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. Many of these commenters indicated that this 21-day timeframe is akin to a courtesy period. 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.
Regular reconciliation of assets, liabilities, and equity ensures no record discrepancies, facilitating the preparation of accurate financial statements, such as the balance sheet, that portray the company’s financial position. Properly balanced books enhance transparency, instill trust, and contribute to the overall efficiency and success of the organization. If you’ve ever felt you need a decoder ring to decipher the mysterious world of debit and credit in accounting, fear not because we’re about to demystify the enigma of debits and credits.
Special considerations: Unusual cases of debits and credits
Debit notes are a form of proof that one business has created a legitimate debit entry in the course of dealing with another business (B2B). This might occur when a purchaser returns materials to a supplier and needs to validate the reimbursed amount. In this case, the purchaser issues a debit note reflecting the accounting transaction. The journal entry “ABC Computers” is indented to indicate that this is the credit transaction. It is accepted accounting practice to indent credit transactions recorded within a journal. For instance, if a company purchases supplies on credit, it increases its Accounts Payable—a liability account—by crediting it.
- That analysis indicates that late fees generally generate revenue that is multiple times higher than the Y–14 issuers’ collection costs.
- For this final rule, the CFPB relied upon the data in the proposal for its analysis.
- All accounts that normally contain a debit balance will increase in amount when a debit (left column) is added to them and reduced when a credit (right column) is added to them.
- 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.
- Other commenters also provided meaningful feedback on the source of the data and data fields.
- This information will be essential as you begin navigating the business world.
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 rules of debits and credits on a tight budget. 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.
How to Calculate the Balances
From the bank’s point of view, when a credit card is used to pay a merchant, the payment causes an increase in the amount of money the bank is owed by the cardholder. From the bank’s point of view, your credit card account is the bank’s asset. Hence, using a debit card or credit card causes a debit to the cardholder’s account in either situation when viewed from the bank’s perspective. In accounting, “credit” refers to recording an entry on the right side of a financial account, indicating an increase in liabilities or equity or a decrease in assets or expenses. It is a crucial principle in double-entry bookkeeping, ensuring that all transactions maintain the balance of the accounting equation.
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. 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. Liabilities, revenues, and equity accounts have natural credit balances. If a debit is applied to any of these accounts, the account balance has decreased.
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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. 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.
In discussing the potential consequences resulting from lost late fee revenue, some industry commenters expressed concerns related to risk management and safety and soundness. 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. 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 CFPB recognizes that some of the concerns discussed above could be addressed by only applying the 25 percent restriction to Larger Card Issuers. 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.