What the Rule on Credit Card Late Fees Would Have Done
Congress banned excessive credit card late fees when it passed the Credit CARD Act of 2009, but the CFPB claimed credit card companies had exploited a regulatory loophole to boost their bottom lines.
The CFPB’s late fee rule, based on the Card Act, would have lowered the default amount for credit card late fees from about $32 to $8.
Late fees have become a major revenue source for credit card companies. The CFPB estimated they generated around $14 billion in 2022.
The new rule did not eliminate late fees; it would have limited them to what the CFPB at the time considered “reasonable and proportional.” The rule allowed credit card issuers to charge more than $8 if they could show that the fee was not enough to compensate them for the costs associated with late payment. The rule did not stop them from taking other actions to deter late payments, such as raising interest rates or reducing credit lines.
The CFPB said it hoped the rule would “increase the desire for credit card companies to facilitate on-time payment, since it would lower incentives to build a business model on late fees.”
The Late-Fee Rule Never Took Effect
On March 7, 2024, two days after the CFPB’s rule was finalized, the American Bankers Association, Consumer Bankers Association, the U.S. Chamber of Commerce, and three other business groups filed a lawsuit in federal court challenging the new rule and asking the court to grant a preliminary injunction to stop it from going into effect later this year.
In a joint statement, the plaintiffs claimed the CFPB “exceeded its statutory authority, and offered deficient analysis and reasoning, to achieve a pre-ordained outcome that will ultimately harm the consumers it is charged with protecting.” They also claimed the $8 cap on late fees is below the actual cost of covering those late payments.
Consumer advocates have always disputed that assertion.
The CFPB “did a tremendous amount of research—including an analysis of data provided by the banking industry—to determine that $8 was what it costs banks to deal with late payments, NCLC’s Wu told Checkbook. “This is what the banks need to be made whole, $8,” Wu said. “So, when they charge a $30 late fee, they’re making lots of money, and they love those late fees.”
Checkbook Tips
Regardless of the late fee, it’s important to pay your credit card bills on time, every time, even if you only make the minimum payment. A late payment will dramatically lower your credit score.
A survey by Consumer Reports found that the most common reasons people paid late were: They thought they already paid the bill (27 percent), or they didn’t know the due date (12 percent).
You can avoid both those problems by signing up for monthly bill reminders via text or email and enrolling in autopay. If you can’t afford to pay the entire balance (which is the smart way to use credit cards), at least have autopay set for the minimum amount. Paying the minimum counts as an on-time payment. If your budget allows, you can always pay more.
Consumer Reports advises paying digitally or over the phone rather than sending a check in the mail. It’s more secure and you won’t have to worry about delayed mail deliveries.
If you normally pay on time but slip up once, the credit card issuer might waive the late fee if you call and ask nicely. A 2020 survey by Bankrate.com found that 82 percent of those who asked for a credit card late fee to be waived got at least some relief.
“You can’t do this every month, of course,” said Ted Rossman, Bankrate’s senior industry analyst, “but card issuers will usually give you a break if it’s an isolated event.”
Some credit cards, such as the Petal 2 Visa card, Apple Card, Citi Simplicity card, and Wells Fargo Attune card, do not charge late payment fees, according to a market analysis by Wallet Hub.
Checkbook.org is a nonprofit organization with a mission to help consumers get good service and low prices. It does this by providing unbiased ratings, advice, and price information. Checkbook is supported by consumers and takes no money from the service providers it evaluates. You can reach Herb at his website ConsumerMan.com.
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