Sec.  1026.52(b)(1)(ii).
    C. A card issuer that previously based the amount of a penalty 
fee for a particular type of violation on a cost determination 
pursuant to Sec.  1026.52(b)(1)(i) may begin to impose a penalty fee 
for that type of violation that is consistent with Sec.  
1026.52(b)(1)(ii) at any time (subject to the notice requirements in 
Sec.  1026.9), provided that the first fee imposed pursuant to Sec.  
1026.52(b)(1)(ii) is consistent with Sec.  1026.52(b)(1)(ii)(A). For 
example, assume that consistent with Sec.  1026.56, a consumer has 
affirmatively consented to the payment of transactions that exceed 
the credit limit. A transaction occurs on January 15 that causes the 
account balance to exceed the credit limit and, based on a cost 
determination pursuant to Sec.  1026.52(b)(1)(i), the card issuer 
imposes a $30 over-the-limit fee. The consumer's next monthly 
payment brings the account balance below the credit limit. On July 
15, another transaction causes the account balance to exceed the 
credit limit. The card issuer may impose another $30 over-the-limit 
fee pursuant to Sec.  1026.52(b)(1)(i) or may impose a $25 over-the-
limit fee pursuant to Sec.  1026.52(b)(1)(ii)(A). However, the card 
issuer may not impose a $35 over-the-limit fee pursuant to Sec.  
1026.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee pursuant 
to Sec.  1026.52(b)(1)(ii)(A) for the July 15 over-the-limit 
transaction and on September 15 another transaction causes the 
account balance to exceed the credit limit, the card issuer may 
impose a $35 fee for the September 15 over-the-limit transaction 
pursuant to Sec.  1026.52(b)(1)(ii)(B).

ii. Relationship between Sec.  1026.52(b)(1) and (2). Section 
1026.52(b)(1) does not permit a card issuer to impose a fee that is 
inconsistent with the prohibitions in Sec.  1026.52(b)(2). For example, 
if Sec.  1026.52(b)(2)(i) prohibits the card issuer from imposing a 
late payment fee that exceeds $7, Sec.  1026.52(b)(1)(ii) does not 
permit the card issuer to impose a higher late payment fee.

    52(b)(1)(i) Fees Based on Costs
    1. Costs incurred as a result of violations. Section 
1026.52(b)(1)(i) does not require a card issuer to base a fee on the 
costs incurred as a result of a specific violation of the terms or 
other requirements of an account. Instead, for purposes of Sec.  
1026.52(b)(1)(i), a card issuer must have determined that a fee for 
violating the terms or other requirements of an account represents a 
reasonable proportion of the costs incurred by the card issuer as a 
result of that type of violation. A card issuer may make a single 
determination for all of its credit card portfolios or may make 
separate determinations for each portfolio. The factors relevant to 
this determination include:
    i. The number of violations of a particular type experienced by 
the card issuer during a prior period of reasonable length (for 
example, a period of twelve months).
    ii. The costs incurred by the card issuer during that period as 
a result of those violations.
    iii. At the card issuer's option, the number of fees imposed by 
the card issuer as a result of those violations during that period 
that the card issuer reasonably estimates it will be unable to 
collect. See comment 52(b)(1)(i)-5.
    iv. At the card issuer's option, reasonable estimates for an 
upcoming period of changes in the number of violations of that type, 
the resulting costs, and the number of fees that the card issuer 
will be unable to collect. See illustrative examples in comments 
52(b)(1)(i)-6 through -9.
    2. Amounts excluded from cost analysis. The following amounts 
are not costs incurred by a card issuer as a result of violations of

[[Page 19217]]

