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CFPB adopts limits on excessive credit card late fees

Consumer Reports applauds Bureau for lowering late fees to ensure consumers are treated fairly

WASHINGTON, D.C. – The Consumer Financial Protection Bureau adopted new rules today to limit costly credit card late fees that will save consumers an estimated $10 billion annually. Consumer Reports praised the CFPB for lowering how much credit card companies can charge when payments are late, saving an average $200 annually for those who are charged late fees.

“Credit card companies collect billions of dollars in excessive late fees at the expense of economically vulnerable families every year,” said Chuck Bell, advocacy program director at Consumer Reports. “It’s simply unfair to impose a steep late fee penalty that far exceeds the credit card company’s costs, especially when someone is just a few hours or a couple of days late making their payment.”

Bell continued, “The CFPB’s new rule puts in place reasonable limits on credit card late fees as Congress intended and other protections that will help ensure consumers are treated fairly. These reforms will make a real difference for millions of Americans who are living paycheck to paycheck and working hard to keep up with their payments and other household expenses.”

Under the CFPB’s new rule, credit card late fees must be more in line with the true costs for the issuer. The rule applies to the largest credit card issuers (those with more than 1 million open accounts) and lowers the typical late fee to $8. Banks subject to the rule can charge a higher late fee if they can prove that it is necessary to cover their actual collection costs. The CFPB’s rule also bans companies from increasing fees by the rate of inflation, as banks have been doing. Instead, the CFPB will monitor the market and adjust the $8 late fee rule if needed to keep up with costs.

The CFPB’s rule is in keeping with the Credit Card Accountability and Disclosure Act of 2009 (CARD Act), which required that credit card late fees should be “reasonable and proportional” to the costs incurred by issuers to handle late payments. But over time, fees have been raised by the card issuers to keep pace with inflation, even if they have no additional costs for servicing the late payment. The CFPB estimates that the income generated by the largest issuers from late fees is approximately five times greater than the collection costs that the companies incur for late payments. As a result, credit card late fees average $30 for the first offense and $41 for subsequent ones.

One in five adult Americans – an estimated 52 million people – said they had paid a credit card late fee in the previous 12 months, according to a September 2023 Consumer Reports nationally representative survey of 2,089 U.S. adults.

The financial burden of late fees falls most heavily on people living paycheck-to-paycheck, low- and moderate-income consumers, and people of color. CFPB research has found that people with low incomes pay proportionately bigger fees because they tend to have smaller credit card balances. Borrowers who make $150,000 a year paid an average $15 when charged a late fee, compared to borrowers who make $32,000 who paid twice that amount, around $32, according to a CFPB analysis. The CFPB also found that in ZIP codes where 90 percent of people are Black, the burden of late fees is felt hardest.