The CFPB will continue to consider whether these additional regulatory requirements are appropriate. 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.
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 rules of debits and credits 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. 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.
B. Data Limitations and Quantification of Benefits, Costs, and Impacts
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.
- 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.
- 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.
- 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.
- A debit is an accounting entry that results in either an increase in assets or a decrease in liabilities on a company’s balance sheet.
- Consider which debit account each transaction impacts and whether it ultimately increases or decreases that account.
- 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.
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.
V. Data Considered for This Rulemaking
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. 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 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.
- They can include cash, accounts receivable, inventory, buildings, and equipment.
- Accounts receivable is the money owed to a company by its customers, while accounts payable is the money that a company owes to its suppliers.
- If you are really confused by these issues, then just remember that debits always go in the left column, and credits always go in the right column.
- At FreshBooks, we help you protect your profits and time with a powerful bookkeeping service.
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. 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).
How Accounts Are Affected by Debits and Credits
Because the allowance is a negative asset, a debit actually decreases the allowance. A contra asset’s debit is the opposite of a normal account’s debit, which increases the asset. The concept of debits and offsetting credits are the cornerstone of double-entry accounting. A dangling debit is a debit balance with no offsetting credit balance that would allow it to be written off. It occurs in financial accounting and reflects discrepancies in a company’s balance sheet, as well as when a company purchases goodwill or services to create a debit.
As a result, your business posts a $50,000 debit to its cash account, which is an asset account. It also places a $50,000 credit to its bonds payable account, which is a liability account. When you start to learn accounting, debits and credits are confusing. Mike Roach, who co-owns Paloma Clothing with his wife in Portland, Oregon, said that once credit card mileage bonuses and other perks began to be the norm, card usage soared. He said swipe fees have been a significant cost of business — before the pandemic, he calculated that there were some years his card fees were more than his (admittedly low) rent. Increasing a periodic fee (such as an annual fee or a monthly maintenance fee) after an account is closed or terminated.