the terms or other requirements of an account for purposes of Sec.  
1026.52(b)(1)(i):
    i. Losses and associated costs (including the cost of holding 
reserves against potential losses, the cost of funding delinquent 
accounts, and any collection costs that are incurred after an 
account is charged off in accordance with loan-loss provisions).
    ii. Costs associated with evaluating whether consumers who have 
not violated the terms or other requirements of an account are 
likely to do so in the future (such as the costs associated with 
underwriting new accounts). However, once a violation of the terms 
or other requirements of an account has occurred, the costs 
associated with preventing additional violations for a reasonable 
period of time are costs incurred by a card issuer as a result of 
violations of the terms or other requirements of an account for 
purposes of Sec.  1026.52(b)(1)(i).
    3. Third-party charges. As a general matter, amounts charged to 
the card issuer by a third party as a result of a violation of the 
terms or other requirements of an account are costs incurred by the 
card issuer for purposes of Sec.  1026.52(b)(1)(i). For example, if 
a card issuer is charged a specific amount by a third party for each 
returned payment, that amount is a cost incurred by the card issuer 
as a result of returned payments. However, if the amount is charged 
to the card issuer by an affiliate or subsidiary of the card issuer, 
the card issuer must have determined that the charge represents a 
reasonable proportion of the costs incurred by the affiliate or 
subsidiary as a result of the type of violation. For example, if an 
affiliate of a card issuer provides collection services to the card 
issuer on delinquent accounts, the card issuer must have determined 
that the amounts charged to the card issuer by the affiliate for 
such services represent a reasonable proportion of the costs 
incurred by the affiliate as a result of late payments.
    4. Amounts charged by other card issuers. The fact that a card 
issuer's fees for violating the terms or other requirements of an 
account are comparable to fees assessed by other card issuers does 
not satisfy the requirements of Sec.  1026.52(b)(1)(i).
    5. Uncollected fees. For purposes of Sec.  1026.52(b)(1)(i), a 
card issuer may consider fees that it is unable to collect when 
determining the appropriate fee amount. Fees that the card issuer is 
unable to collect include fees imposed on accounts that have been 
charged off by the card issuer, fees that have been discharged in 
bankruptcy, and fees that the card issuer is required to waive in 
order to comply with a legal requirement (such as a requirement 
imposed by this part or 50 U.S.C. app. 527). However, fees that the 
card issuer chooses not to impose or chooses not to collect (such as 
fees the card issuer chooses to waive at the request of the consumer 
or under a workout or temporary hardship arrangement) are not 
relevant for purposes of this determination. See illustrative 
examples in comments 52(b)(2)(i)-6 through -9.
    6. Late payment fees.
    i. Costs incurred as a result of late payments. For purposes of 
Sec.  1026.52(b)(1)(i), the costs incurred by a card issuer as a 
result of late payments include the costs associated with the 
collection of late payments, such as the costs associated with 
notifying consumers of delinquencies and resolving delinquencies 
(including the establishment of workout and temporary hardship 
arrangements).
    ii. Examples. A. Late payment fee based on past delinquencies 
and costs. Assume that, during year one, a card issuer experienced 1 
million delinquencies and incurred $26 million in costs as a result 
of those delinquencies. For purposes of Sec.  1026.52(b)(1)(i), a 
$26 late payment fee would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of late payments 
during year two.
    B. Adjustment based on fees card issuer is unable to collect. 
Same facts as in comment 52(b)(1)(i)-6.ii.A except that the card 
issuer imposed a late payment fee for each of the 1 million 
delinquencies experienced during year one but was unable to collect 
25% of those fees (in other words, the card issuer was unable to 
collect 250,000 fees, leaving a total of 750,000 late payments for 
which the card issuer did collect or could have collected a fee). 
For purposes of Sec.  1026.52(b)(2)(i), a late payment fee of $35 
would represent a reasonable proportion of the total costs incurred 
by the card issuer as a result of late payments during year two.
    C. Adjustment based on reasonable estimate of future changes. 
Same facts as in comments 52(b)(1)(i)-6.ii.A and B except the card 
issuer reasonably estimates that--based on past delinquency rates 
and other factors relevant to potential delinquency rates for year 
two--it will experience a 2% decrease in delinquencies during year 
two (in other words, 20,000 fewer delinquencies for a total of 
980,000). The card issuer also reasonably estimates that it will be 
unable to collect the same percentage of fees (25%) during year two 
as during year one (in other words, the card issuer will be unable 
to collect 245,000 fees, leaving a total of 735,000 late payments 
for which the card issuer will be able to collect a fee). The card 
issuer also reasonably estimates that--based on past changes in 
costs incurred as a result of delinquencies and other factors 
relevant to potential costs for year two--it will experience a 5% 
increase in costs during year two (in other words, $1.3 million in 
additional costs for a total of $27.3 million). For purposes of 
Sec.  1026.52(b)(1)(i), a $37 late payment fee would represent a 
reasonable proportion of the total costs incurred by the card issuer 
as a result of late payments during year two.
    7. Returned payment fees.
    i. Costs incurred as a result of returned payments. For purposes 
of Sec.  1026.52(b)(1)(i), the costs incurred by a card issuer as a 
result of returned payments include:
    A. Costs associated with processing returned payments and 
reconciling the card issuer's systems and accounts to reflect 
returned payments;
    B. Costs associated with investigating potential fraud with 
respect to returned payments; and
    C. Costs associated with notifying the consumer of the returned 
payment and arranging for a new payment.
    ii. Examples. A. Returned payment fee based on past returns and 
costs. Assume that, during year one, a card issuer experienced 
150,000 returned payments and incurred $3.1 million in costs as a 
result of those returned payments. For purposes of Sec.  
1026.52(b)(1)(i), a $21 returned payment fee would represent a 
reasonable proportion of the total costs incurred by the card issuer 
as a result of returned payments during year two.
    B. Adjustment based on fees card issuer is unable to collect. 
Same facts as in comment 52(b)(1)(i)-7.ii.A except that the card 
issuer imposed a returned payment fee for each of the 150,000 
returned payments experienced during year one but was unable to 
collect 15% of those fees (in other words, the card issuer was 
unable to collect 22,500 fees, leaving a total of 127,500 returned 
payments for which the card issuer did collect or could have 
collected a fee). For purposes of Sec.  1026.52(b)(2)(i), a returned 
payment fee of $24 would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of returned 
payments during year two.
    C. Adjustment based on reasonable estimate of future changes. 
Same facts as in comments 52(b)(1)(i)-7.ii.A and B except the card 
issuer reasonably estimates that--based on past returned payment 
rates and other factors relevant to potential returned payment rates 
for year two--it will experience a 2% increase in returned payments 
during year two (in other words, 3,000 additional returned payments 
for a total of 153,000). The card issuer also reasonably estimates 
that it will be unable to collect 25% of returned payment fees 
during year two (in other words, the card issuer will be unable to 
collect 38,250 fees, leaving a total of 114,750 returned payments 
for which the card issuer will be able to collect a fee). The card 
issuer also reasonably estimates that--based on past changes in 
costs incurred as a result of returned payments and other factors 
relevant to potential costs for year two--it will experience a 1% 
decrease in costs during year two (in other words, a $31,000 
reduction in costs for a total of $3.069 million). For purposes of 
Sec.  1026.52(b)(1)(i), a $27 returned payment fee would represent a 
reasonable proportion of the total costs incurred by the card issuer 
as a result of returned payments during year two.
    8. Over-the-limit fees.
    i. Costs incurred as a result of over-the-limit transactions. 
For purposes of Sec.  1026.52(b)(1)(i), the costs incurred by a card 
issuer as a result of over-the-limit transactions include:
    A. Costs associated with determining whether to authorize over-
the-limit transactions; and
    B. Costs associated with notifying the consumer that the credit 
limit has been exceeded and arranging for payments to reduce the 
balance below the credit limit.
    ii. Costs not incurred as a result of over-the-limit 
transactions. For purposes of Sec.  1026.52(b)(1)(i), costs 
associated with obtaining the affirmative consent of consumers to 
the card issuer's payment of transactions that exceed the credit 
limit consistent with Sec.  1026.56 are not costs incurred by a card 
issuer as a result of over-the-limit transactions.

[[Page 19218]]

    iii. Examples. A. Over-the-limit fee based on past fees and 
costs. Assume that, during year one, a card issuer authorized 
600,000 over-the-limit transactions and incurred $4.5 million in 
costs as a result of those over-the-limit transactions. However, 
because of the affirmative consent requirements in Sec.  1026.56, 
the card issuer was only permitted to impose 200,000 over-the-limit 
fees during year one. For purposes of Sec.  1026.52(b)(1)(i), a $23 
over-the-limit fee would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of over-the-
limit transactions during year two.
    B. Adjustment based on fees card issuer is unable to collect. 
Same facts as in comment 52(b)(1)(i)-8.iii.A except that the card 
issuer was unable to collect 30% of the 200,000 over-the-limit fees 
imposed during year one (in other words, the card issuer was unable 
to collect 60,000 fees, leaving a total of 140,000 over-the-limit 
transactions for which the card issuer did collect or could have 
collected a fee). For purposes of Sec.  1026.52(b)(2)(i), an over-
the-limit fee of $32 would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of over-the-
limit transactions during year two.
    C. Adjustment based on reasonable estimate of future changes. 
Same facts as in comments 52(b)(1)(i)-8.iii.A and B except the card 
issuer reasonably estimates that--based on past over-the-limit 
transaction rates, the percentages of over-the-limit transactions 
that resulted in an over-the-limit fee in the past (consistent with 
Sec.  1026.56), and factors relevant to potential changes in those 
rates and percentages for year two--it will authorize approximately 
the same number of over-the-limit transactions during year two 
(600,000) and impose approximately the same number of over-the-limit 
fees (200,000). The card issuer also reasonably estimates that it 
will be unable to collect the same percentage of fees (30%) during 
year two as during year one (in other words, the card issuer was 
unable to collect 60,000 fees, leaving a total of 140,000 over-the-
limit transactions for which the card issuer will be able to collect 
a fee). The card issuer also reasonably estimates that--based on 
past changes in costs incurred as a result of over-the-limit 
transactions and other factors relevant to potential costs for year 
two--it will experience a 6% decrease in costs during year two (in 
other words, a $270,000 reduction in costs for a total of $4.23 
million). For purposes of Sec.  1026.52(b)(1)(i), a $30 over-the-
limit fee would represent a reasonable proportion of the total costs 
incurred by the card issuer as a result of over-the-limit 
transactions during year two.
    9. Declined access check fees.
    i. Costs incurred as a result of declined access checks. For 
purposes of Sec.  1026.52(b)(1)(i), the costs incurred by a card 
issuer as a result of declining payment on a check that accesses a 
credit card account include:
    A. Costs associated with determining whether to decline payment 
on access checks;
    B. Costs associated with processing declined access checks and 
reconciling the card issuer's systems and accounts to reflect 
declined access checks;
    C. Costs associated with investigating potential fraud with 
respect to declined access checks; and
    D. Costs associated with notifying the consumer and the merchant 
or other party that accepted the access check that payment on the 
check has been declined.
    ii. Example. Assume that, during year one, a card issuer 
declined 100,000 access checks and incurred $2 million in costs as a 
result of those declined checks. The card issuer imposed a fee for 
each declined access check but was unable to collect 10% of those 
fees (in other words, the card issuer was unable to collect 10,000 
fees, leaving a total of 90,000 declined access checks for which the 
card issuer did collect or could have collected a fee). For purposes 
of Sec.  1026.52(b)(1)(i), a $22 declined access check fee would 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of declined access checks during year two.

