Credit Card Holders Could Save Billions a Year as Federal Agency Cracks Down on Late Fees

Worried woman having trouble paying with card.
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A move by the Consumer Financial Protection Bureau to crack down on credit card late fees could save consumers billions of dollars a year, but it might not happen for a while.

On Wednesday, the CFPB issued an Advance Notice of Proposed Rulemaking seeking information from card issuers, consumer groups and the public on late fees. The notice comes as inflation threatens to increase so-called “junk” fees levied on consumers.

“Credit card late fees are big revenue generators for card issuers. We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” CFPB Director Rohit Chopra said in a press release. “This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation.”

A final rule isn’t likely by the end of 2022, officials said at a Wednesday press conference. For now, the agency is gathering public comments, which are due by July 22. Changes to the rule should reduce total late fees by billions of dollars each year, the CFPB said.

More than 175 million Americans hold at least one credit card, according to the agency. Companies charge late fees when customers don’t make the minimum card payment by their due date. In 2019, consumers paid an average of $26 for each late payment, CNBC reported. The fee rises to an average of $34 if another late payment is made within six billing cycles.

Total late fees amounted to $12 billion in 2020, down slightly from the record of $14 billion record set a year earlier, according to CFPB data. Research shows that these costs disproportionately impact credit card customers in low-income and majority-Black neighborhoods.

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Because certain credit card fees are adjusted for inflation each year, consumers could face a big spike due to this year’s surging inflation rate, which is the highest in four decades.

“This effort is particularly timely given the rule allows banks to increase their fees based on inflation,” an unnamed CFPB official told CNBC. “Many [people] are struggling to make ends meet at the moment and struggling under higher costs.”

Bank industry officials were quick to push back at the proposed changes. Richard Hunt, president and CEO of the Consumer Bankers Association, alleged that more restrictions would only harm customers and push them to riskier types of credit.

“Imposing more restrictions on bank-offered credit products will hurt hardworking families most, forcing them to meet their needs outside of the well-supervised banking system,” Hunt said in a statement. “This risk is even greater now as families contend with the effects of inflation.” 

CFBP data shows that most smaller banks and credit unions charge a maximum late fee of $25 or less, but nearly all of the largest issuers have fees at or near the maximum allowed, CNBC reported. Chopra questioned whether the cost to process late payments actually increases with inflation — something banks claim to justify higher late fees when consumer prices rise — or if costs decrease due to better technology.

The CFPB aims to find out more by investigating factors used by card issuers to set late fee amounts. The agency also will look into companies’ costs and losses associated with late payments; the deterrent effects of late fees; cardholders’ late payment behavior; methods companies use to facilitate or encourage timely payments; and their use of “safe harbor” provisions.

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Consumers encountering a problem related to credit card fees or other consumer financial products or services can submit a complaint with the CFPB online or by calling 855-411-CFPB (2372).

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