Curbing Credit Card Late Fees

Credit Card Late Fees Cap Could Start May 14

By Maria Bellos Fisher

A new rule from the Consumer Financial Protection Bureau (CFPB) may impose a new limit on most credit card late fees, starting on Tuesday, May 14, 2024.

Late fees from large credit card issuers should be capped at $8 for consumer credit cards. Credit card issuers that have fewer than one million credit card accounts are exempt from the new cap. The $8 cap will not be adjusted for inflation. The move is part of a Biden Administration initiative to eliminate so-called “junk fees” from consumer products.

According to its website, the CFPB found that since 2010, credit card issuers have charged consumers more in credit card late fees each year—growing to over $14 billion in 2022.  Late fees represented more than 10 percent of the $130 billion credit card issuers charged consumers in interest and fees. Late fees are added on top of other punitive measures credit card companies impose on consumers who miss payments, including extra interest charges, loss of their grace periods, negative credit reporting, reductions in credit limits, and higher interest rates on future purchases. The average late fee for major issuers has steadily ticked up since the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), going from $23 at the end of 2010 to $32 in 2022. For some large credit card companies, late fees are a major driver of their profit model.

John Kiernan, editor of WalletHub said, “The new rule from the Consumer Financial Protection Bureau capping credit card late fees at $8 may ease the burden for many consumers who are struggling to make their payments on time. That's a huge reduction compared to the $41 maximum late fee that many consumers are currently being charged. Late fees are added to your credit card balance, which means you have to pay interest on them as well, making the cost even higher in the long run when you carry a balance. However, it's important to keep in mind that credit card issuers will have to make up for this loss of income, which may result in higher interest rates and other related fees. Plus, it’s still not good to pay late. Late fees can pale in comparison to the credit score damage that can result from late payments.”

Just as consumers can grasp relief, a lawsuit filed by U.S. Chamber of Commerce, American Bankers Association and Consumer Bankers Association may snatch it out of their hands. According to the U.S. Chamber of Commerce, the plaintiffs allege that the CPFB violated the CARD Act by preventing credit card issuers from collecting “reasonable and proportional” late fees when cardholders don’t pay their bills on time as well as violating the Administrative Procedure Act by promulgating a final rule that is “arbitrary and capricious,” relying on “secret data” collected from the largest banks for a different purpose by a different agency.

A Texas appeals court judge is expected to rule on the lawsuit on Friday, May 10th, to determine whether the $8 cap will take effect.