52(b)(1)(ii) Safe Harbors

    1. Multiple violations of same type.
    i. Same billing cycle or next six billing cycles. A card issuer 
other than a smaller card issuer as defined in Sec.  1026.52(b)(3) 
cannot impose a late fee in excess of $8 pursuant to Sec.  
1026.52(b)(1)(ii), regardless of whether the card issuer has imposed 
a late fee within the six previous billing cycles. For all other 
penalty fees, a card issuer cannot impose a fee for a violation 
pursuant to Sec.  1026.52(b)(1)(ii)(B) unless a fee has previously 
been imposed for the same type of violation pursuant to Sec.  
1026.52(b)(1)(ii)(A). Once a fee has been imposed for a violation 
pursuant to Sec.  1026.52(b)(1)(ii)(A), the card issuer may impose a 
fee pursuant to Sec.  1026.52(b)(1)(ii)(B) for any subsequent 
violation of the same type until that type of violation has not 
occurred for a period of six consecutive complete billing cycles. A 
fee has been imposed for purposes of Sec.  1026.52(b)(1)(ii) even if 
the card issuer waives or rebates all or part of the fee.
    A. Late payments. For purposes of Sec.  1026.52(b)(1)(ii), a 
late payment occurs during the billing cycle in which the payment 
may first be treated as late consistent with the requirements of 
this part and the terms or other requirements of the account.
    B. Returned payments. For purposes of Sec.  1026.52(b)(1)(ii), a 
returned payment occurs during the billing cycle in which the 
payment is returned to the card issuer.
    C. Transactions that exceed the credit limit. For purposes of 
Sec.  1026.52(b)(1)(ii), a transaction that exceeds the credit limit 
for an account occurs during the billing cycle in which the 
transaction occurs or is authorized by the card issuer.
    D. Declined access checks. For purposes of Sec.  
1026.52(b)(1)(ii), a check that accesses a credit card account is 
declined during the billing cycle in which the card issuer declines 
payment on the check.
    ii. Relationship to Sec. Sec.  1026.52(b)(2)(ii) and 
1026.56(j)(1). If multiple violations are based on the same event or 
transaction such that Sec.  1026.52(b)(2)(ii) prohibits the card 
issuer from imposing more than one fee, the event or transaction 
constitutes a single violation for purposes of Sec.  
1026.52(b)(1)(ii). Furthermore, consistent with Sec.  
1026.56(j)(1)(i), no more than one violation for exceeding an 
account's credit limit can occur during a single billing cycle for 
purposes of Sec.  1026.52(b)(1)(ii). However, Sec.  
1026.52(b)(2)(ii) does not prohibit a card issuer from imposing fees 
for exceeding the credit limit in consecutive billing cycles based 
on the same over-the-limit transaction to the extent permitted by 
Sec.  1026.56(j)(1). In these circumstances, the second and third 
over-the-limit fees permitted by Sec.  1026.56(j)(1) may be imposed 
pursuant to Sec.  1026.52(b)(1)(ii)(B). See comment 52(b)(2)(ii)-1.
    iii. Examples. The following examples illustrate the application 
of Sec.  1026.52(b)(1)(ii) introductory text and (b)(1)(ii)(A) and 
(B) with respect to credit card accounts under an open-end (not 
home-secured) consumer credit plan that are not charge card 
accounts. For purposes of these examples, assume that the card 
issuer is not a smaller card issuer as defined in Sec.  
1026.52(b)(3). Also assume that the billing cycles for the account 
begin on the first day of the month and end on the last day of the 
month and that the payment due date for the account is the twenty-
fifth day of the month.
    A. Violations of same type (over the credit limit). Consistent 
with Sec.  1026.56, the consumer has affirmatively consented to the 
payment of transactions that exceed the credit limit. On March 20, a 
transaction causes the account balance to increase to $1,150, which 
exceeds the account's $1,000 credit limit. Consistent with Sec.  
1026.52(b)(1)(ii)(A), the card issuer imposes a $25 over-the-limit 
fee for the March billing cycle. The card issuer receives a $300 
payment on March 25, bringing the account below the credit limit. In 
order for the card issuer to impose a $35 over-the-limit fee 
pursuant to Sec.  1026.52(b)(1)(ii)(B), a second over-the-limit 
transaction must occur during the April, May, June, July, August, or 
September billing cycles.
    1. Same facts as in the lead-in paragraph to comment 
52(b)(1)(ii)-1.iii.A. On April 20, a transaction causes the account 
balance to increase to $1,200, which exceeds the account's $1,000 
credit limit. Consistent with Sec.  1026.52(b)(1)(ii)(B), the card 
issuer may impose a $35 over-the-limit fee for the April billing 
cycle. Furthermore, the card issuer may impose a $35 over-the-limit 
payment fee for any over-the-limit transaction or event that 
triggers an over-the-limit fee that occurs during the May, June, 
July, August, September, or October billing cycles, subject to the 
limitations in Sec.  1026.56(j)(1).
    2. Same facts as in the lead-in paragraph to comment 
52(b)(1)(ii)-1.iii.A. The account remains below the limit from March 
25 until October 20, when a transaction causes the account balance 
to exceed the credit limit. However, because this over-the-limit 
transaction did not occur during the six billing cycles following 
the March billing cycle, Sec.  1026.52(b)(1)(ii) only permits the 
card issuer to impose an over-the-limit fee of $25.
    B. Violations of different types (late payment and over the 
credit limit). The credit limit for an account is $1,000. Consistent 
with Sec.  1026.56, the consumer has

[[Page 19219]]

