CFPB Implements Major Reduction in Credit Card Late Fees, Saving American Families Billions

The Consumer Financial Protection Bureau (CFPB) announced a significant regulatory change on March 5, 2024, aimed at reducing excessive credit card late fees, which have been a financial burden on American families. The finalized rule effectively lowers the typical late fee from $32 to $8, addressing a loophole that has allowed large credit card issuers to collect over $14 billion annually in late fees. This change is expected to save American families more than $10 billion a year in late fees, averaging a savings of $220 per year for the 45 million people affected by these fees.

The CFPB’s decision comes as a response to the exploitative practices of credit card companies that have leveraged a loophole since 2010, enabling them to impose high fees under the guise of inflation adjustments. These practices were initially made possible by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and subsequent Federal Reserve Board regulation, which allowed credit card companies to charge up to $25 for the first late payment and $35 for subsequent ones, with these amounts subject to annual inflation adjustments.

The new rule targets large credit card issuers, specifically those with more than 1 million open accounts, which represent over 95% of total outstanding credit card balances. It sets a new standard for late fees at $8, removes the automatic annual inflation adjustment for this amount, and requires issuers to justify any fees above this threshold by demonstrating actual collection costs incurred from late payments. This approach aims to curb the trend of steadily increasing late fees and reduce the incentive for credit card companies to rely on penalty fees as a significant revenue source.

This regulation is part of the CFPB’s broader efforts to address issues in the $1 trillion credit card market, including tackling high interest rates and fostering competition. The rule is expected to take effect 60 days after its publication in the Federal Register, offering a more equitable financial landscape for credit card users. The CFPB continues to take enforcement actions against credit card companies for illegal practices, further emphasizing its commitment to protecting consumers and ensuring fair financial treatment.