The cost of a late payment on your credit card could soon be going down.
Federal regulators issued a new rule Tuesday capping credit card late fees at $8, down from the current average of $32. The move is expected to save customers an estimated $10 billion a year.
Consumer advocates praised the measure as providing welcome relief for millions of credit card users, but business interests accused regulators of overstepping their authority and promised legal action to prevent the rule from going into effect.
"For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers," said Rohit Chopra, director of the Consumer Financial Protection Bureau, in a statement. "Today's rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines."
A survey by Consumer Reports last year found one in five adults had paid a credit card late fee within the past twelve months. By law, the fees are supposed to be tied to a credit card issuer's own costs associated with the late payment.
The bureau found that even as banks have adopted cheaper processes for dealing with late payments, the fees have continued to climb, boosting bank revenues. In 2022, late fees assessed by banks totaled $14 billion.
The Biden fight against junk fees
The CFPB rule caps late fees at $8 for the biggest credit card issuers, who collectively account for 95% of all credit card balances. Banks could charge higher fees only if they can show it's necessary to cover their actual collection costs. The rule would not affect interest rates on unpaid credit card balances, which average more than 20%.
![CFPB Director Rohit Chopra said Tuesday credit card companies had been 'exploiting a loophole to harvest billions of dollars in junk fees from American consumers.'](https://npr.brightspotcdn.com/dims4/default/fab2453/2147483647/strip/true/crop/3546x2659+0+0/resize/880x660!/quality/90/?url=https%3A%2F%2Fmedia.npr.org%2Fassets%2Fimg%2F2024%2F03%2F05%2Fgettyimages-1576901307-5b627dc5c8ef82daca7f87a1966002aa388bef5f.jpg)
Consumer advocates cheered the bureau's crackdown, which is part of a larger effort to combat what the Biden administration calls "junk fees."
"This is really an example of government in action to help consumers," said Chi Chi Wu, a senior attorney at the National Consumer Law Center.
She notes that many credit card users who rely on electronic statements might be a day or two late in making their credit card payments because they don't have the reminder of a physical bill.
"That's an oops," Wu says. "That's not a sign of risk. So why is it you get hit with that late fee the day after? It's because it's so profitable for the credit card bank."
'Real financial hardship' for Americans
In 2022, late fees ranged from $30 for a first missed payment to $41 for subsequent payments.
"While those amounts may seem small to some people, they represent a real financial hardship to the countless Americans struggling to make ends meet," said Dennis Kelleher, president of Better Markets, a financial watchdog group.
The U.S. Chamber of Commerce said the CFPB had gone too far with the new cap on late fees, which is supposed to take effect in 60 days.
"The agency's final credit card late fee rule punishes Americans who pay their credit card bills on time by forcing them to pay for those who don't," said Neil Bradley, executive vice president of the chamber. "The Chamber will be filing a lawsuit against the agency imminently to prevent this misguided and harmful rule from going into effect."
Others warned the rule could have unintended consequences.
"On the surface, this is undoubtedly a good thing for credit cardholders," said Matt Schulz, chief credit analyst at LendingTree. "However, the reality is that it will also increase the likelihood that banks raise other types of fees to make up for the lost revenue."
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