affirmatively consented to the payment of transactions that exceed 
the credit limit. A required minimum periodic payment of $35 is due 
on August 25. On August 26, a late payment has occurred because no 
payment has been received. Accordingly, consistent with Sec.  
1026.52(b)(1)(ii), the card issuer imposes a $8 late payment fee on 
August 26. On August 30, the card issuer receives a $35 payment. On 
September 10, a transaction causes the account balance to increase 
to $1,150, which exceeds the account's $1,000 credit limit. On 
September 11, a second transaction increases the account balance to 
$1,350. On September 23, the card issuer receives the $50 required 
minimum periodic payment due on September 25, which reduces the 
account balance to $1,300. On September 30, the card issuer imposes 
a $25 over-the-limit fee, consistent with Sec.  
1026.52(b)(1)(ii)(A). On October 26, a late payment has occurred 
because the $60 required minimum periodic payment due on October 25 
has not been received. Accordingly, consistent with Sec.  
1026.52(b)(1)(ii) the card issuer imposes a $8 late payment fee on 
October 26.
    C. Violations of different types (late payment and returned 
payment). A required minimum periodic payment of $40 is due on July 
25. On July 26, a late payment has occurred because no payment has 
been received. Accordingly, consistent with Sec.  1026.52(b)(1)(ii), 
the card issuer imposes a $8 late payment fee on July 26. On July 
30, the card issuer receives a $60 payment. A required minimum 
periodic payment of $40 is due on August 25. On August 24, a $40 
payment is received. On August 27, the $40 payment is returned to 
the card issuer for insufficient funds. In these circumstances, 
Sec.  1026.52(b)(2)(ii) permits the card issuer to impose either a 
late payment fee or a returned payment fee but not both, because the 
late payment and the returned payment result from the same event or 
transaction. Accordingly, for purposes of Sec.  1026.52(b)(1)(ii), 
the event or transaction constitutes a single violation. However, if 
the card issuer imposes a late payment fee, Sec.  1026.52(b)(1)(ii) 
permits the issuer to impose a fee of $8. If the card issuer imposes 
a returned payment fee, the amount of the fee may be no more than 
$25 pursuant to Sec.  1026.52(b)(1)(ii)(A).
    2. Adjustments based on Consumer Price Index for penalty fees 
imposed pursuant to Sec.  1026.52(b)(1)(ii)(A) and (B). For purposes 
of Sec.  1026.52(b)(1)(ii)(A) and (B), the Bureau shall calculate 
each year price level adjusted amounts using the Consumer Price 
Index in effect on June 1 of that year. When the cumulative change 
in the adjusted minimum value derived from applying the annual 
Consumer Price level to the current amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) has risen by a whole dollar, those 
amounts will be increased by $1.00. Similarly, when the cumulative 
change in the adjusted minimum value derived from applying the 
annual Consumer Price level to the current amounts in Sec.  
1026.52(b)(1)(ii)(A) and (B) has decreased by a whole dollar, those 
amounts will be decreased by $1.00. The Bureau will publish 
adjustments to the amounts in Sec.  1026.52(b)(1)(ii)(A) and (B).
    i. Historical thresholds.
    A. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $25 under Sec.  
1026.52(b)(1)(ii)(A) and $35 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2013.
    B. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $26 under Sec.  
1026.52(b)(1)(ii)(A) and $37 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2014.
    C. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $27 under Sec.  
1026.52(b)(1)(ii)(A) and $38 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2015.
    D. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $27 under Sec.  
1026.52(b)(1)(ii)(A), through December 31, 2016. Card issuers were 
permitted to impose a fee for violating the terms of an agreement if 
the fee did not exceed $37 under Sec.  1026.52(b)(1)(ii)(B), through 
June 26, 2016, and $38 under Sec.  1026.52(b)(1)(ii)(B) from June 
27, 2016, through December 31, 2016.
    E. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $27 under Sec.  
1026.52(b)(1)(ii)(A) and $38 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2017.
    F. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $27 under Sec.  
1026.52(b)(1)(ii)(A) and $38 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2018.
    G. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $28 under Sec.  
1026.52(b)(1)(ii)(A) and $39 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2019.
    H. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $29 under Sec.  
1026.52(b)(1)(ii)(A) and $40 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2020.
    I. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $29 under Sec.  
1026.52(b)(1)(ii)(A) and $40 under Sec.  1026.52(b)(1)(ii)(B), 
through December 31, 2021.
    J. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $30 under Sec.  
1026.52(b)(1)(ii)(A) and $41 under Sec.  1026.52(b)(1)(ii)(B), 
through May 13, 2024.
    3. Delinquent balance for charge card accounts. Section 
1026.52(b)(1)(ii)(C) provides that, when a charge card issuer that 
requires payment of outstanding balances in full at the end of each 
billing cycle has not received the required payment for two or more 
consecutive billing cycles, the card issuer may impose a late 
payment fee that does not exceed three percent of the delinquent 
balance. For purposes of Sec.  1026.52(b)(1)(ii)(C), the delinquent 
balance is any previously billed amount that remains unpaid at the 
time the late payment fee is imposed pursuant to Sec.  
1026.52(b)(1)(ii)(C). Consistent with Sec.  1026.52(b)(2)(ii), a 
charge card issuer that imposes a fee pursuant to Sec.  
1026.52(b)(1)(ii)(C) with respect to a late payment may not impose a 
fee pursuant to Sec.  1026.52(b)(1)(ii)(B) with respect to the same 
late payment. The following examples illustrate the application of 
Sec.  1026.52(b)(1)(ii)(C):
    i. Assume that a charge card issuer requires payment of 
outstanding balances in full at the end of each billing cycle and 
that the billing cycles for the account begin on the first day of 
the month and end on the last day of the month. Also assume that the 
card issuer is not a smaller card issuer as defined in Sec.  
1026.52(b)(3). At the end of the June billing cycle, the account has 
a balance of $1,000. On July 5, the card issuer provides a periodic 
statement disclosing the $1,000 balance consistent with Sec.  
1026.7. During the July billing cycle, the account is used for $292 
in transactions, increasing the balance to $1,292. At the end of the 
July billing cycle, no payment has been received and the card issuer 
imposes a $8 late payment fee consistent with Sec.  
1026.52(b)(1)(ii). On August 5, the card issuer provides a periodic 
statement disclosing the $1,300 balance consistent with Sec.  
1026.7. During the August billing cycle, the account is used for 
$200 in transactions, increasing the balance to $1,500. At the end 
of the August billing cycle, no payment has been received. 
Consistent with Sec.  1026.52(b)(1)(ii)(C), the card issuer may 
impose a late payment fee of $39, which is 3% of the $1,300 balance 
that was due at the end of the August billing cycle. Section 
1026.52(b)(1)(ii)(C) does not permit the card issuer to include the 
$200 in transactions that occurred during the August billing cycle.
    ii. Same facts as in comment 52(b)(1)(ii)-3.i except that, on 
August 25, a $100 payment is received. Consistent with Sec.  
1026.52(b)(1)(ii)(C), the card issuer may impose a late payment fee 
of $36, which is 3% of the unpaid portion of the $1,300 balance that 
was due at the end of the August billing cycle ($1,200).
    iii. Same facts as in comment 52(b)(1)(ii)-3.i except that, on 
August 25, a $200 payment is received. Consistent with Sec.  
1026.52(b)(1)(ii)(C), the card issuer may impose a late payment fee 
of $33, which is 3% of the unpaid portion of the $1,300 balance that 
was due at the end of the August billing cycle ($1,100). In the 
alternative, the card issuer may impose a late payment fee of $8 
consistent with Sec.  1026.52(b)(1)(ii). However, Sec.  
1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees.
    4. Smaller card issuers. Section 1026.52(b)(1)(ii)(E) provides 
that a card issuer meeting the definition of smaller card issuer in 
Sec.  1026.52(b)(3) may impose a fee for a late payment on an 
account if the dollar amount of the fee does not exceed the amount 
in Sec.  1026.52(b)(1)(ii)(A) or (B), as applicable, notwithstanding 
the $8 limit on the amount of a late fee in Sec.  1026.52(b)(1)(ii). 
Thus, assuming that the original historical safe harbor threshold 
amounts apply, a smaller card issuer may impose a late fee of $25 
for a first late payment violation and a

[[Page 19220]]

late fee of $35 for a late payment violation that occurs during the 
same billing cycle or one of the next six billing cycles, provided 
that those amounts are consistent with Sec.  1026.52(b)(2).

