Sparks Fly After Ann Wagner And CFPB Director Trade Blows Over Credit Card Fee Regulations

3 months ago

During a House Financial Services Committee hearing Thursday, Rep. Ann Wagner (R-MO) spoke about a regulation on fees for late credit card payments.

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Transcript

00:00Ms. Wagner is now recognized for 5 minutes.

00:02Hi. Thank you, Mr. Chairman.

00:05Good morning, Director Chopra.

00:08Yeah, let's talk some truth, and let's do it quickly

00:11with brief answers because I have a lot of questions here.

00:14Do you believe, sir, financial institutions should engage

00:17in risk-based pricing when making loans to their customers?

00:23I don't think we should force it,

00:25but I think they often do because it's appropriate.

00:28Should they or should they not?

00:29Risk-based pricing when making loans?

00:32Simple yes or no.

00:32Again, I'm trying to answer.

00:33It's not to order them, but it is appropriate for them

00:37to be able to measure risk.

00:39Yes, they have to measure risk in order to give a loan.

00:41Good. The credit card late fees

00:43and overdraft rules will make it harder for lenders

00:47to price loans according to the risk involved.

00:51Why is the CFPB writing rules

00:54that erode the fundamental principle of risk-based pricing?

00:58Actually, won't it encourage better risk-based pricing?

01:01I'm not sure why making late fees in line

01:05with the congressional prohibition would undermine

01:07risk-based pricing.

01:08In fact, risk-based pricing, they have the data they need

01:12to price it more effectively.

01:14So I actually don't follow at all.

01:16Then answer this, yes or no.

01:18Yes or no, is there a strong likelihood

01:21that by drastically reducing the fee for paying late,

01:27this rule will actually encourage more consumers

01:30to pay their credit card bill late?

01:32Well, aren't you, I hope you're aware that credit cards...

01:34Answers yes or no.

01:36No, because credit card companies have the ability

01:40to raise your interest rates if you're late.

01:42They have the ability to earn a credit report.

01:44It will not encourage more consumers

01:46to pay their credit card late, really.

01:48No, no, no, you're forcing me to say yes or no

01:50and not allowing me to clarify.

01:51So I like to get...

01:52I'm going to clarify.

01:54Really, if the point of the late fee rule

01:58is to reduce the penalty from $32 to $8,

02:04won't it be cheaper for the consumer to pay late?

02:08No, so you are allowed to charge a late fee

02:10in excess of $8.

02:13The financial institutions needs to show their math.

02:15The CARD Act bans unreasonable late fees.

02:20We have a staff, we are using an old formula

02:22to help them do that.

02:24They will still be able, don't worry,

02:26to punish their customers for paying late.

02:30All right, let's talk about

02:31the CP's most recent CARD Act report.

02:35It defines the term persistent debt

02:39as a consumer paying more for interest and fees on a loan

02:43than they are paying toward the principal

02:46in a given calendar year.

02:47And given that the credit card late fees rule

02:51will undoubtedly result in more consumers paying late,

02:55we're dropping it from $32 to $8,

02:57and therefore getting deeper into debt,

03:00isn't it true that your late fee rulemaking

03:03will cause persistent debt to increase?

03:08Well, I guess I'd say this.

03:09Wouldn't you think that if a financial institution

03:12then raised the minimum payment,

03:15that person would then pay more,

03:17but they would be less likely to be in persistent debt?

03:20Director, your own rule indicates

03:22that more cardholders will pay late.

03:26Your rule indicates that more card payers will pay late.

03:29I think you're taking that out of context,

03:31but certainly we want to make sure

03:34that the congressional prohibition respectfully

03:36that bans unreasonable fees has fidelity.

03:40Will you commit to measuring the impact

03:42of the proposed rule on persistent debt,

03:45and then require that the rule be rescinded if it does?

03:49Well, it would be illegal for us

03:51to require rescission in that way,

03:53but certainly in our biennial card act reports,

03:56we will always seek to study all of these-

03:59You are encouraging persistent debt,

04:02and encouraging people to pay late.

04:05We're encouraging common sense.

04:06Well, let's go further.

04:08As part of the fee schedule charged by the CFPB

04:11for a FOIA request, the CFPB charges $23 per 15 minutes,

04:16or $92 per hour if professional staff

04:20conducts a search for information,

04:23which may be a rate set

04:25by the Office of Management and Budget.

04:27$92 per hour to search for documents seems pretty darn high,

04:32and very similar in concept to your definition of junk fee,

04:37which again, you defined as one in which the fee

04:39exceeds the CFPB's cost of searching,

04:43and therefore leads to profit for the CFPB.

04:46Will the CFPB take action to examine this junk fee,

04:51and reduce the amount charged for FOIA requests

04:54instead of profiting off of hardworking Americans

04:59who are simply seeking to learn about

05:01how government decisions are made within the opaque CFPB?

05:06Yeah, I actually think those have only been charged

05:09two or three times in the past few years.

05:11It's very rare, but I will look at that.

05:13It is not very rare, sir.

05:15Mr. General, women's time is up,

05:16and Dr. Chopra. I don't think actually.

Sparks Fly After Ann Wagner And CFPB Director Trade Blows Over Credit Card Fee Regulations

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