Banks Pass Stress Test as CFPB Zeroes in on Card Late Fees: News & Notes for July


Catching up on noteworthy news from the banking sector and government agencies that regulate them with this round-up of updates on some hot issues making headlines this summer.

credit fee 2Updates on the recent release of the Federal Reserve 2022 Banking Stress Test bring much-appreciated good news to banks, just weeks ahead of the next meeting of its Federal Open Market Committee (FOMC). Most everyone is bracing for another interest rate increase, impacting the Prime Rate, to be announced after the July 26-27 meeting. Still ahead, notably, are three additional meetings, set for September, November and December 2022.

Separately, the Consumer Finance Protection Bureau (CFPB) is meeting resistance from national bank associations as it attempts to gather information and reign in what the agency is considering “excessive late fees” imposed by banks issuing credit cards. See more below.

The Fed Delivers Good News: 2022 Bank Stress Test Results

Fed Reserve issued a statement on June 23, on “the results of annual bank stress test, which show that banks continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession.” In summarizing results of its “2022 Bank Stress Test Results.

The Federal Reserve summary noted:

“All banks tested remained above their minimum capital requirements, despite total projected losses of $612 billion. Under stress, the aggregate common equity capital ratio—which provides a cushion against losses—is projected to decline by 2.7 percentage points to a minimum of 9.7 percent, which is still more than double the minimum requirement.”

According to The Federal Reserve, “The Board’s stress tests help ensure that large banks can support the economy during economic downturns. The tests evaluate the resilience of large banks by estimating their capital levels, losses, revenue and expenses under hypothetical scenarios over nine future quarters.”

CFPB Addresses Credit Card Late Fees

In full focus this month is the Credit Card Accountability Responsibility and Disclosure Act, which was supposed to ban excessive card penalties. Implemented by the Federal Reserve Board of Governors in 2010, the was intended to monitor whether credit card late fees are “reasonable and proportional.” Here’s the latest, with a notable deadline for input nearing.

In a summary article by Banking Dive Lead Editor, Lynne Marek, reported:

credit fee 1The Consumer Financial Protection Bureau is sharpening its focus on exorbitant credit card late fees, issuing a new proposal Wednesday to review rules governing the charges.

“The Consumer Financial Protection Bureau (CFPB) is taking the first step toward addressing credit card company penalty policies costing consumers $12 billion each year, starting by looking at excessive late fees,” the agency said in a statement issued June 22. The CFPB requested input from the banks that issue credit cards, consumer groups and the public on its proposed rulemaking notice, setting a July 22 deadline for those comments to be filed.

The CFPB statement also noted: In an Advance Notice of Proposed Rulemaking published today (June 22), the CFPB asks for information on the Federal Reserve Board of Governors’ 2010 immunity provision for excessive late fees that allows credit card companies to escape enforcement scrutiny. The CFPB is seeking data about credit card late fees and late payments, assessing whether those fees are “reasonable and proportional.” We are also seeking data about card issuers’ revenue and expenses, the potential deterrent effect of late fees, and the role late fees play in credit card companies’ profitability.

“Credit card late fees are big revenue generators for card issuers. We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” said CFPB Director Rohit Chopra. “This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation.”

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The federal agency is reviewing rules that may not be satisfying a 2009 law, the Credit Card Accountability Responsibility and Disclosure Act, that was supposed to ban excessive card penalties. In implementing that law, the Federal Reserve Board of Governors in 2010 carved out some exceptions that have protected credit card issuers in setting late fees, the CFPB said.

The Banking Dive article included the response from the Consumer Bankers Association. The CBA’s public statement said that the bureau’s latest move ignores that the banks’ have been abiding by existing laws, seeking to reduce default risks for consumers and waiving some late fees during the COVID-19 pandemic.