52(b)(2) Prohibited Fees

    1. Relationship to Sec.  1026.52(b)(1). A card issuer does not 
comply with Sec.  1026.52(b) if it imposes a fee that is 
inconsistent with the prohibitions in Sec.  1026.52(b)(2). Thus, the 
prohibitions in Sec.  1026.52(b)(2) apply even if a fee is 
consistent with Sec.  1026.52(b)(1)(i) or (ii). For example, even if 
a card issuer has determined for purposes of Sec.  1026.52(b)(1)(i) 
that a $27 fee represents a reasonable proportion of the total costs 
incurred by the card issuer as a result of a particular type of 
violation, Sec.  1026.52(b)(2)(i) prohibits the card issuer from 
imposing that fee if the dollar amount associated with the violation 
is less than $27. Similarly, even if Sec.  1026.52(b)(1)(ii) permits 
a card issuer to impose a $25 fee, Sec.  1026.52(b)(2)(i) prohibits 
the card issuer from imposing that fee if the dollar amount 
associated with the violation is less than $25.

52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation

    1. Late payment fees. For purposes of Sec.  1026.52(b)(2)(i), 
the dollar amount associated with a late payment is the amount of 
the required minimum periodic payment due immediately prior to 
assessment of the late payment fee. Thus, Sec.  1026.52(b)(2)(i)(A) 
prohibits a card issuer from imposing a late payment fee that 
exceeds the amount of that required minimum periodic payment. For 
example:
    i. Assume that a $15 required minimum periodic payment is due on 
September 25. The card issuer does not receive any payment on or 
before September 25. On September 26, the card issuer imposes a late 
payment fee. For purposes of Sec.  1026.52(b)(2)(i), the dollar 
amount associated with the late payment is the amount of the 
required minimum periodic payment due on September 25 ($15). Thus, 
under Sec.  1026.52(b)(2)(i)(A), the amount of that fee cannot 
exceed $15 (even if a higher fee would be permitted under Sec.  
1026.52(b)(1)).
    ii. Same facts as in comment 52(b)(2)(i)-1.i except that, on 
September 25, the card issuer receives a $10 payment. No further 
payments are received. On September 26, the card issuer imposes a 
late payment fee. For purposes of Sec.  1026.52(b)(2)(i), the dollar 
amount associated with the late payment is the full amount of the 
required minimum periodic payment due on September 25 ($15), rather 
than the unpaid portion of that payment ($5). Thus, under Sec.  
1026.52(b)(2)(i)(A), the amount of the late payment fee cannot 
exceed $15 (even if a higher fee would be permitted under Sec.  
1026.52(b)(1)).
    iii. Assume that a $15 required minimum periodic payment is due 
on October 28 and the billing cycle for the account closes on 
October 31. The card issuer does not receive any payment on or 
before November 3. On November 3, the card issuer determines that 
the required minimum periodic payment due on November 28 is $50. On 
November 5, the card issuer imposes a late payment fee. For purposes 
of Sec.  1026.52(b)(2)(i), the dollar amount associated with the 
late payment is the amount of the required minimum periodic payment 
due on October 28 ($15), rather than the amount of the required 
minimum periodic payment due on November 28 ($50). Thus, under Sec.  
1026.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even 
if a higher fee would be permitted under Sec.  1026.52(b)(1)).
    2. Returned payment fees. For purposes of Sec.  
1026.52(b)(2)(i), the dollar amount associated with a returned 
payment is the amount of the required minimum periodic payment due 
immediately prior to the date on which the payment is returned to 
the card issuer. Thus, Sec.  1026.52(b)(2)(i)(A) prohibits a card 
issuer from imposing a returned payment fee that exceeds the amount 
of that required minimum periodic payment. However, if a payment has 
been returned and is submitted again for payment by the card issuer, 
there is no additional dollar amount associated with a subsequent 
return of that payment and Sec.  1026.52(b)(2)(i)(B) prohibits the 
card issuer from imposing an additional returned payment fee. For 
example:
    i. Assume that the billing cycles for an account begin on the 
first day of the month and end on the last day of the month and that 
the payment due date is the twenty-fifth day of the month. A minimum 
payment of $15 is due on March 25. The card issuer receives a check 
for $100 on March 23, which is returned to the card issuer for 
insufficient funds on March 26. For purposes of Sec.  
1026.52(b)(2)(i), the dollar amount associated with the returned 
payment is the amount of the required minimum periodic payment due 
on March 25 ($15). Thus, Sec.  1026.52(b)(2)(i)(A) prohibits the 
card issuer from imposing a returned payment fee that exceeds $15 
(even if a higher fee would be permitted under Sec.  1026.52(b)(1)). 
Furthermore, Sec.  1026.52(b)(2)(ii) prohibits the card issuer from 
assessing both a late payment fee and a returned payment fee in 
these circumstances. See comment 52(b)(2)(ii)-1.
    ii. Same facts as in comment 52(b)(2)(i)-2.i except that the 
card issuer receives the $100 check on March 31 and the check is 
returned for insufficient funds on April 2. The minimum payment due 
on April 25 is $30. For purposes of Sec.  1026.52(b)(2)(i), the 
dollar amount associated with the returned payment is the amount of 
the required minimum periodic payment due on March 25 ($15), rather 
than the amount of the required minimum periodic payment due on 
April 25 ($30). Thus, Sec.  1026.52(b)(2)(i)(A) prohibits the card 
issuer from imposing a returned payment fee that exceeds $15 (even 
if a higher fee would be permitted under Sec.  1026.52(b)(1)). 
Furthermore, Sec.  1026.52(b)(2)(ii) prohibits the card issuer from 
assessing both a late payment fee and a returned payment fee in 
these circumstances. See comment 52(b)(2)(ii)-1.
    iii. Same facts as in comment 52(b)(2)(i)-2.i except that, on 
March 28, the card issuer presents the $100 check for payment a 
second time. On April 1, the check is again returned for 
insufficient funds. Section 1026.52(b)(2)(i)(B) prohibits the card 
issuer from imposing a returned payment fee based on the return of 
the payment on April 1.
    iv. Assume that the billing cycles for an account begin on the 
first day of the month and end on the last day of the month and that 
the payment due date is the twenty-fifth day of the month. A minimum 
payment of $15 is due on August 25. The card issuer receives a check 
for $15 on August 23, which is not returned. The card issuer 
receives a check for $50 on September 5, which is returned to the 
card issuer for insufficient funds on September 7. Section 
1026.52(b)(2)(i)(B) does not prohibit the card issuer from imposing 
a returned payment fee in these circumstances. Instead, for purposes 
of Sec.  1026.52(b)(2)(i), the dollar amount associated with the 
returned payment is the amount of the required minimum periodic 
payment due on August 25 ($15). Thus, Sec.  1026.52(b)(2)(i)(A) 
prohibits the card issuer from imposing a returned payment fee that 
exceeds $15 (even if a higher fee would be permitted under Sec.  
1026.52(b)(1)).
    3. Over-the-limit fees. For purposes of Sec.  1026.52(b)(2)(i), 
the dollar amount associated with extensions of credit in excess of 
the credit limit for an account is the total amount of credit 
extended by the card issuer in excess of the credit limit during the 
billing cycle in which the over-the-limit fee is imposed. Thus, 
Sec.  1026.52(b)(2)(i)(A) prohibits a card issuer from imposing an 
over-the-limit fee that exceeds that amount. Nothing in Sec.  
1026.52(b) permits a card issuer to impose an over-the-limit fee if 
imposition of the fee is inconsistent with Sec.  1026.56. The 
following examples illustrate the application of Sec.  
1026.52(b)(2)(i)(A) to over-the-limit fees:
    i. Assume that the billing cycles for a credit card account with 
a credit limit of $5,000 begin on the first day of the month and end 
on the last day of the month. Assume also that, consistent with 
Sec.  1026.56, the consumer has affirmatively consented to the 
payment of transactions that exceed the credit limit. On March 1, 
the account has a $4,950 balance. On March 6, a $60 transaction is 
charged to the account, increasing the balance to $5,010. On March 
25, a $5 transaction is charged to the account, increasing the 
balance to $5,015. On the last day of the billing cycle (March 31), 
the card issuer imposes an over-the-limit fee. For purposes of Sec.  
1026.52(b)(2)(i), the dollar amount associated with the extensions 
of credit in excess of the credit limit is the total amount of 
credit extended by the card issuer in excess of the credit limit 
during the March billing cycle ($15). Thus, Sec.  
1026.52(b)(2)(i)(A) prohibits the card issuer from imposing an over-
the-limit fee that exceeds $15 (even if a higher fee would be 
permitted under Sec.  1026.52(b)(1)).
    ii. Same facts as in comment 52(b)(2)(i)-3.i except that, on 
March 26, the card issuer receives a payment of $20, reducing the 
balance below the credit limit to $4,995. Nevertheless, for purposes 
of Sec.  1026.52(b)(2)(i), the dollar amount associated with the 
extensions of credit in excess of the credit limit is the total 
amount of credit extended by the card issuer in excess of the credit 
limit during the March billing cycle ($15). Thus, consistent with 
Sec.  1026.52(b)(2)(i)(A), the card issuer may impose an over-the-
limit fee of $15.
    4. Declined access check fees. For purposes of Sec.  
1026.52(b)(2)(i), the dollar amount

