The Consumer Financial Protection Bureau Wants to Cap Credit Card Late Fees at $8. Here’s How Much They Cost Now

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Are you sick of credit card issuers charging outrageous late fees? Find out how a rule change proposed by the CFPB could make late fees more reasonable. 

When using credit cards, it pays to be aware of potential fees. If you miss a payment or pay your credit card bill late, your credit card issuer will charge a late fee to your account. Fees like this add up fast and impact your personal finances. The Consumer Financial Protection Bureau hopes to cap credit card late fees, which could be a win for consumers.

Updated credit card late fees caps could come

The Consumer Financial Protection Bureau (CFPB) is a federal agency that protects consumers from unfair, detective, or abusive practices in the financial industry. The CFPB has been working to reduce junk fees imposed by companies. One particular cost that the agency is focusing its attention on is late fees charged by credit card issuers.

The agency recently proposed a rule change that could put an end to excessive credit card late fees. Current regulations allow credit card issuers to adjust late fees yearly for inflation. Card companies also have the ability to impose a higher late fee for a second late payment or missed payment incident occurring within six months, which then costs consumers more money.

The CFPB wants to cap credit card late fees at $8. This would apply to any missed payment. The agency believes $8 would be a sufficient amount of money for card issuers to charge to cover collection costs as a result of late payments. But under the proposed rule, card issuers could charge more if it was necessary to cover their incurred collection costs.

The CFPB also hopes to end the automatic annual inflation adjustment and ban late fee amounts above 25% of the required minimum payment amount. These proposed changes would be a significant win for Americans and could save them $9 billion in fees annually. But it’s important to note that this is only a proposed idea at the time of writing.

Here’s how much credit card late fees cost Americans today

Credit card late fees remain a significant money maker for credit card issuers. A 2022 report from the CFPB noted that late fees account for 99% of penalty fees imposed by card issuers and over half of the credit card market’s total consumer fees. According to the CFPB, American consumers spent about $12 billion on late fees in 2020.

The CFPB found the average credit card late fee to be $31 in 2019. However, many factors influence these fees, such as card type, credit score, location, and income. Ideally, positive changes will be made in the near future to make these fees more reasonable so consumers can keep more money in their checking accounts.

Review all fees before getting a new credit card

It’s possible to avoid fees like credit card interest charges and late fees. Paying your credit card bill in full and by the due date listed on your bill can help you avoid wasting money on fees. It’s also essential to review all credit card fees before opening a new credit card account so you know what to expect when using the credit cards in your wallet.

By doing what you can to avoid paying credit card fees like this, you may be able to reach other financial goals sooner, like building a solid emergency fund. Additionally, charging only what you can afford, always paying your bills on time, and paying your entire credit card balance every month are responsible actions that could help you improve your credit score.

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