By Sam Boughedda
Capital One Financial (NYSE:COF) and Synchrony Financial (NYSE:SYF) shares are down in early Wednesday trading after the Consumer Financial Protection Bureau (CFPB) proposed a rule to curb excessive credit card late fees.
The CFPB said the excessive late fees cost American families around $12 billion each year, with major credit card issuers profiting from late fees "protected by an expansive immunity provision." The regulator added that credit card companies also relied on the provision to increase fees with inflation, even if they don't face an increase in collection costs.
Capital One Financial shares are down 5% at the start of the session, while Synchrony Financial has slumped more than 10%.
"Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee," said CFPB Director Rohit Chopra.
The CFPB states that when someone misses a payment date, even if they pay a few hours after the deadline, they may be hit with a late fee of up to $41 for each missed payment.
The proposed rule by the CFPB aims to ensure that over-the-top late fee amounts are illegal, with the bureau estimating that it could reduce late fees by up to $9B per year.
The CFPB's proposed changes would amend regulations implementing the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), lowering the immunity provision for late fees to $8 for a missed payment and ending the automatic annual inflation adjustment. In addition, it would cap late fees at 25% of the required minimum payment.