[[Page 19221]]

associated with declining payment on a check that accesses a credit 
card account is the amount of the check. Thus, when a check that 
accesses a credit card account is declined, Sec.  
1026.52(b)(2)(i)(A) prohibits a card issuer from imposing a fee that 
exceeds the amount of that check. For example, assume that a check 
that accesses a credit card account is used as payment for a $50 
transaction, but payment on the check is declined by the card issuer 
because the transaction would have exceeded the credit limit for the 
account. For purposes of Sec.  1026.52(b)(2)(i), the dollar amount 
associated with the declined check is the amount of the check ($50). 
Thus, Sec.  1026.52(b)(2)(i)(A) prohibits the card issuer from 
imposing a fee that exceeds $50. However, the amount of this fee 
must also comply with Sec.  1026.52(b)(1)(i) or (ii).
    5. Inactivity fees. Section 1026.52(b)(2)(i)(B)(2) prohibits a 
card issuer from imposing a fee with respect to a credit card 
account under an open-end (not home-secured) consumer credit plan 
based on inactivity on that account (including the consumer's 
failure to use the account for a particular number or dollar amount 
of transactions or a particular type of transaction). For example, 
Sec.  1026.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a 
$50 fee when a credit card account under an open-end (not home-
secured) consumer credit plan is not used for at least $2,000 in 
purchases over the course of a year. Similarly, Sec.  
1026.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50 
annual fee on all accounts of a particular type but waiving the fee 
on any account that is used for at least $2,000 in purchases over 
the course of a year if the card issuer promotes the waiver or 
rebate of the annual fee for purposes of Sec.  1026.55(e). However, 
if the card issuer does not promote the waiver or rebate of the 
annual fee for purposes of Sec.  1026.55(e), Sec.  
1026.52(b)(2)(i)(B)(2) does not prohibit a card issuer from 
considering account activity along with other factors when deciding 
whether to waive or rebate annual fees on individual accounts (such 
as in response to a consumer's request).
    6. Closed account fees. Section 1026.52(b)(2)(i)(B)(3) prohibits 
a card issuer from imposing a fee based on the closure or 
termination of an account. For example, Sec.  1026.52(b)(2)(i)(B)(3) 
prohibits a card issuer from:
    i. Imposing a one-time fee to consumers who close their 
accounts.
    ii. Imposing a periodic fee (such as an annual fee, a monthly 
maintenance fee, or a closed account fee) after an account is closed 
or terminated if that fee was not imposed prior to closure or 
termination. This prohibition applies even if the fee was disclosed 
prior to closure or termination. See also comment 55(d)-1.
    iii. Increasing a periodic fee (such as an annual fee or a 
monthly maintenance fee) after an account is closed or terminated. 
However, a card issuer is not prohibited from continuing to impose a 
periodic fee that was imposed before the account was closed or 
terminated.
    7. Declined transaction fees. Section 1026.52(b)(2)(i)(B)(1) 
states that card issuers must not impose a fee when there is no 
dollar amount associated with the violation, such as for 
transactions that the card issuer declines to authorize. With regard 
to a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card as defined in Sec.  1026.61 where the credit feature is a 
credit card account under an open-end (not home-secured) consumer 
credit plan, Sec.  1026.52(b)(2)(i)(B)(1) prohibits a card issuer 
from imposing declined transaction fees in connection with the 
credit feature, regardless of whether the declined transaction fee 
is imposed on the credit feature or on the asset feature of the 
prepaid account. For example, if the prepaid card attempts to access 
credit from the covered separate credit feature accessible by the 
hybrid prepaid-credit card and the transaction is declined, Sec.  
1026.52(b)(2)(i)(B)(1) prohibits the card issuer from imposing a 
declined transaction fee, regardless of whether the fee is imposed 
on the credit feature or on the asset feature of the prepaid 
account. Fees imposed for declining a transaction that would have 
only accessed the asset feature of the prepaid account and would not 
have accessed the covered separate credit feature accessible by the 
hybrid prepaid-credit are not covered by Sec.  
1026.52(b)(2)(i)(B)(1).

