Credit card late fees cost Americans billions of dollars every year – now capped at $8
by Sylvia Quarles March 7, 2024 in News
Credit card late fees cost Americans billions of dollars every year – now capped at
New government regulations are reducing the late fees charged by many credit card companies.
On March 5, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule limiting fines for late payments to $8 per occurrence, which is less than the industry average of $32. It is expected to take effect 60 days after its publication in the Federal Register.
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The new rule change closes a loophole established by the Credit Card Accountability Accountability and Disclosure Act of 2009 (CARD Act), which would have allowed companies with at least one million open accounts to automatically adjust their fees for inflation. Is.
According to the CFPB, an independent federal agency that oversees banks, credit card companies, debt collectors and other financial institutions, these large card issuers hold more than 95% of outstanding credit card balances.
In a statement, the CFPB said many issuers increased their fines every year “without evidence of increased costs.”
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According to the CFPB, late fees have increased steadily since the passage of the CARD Act, rising from an average of $23 in the late 2010s to $32 in 2022. The bureau alleges that some credit card companies have made them a significant part of their profit model. ,
Rather than allowing an automatic increase, he said he would monitor economic conditions and adjust the dollar limit if necessary.
The CFPB also clarified that this rule does not change the ability of issuers to raise interest rates, reduce credit lines or take other actions to prevent late payments.
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According to the CFPB, late fees cost American households more than $14 billion per year. The Bureau estimates that the new regulation will save consumers more than $10 billion annually and the 45 million Americans charged with late fees will save an average of $220 per year.
The fee cap is part of the Biden administration’s ongoing war on “junk fees,” which the Federal Trade Commission calls “unnecessary, unavoidable or surprise fees” that drive up costs while adding no value.
This will not affect the ability of issuers to raise interest rates, reduce credit limits or take other steps to discourage late payments.
In January 2024, the CFPB also proposed rules to limit overdraft fees, but it has not finalized them.
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Credit card late fees have increased in recent years, leaving millions of Americans with additional debt. As part of the Biden administration’s effort to eliminate junk fees, the Consumer Financial Protection Bureau has capped late fees at $8. On the other hand, credit card issuers may increase other fees or tighten card approval to compensate.
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions about their money. Each credit card article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of credit card products, While CNBC Select earns commissions from affiliate partners on many offers and links, we create all of our content without input from our own business team or any external third parties, and we are proud of our journalistic standards and ethics.
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