52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction

    1. Single event or transaction. Section 1026.52(b)(2)(ii) 
prohibits a card issuer from imposing more than one fee for 
violating the terms or other requirements of an account based on a 
single event or transaction. If Sec.  1026.56(j)(1) permits a card 
issuer to impose fees for exceeding the credit limit in consecutive 
billing cycles based on the same over-the-limit transaction, those 
fees are not based on a single event or transaction for purposes of 
Sec.  1026.52(b)(2)(ii). The following examples illustrate the 
application of Sec.  1026.52(b)(2)(ii). Assume for purposes of these 
examples that the billing cycles for a credit card account begin on 
the first day of the month and end on the last day of the month and 
that the payment due date for the account is the twenty-fifth day of 
the month.
    i. Assume that the required minimum periodic payment due on 
March 25 is $20 and the card issuer is not a smaller card issuer 
pursuant to Sec.  1026.52(b)(3). On March 26, the card issuer has 
not received any payment and imposes a late payment fee. Consistent 
with Sec.  1026.52(b)(1)(ii) and (b)(2)(i), the card issuer may 
impose an $8 late payment fee on March 26. However, Sec.  
1026.52(b)(2)(ii) prohibits the card issuer from imposing an 
additional late payment fee if the $20 minimum payment has not been 
received by a subsequent date (such as March 31).
    A. On April 3, the card issuer provides a periodic statement 
disclosing that a $70 required minimum periodic payment is due on 
April 25. This minimum payment includes the $20 minimum payment due 
on March 25 and the $8 late payment fee imposed on March 26. On 
April 20, the card issuer receives a $20 payment. No additional 
payments are received during the April billing cycle. Section 
1026.52(b)(2)(ii) does not prohibit the card issuer from imposing a 
late payment fee based on the consumer's failure to make the $70 
required minimum periodic payment on or before April 25. 
Accordingly, consistent with Sec.  1026.52(b)(1)(ii) and (b)(2)(i), 
the card issuer may impose an $8 late payment fee on April 26.
    B. On April 3, the card issuer provides a periodic statement 
disclosing that a $20 required minimum periodic payment is due on 
April 25. This minimum payment does not include the $20 minimum 
payment due on March 25 or the $8 late payment fee imposed on March 
26. On April 20, the card issuer receives a $20 payment. No 
additional payments are received during the April billing cycle. 
Because the card issuer has received the required minimum periodic 
payment due on April 25 and because Sec.  1026.52(b)(2)(ii) 
prohibits the card issuer from imposing a second late payment fee 
based on the consumer's failure to make the $20 minimum payment due 
on March 25, the card issuer cannot impose a late payment fee in 
these circumstances.
    ii. Assume that the required minimum periodic payment due on 
March 25 is $30 and the card issuer is not a smaller card issuer 
pursuant to Sec.  1026.52(b)(3).
    A. On March 25, the card issuer receives a check for $50, but 
the check is returned for insufficient funds on March 27. Consistent 
with Sec.  1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and 
(b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or 
a returned payment fee of $25. However, Sec.  1026.52(b)(2)(ii) 
prohibits the card issuer from imposing both fees because those fees 
would be based on a single event or transaction.
    B. Same facts as in comment 52(b)(2)(ii)-1.ii.A except that that 
card issuer receives the $50 check on March 27 and the check is 
returned for insufficient funds on March 29. Consistent with Sec.  
1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and 
(b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or 
a returned payment fee of $25. However, Sec.  1026.52(b)(2)(ii) 
prohibits the card issuer from imposing both fees because those fees 
would be based on a single event or transaction. If no payment is 
received on or before the next payment due date (April 25), Sec.  
1026.52(b)(2)(ii) does not prohibit the card issuer from imposing a 
late payment fee.
    iii. Assume that the required minimum periodic payment due on 
July 25 is $30 and the card issuer is not a smaller card issuer 
pursuant to Sec.  1026.52(b)(3). On July 10, the card issuer 
receives a $50 payment, which is not returned. On July 20, the card 
issuer receives a $100 payment, which is returned for insufficient 
funds on July 24. Consistent with Sec.  1026.52(b)(1)(ii)(A) and 
(b)(2)(i)(A), the card issuer may impose a returned payment fee of 
$25. Nothing in Sec.  1026.52(b)(2)(ii) prohibits the imposition of 
this fee.
    iv. Assume that the card issuer is not a smaller card issuer 
pursuant to Sec.  1026.52(b)(3) and the credit limit for an account 
is $1,000 and that, consistent with Sec.  1026.56, the consumer has 
affirmatively consented to the payment of transactions that exceed 
the credit limit. On March 31, the

[[Page 19222]]

balance on the account is $970 and the card issuer has not received 
the $35 required minimum periodic payment due on March 25. On that 
same date (March 31), a $70 transaction is charged to the account, 
which increases the balance to $1,040. Consistent with Sec.  
1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and 
(b)(2)(i)(A), the card issuer may impose a late payment fee of $8 
and an over-the-limit fee of $25. Section 1026.52(b)(2)(ii) does not 
prohibit the imposition of both fees because those fees are based on 
different events or transactions. No additional transactions are 
charged to the account during the March, April, or May billing 
cycles. If the account balance remains more than $35 above the 
credit limit on April 26, the card issuer may impose an over-the-
limit fee of $35 pursuant to Sec.  1026.52(b)(1)(ii)(B), to the 
extent consistent with Sec.  1026.56(j)(1). Furthermore, if the 
account balance remains more than $35 above the credit limit on May 
26, the card issuer may again impose an over-the-limit fee of $35 
pursuant to Sec.  1026.52(b)(1)(ii)(B), to the extent consistent 
with Sec.  1026.56(j)(1). Thereafter, Sec.  1026.56(j)(1) does not 
permit the card issuer to impose additional over-the-limit fees 
unless another over-the-limit transaction occurs. However, if an 
over-the-limit transaction occurs during the six billing cycles 
following the May billing cycle, the card issuer may impose an over-
the-limit fee of $35 pursuant to Sec.  1026.52(b)(1)(ii)(B).
    v. Assume that the credit limit for an account is $5,000 and 
that, consistent with Sec.  1026.56, the consumer has affirmatively 
consented to the payment of transactions that exceed the credit 
limit. On July 23, the balance on the account is $4,950. On July 24, 
the card issuer receives the $100 required minimum periodic payment 
due on July 25, reducing the balance to $4,850. On July 26, a $75 
transaction is charged to the account, which increases the balance 
to $4,925. On July 27, the $100 payment is returned for insufficient 
funds, increasing the balance to $5,025. Consistent with Sec.  
1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a 
returned payment fee of $25 or an over-the-limit fee of $25. 
However, Sec.  1026.52(b)(2)(ii) prohibits the card issuer from 
imposing both fees because those fees would be based on a single 
event or transaction.
    vi. Assume that the required minimum periodic payment due on 
March 25 is $50 and the card issuer is not a smaller card issuer 
pursuant to Sec.  1026.52(b)(3). On March 20, the card issuer 
receives a check for $50, but the check is returned for insufficient 
funds on March 22. Consistent with Sec.  1026.52(b)(1)(ii)(A) and 
(b)(2)(i)(A), the card issuer may impose a returned payment fee of 
$25. On March 25, the card issuer receives a second check for $50, 
but the check is returned for insufficient funds on March 27. 
Consistent with Sec.  1026.52(b)(1)(ii) introductory text, 
(b)(1)(ii)(A) and (B), and (b)(2)(i)(A), the card issuer may impose 
a late payment fee of $8 or a returned payment fee of $35. However, 
Sec.  1026.52(b)(2)(ii) prohibits the card issuer from imposing both 
fees because those fees would be based on a single event or 
transaction.
    vii. Assume that the required minimum periodic payment due on 
February 25 is $100 and the card issuer is not a smaller card issuer 
pursuant to Sec.  1026.52(b)(3). On February 25, the card issuer 
receives a check for $100. On March 3, the card issuer provides a 
periodic statement disclosing that a $120 required minimum periodic 
payment is due on March 25. On March 4, the $100 check is returned 
to the card issuer for insufficient funds. Consistent with Sec.  
1026.52(b)(1)(ii) introductory text, (b)(1)(ii)(A), and 
(b)(2)(i)(A), the card issuer may impose a late payment fee of $8 or 
a returned payment fee of $25 with respect to the $100 payment. 
However, Sec.  1026.52(b)(2)(ii) prohibits the card issuer from 
imposing both fees because those fees would be based on a single 
event or transaction. On March 20, the card issuer receives a $120 
check, which is not returned. No additional payments are received 
during the March billing cycle. Because the card issuer has received 
the required minimum periodic payment due on March 25 and because 
Sec.  1026.52(b)(2)(ii) prohibits the card issuer from imposing a 
second fee based on the $100 payment that was returned for 
insufficient funds, the card issuer cannot impose a late payment fee 
in these circumstances.

52(b)(3) Smaller Card Issuer

52(b)(3)(i)

    1. Entire calendar year. To meet the definition of smaller card 
issuer, a card issuer together with its affiliates must have fewer 
than one million open credit accounts for the entire preceding 
calendar year. Thus, for example, if a card issuer together with its 
affiliates had more than one million open credit card accounts from 
January through October of the preceding calendar year but had fewer 
than that threshold number in November and December, the card issuer 
is not a smaller card issuer in the next calendar year. Further, the 
card issuer is not a smaller card issuer until such time that the 
card issuer's number of open credit card accounts, together with 
those of its affiliates, remains below one million for an entire 
preceding calendar year.

52(b)(3)(ii)

    1. Meeting or exceeding threshold in current calendar year. If a 
card issuer together with its affiliates had fewer than one million 
open credit card accounts for the entire preceding calendar year but 
meets or exceeds that number of open credit card accounts in the 
current calendar year, then the card issuer will no longer meet the 
definition of smaller card issuer and therefore may not impose a 
late fee pursuant to Sec.  1026.52(b)(1)(ii)(E) as of 60 days after 
meeting or exceeding the threshold number of open credit card 
accounts. For purposes of imposing a late fee pursuant to the safe 
harbor provisions, the card issuer may impose a late fee of no more 
than $8 pursuant to Sec.  1026.52(b)(1)(ii) as of the 60th day.
* * * * *

Section 1026.60--Credit and Charge Card Applications and 
Solicitations

* * * * *

60(a)(2) Form of Disclosures; Tabular Format

    1. Location of table.
    i. General. Except for disclosures given electronically, 
disclosures in Sec.  1026.60(b) that are required to be provided in 
a table must be prominently located on or with the application or 
solicitation. Disclosures are deemed to be prominently located, for 
example, if the disclosures are on the same page as an application 
or solicitation reply form. If the disclosures appear elsewhere, 
they are deemed to be prominently located if the application or 
solicitation reply form contains a clear and conspicuous reference 
to the location of the disclosures and indicates that they contain 
rate, fee, and other cost information, as applicable.
    ii. Electronic disclosures. If the table is provided 
electronically, the table must be provided in close proximity to the 
application or solicitation. Card issuers have flexibility in 
satisfying this requirement. Methods card issuers could use to 
satisfy the requirement include, but are not limited to, the 
following examples (whatever method is used, a card issuer need not 
confirm that the consumer has read the disclosures):
    A. The disclosures could automatically appear on the screen when 
the application or reply form appears;
    B. The disclosures could be located on the same web page as the 
application or reply form (whether or not they appear on the initial 
screen), if the application or reply form contains a clear and 
conspicuous reference to the location of the disclosures and 
indicates that the disclosures contain rate, fee, and other cost 
information, as applicable;
    C. Card issuers could provide a link to the electronic 
disclosures on or with the application (or reply form) as long as 
consumers cannot bypass the disclosures before submitting the 
application or reply form. The link would take the consumer to the 
disclosures, but the consumer need not be required to scroll 
completely through the disclosures; or
    D. The disclosures could be located on the same web page as the 
application or reply form without necessarily appearing on the 
initial screen, immediately preceding the button that the consumer 
will click to submit the application or reply.
    2. Multiple accounts. If a tabular format is required to be 
used, card issuers offering several types of accounts may disclose 
the various terms for the accounts in a single table or may provide 
a separate table for each account.
    3. Information permitted in the table. See the commentary to 
Sec.  1026.60(b), (d), and (e)(1) for guidance on additional 
information permitted in the table.
    4. Deletion of inapplicable disclosures. Generally, disclosures 
need only be given as applicable. Card issuers may, therefore, omit 
inapplicable headings and their corresponding boxes in the table. 
For example, if no foreign transaction fee is imposed on the 
account, the heading Foreign transaction and disclosure may be 
deleted from the table, or the disclosure form may contain the 
heading Foreign transaction and a disclosure showing none. There is 
an exception for the grace period disclosure; even if no grace 
period exists, that fact must be stated.

[[Page 19223]]

    5. Highlighting of annual percentage rates and fee amounts.
    i. In general. See Samples G-10(B) and G-10(C) of appendix G to 
this part for guidance on providing the disclosures described in 
Sec.  1026.60(a)(2)(iv) in bold text. Other annual percentage rates 
or fee amounts disclosed in the table may not be in bold text. 
Samples G-10(B) and G-10(C) also provide guidance to issuers on how 
to disclose the rates and fees described in Sec.  1026.60(a)(2)(iv) 
in a clear and conspicuous manner, by including these rates and fees 
generally as the first text in the applicable rows of the table so 
that the highlighted rates and fees generally are aligned vertically 
in the table.
    ii. Maximum limits on fees. Section 1026.60(a)(2)(iv) provides 
that any maximum limits on fee amounts must be disclosed in bold 
text. For example, assume that a card issuer is not a smaller card 
issuer as defined in Sec.  1026.52(b)(3) and consistent with Sec.  
1026.52(b)(1)(ii), the card issuer's late payment fee will not 
exceed $8. The maximum limit of $8 for the late payment fee must be 
highlighted in bold. Similarly, assume an issuer will charge a cash 
advance fee of $5 or 3 percent of the cash advance transaction 
amount, whichever is greater, but the fee will not exceed $100. The 
maximum limit of $100 for the cash advance fee must be highlighted 
in bold.
    iii. Periodic fees. Section 1026.60(a)(2)(iv) provides that any 
periodic fee disclosed pursuant to Sec.  1026.60(b)(2) that is not 
an annualized amount must not be disclosed in bold. For example, if 
an issuer imposes a $10 monthly maintenance fee for a card account, 
the issuer must disclose in the table that there is a $10 monthly 
maintenance fee, and that the fee is $120 on an annual basis. In 
this example, the $10 fee disclosure would not be disclosed in bold, 
but the $120 annualized amount must be disclosed in bold. In 
addition, if an issuer must disclose any annual fee in the table, 
the amount of the annual fee must be disclosed in bold.
    6. Form of disclosures. Whether disclosures must be in 
electronic form depends upon the following:
    i. If a consumer accesses a credit card application or 
solicitation electronically (other than as described under comment 
60(a)(2)-6.ii), such as online at a home computer, the card issuer 
must provide the disclosures in electronic form (such as with the 
application or solicitation on its website) in order to meet the 
requirement to provide disclosures in a timely manner on or with the 
application or solicitation. If the issuer instead mailed paper 
disclosures to the consumer, this requirement would not be met.
    ii. In contrast, if a consumer is physically present in the card 
issuer's office, and accesses a credit card application or 
solicitation electronically, such as via a terminal or kiosk (or if 
the consumer uses a terminal or kiosk located on the premises of an 
affiliate or third party that has arranged with the card issuer to 
provide applications or solicitations to consumers), the issuer may 
provide disclosures in either electronic or paper form, provided the 
issuer complies with the timing and delivery (``on or with'') 
requirements of the regulation.
    7. Terminology. Section 1026.60(a)(2)(i) generally requires that 
the headings, content, and format of the tabular disclosures be 
substantially similar, but need not be identical, to the applicable 
tables in appendix G to this part; but see Sec.  1026.5(a)(2) for 
terminology requirements applicable to Sec.  1026.60 disclosures.
* * * * *

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-05011 Filed 3-14-24; 8:45 am]
BILLING CODE 4810-AM-P