Exorbitant credit card late fees could be a thing of the past thanks to a proposed Biden administration plan, which aims to curb missed payment fees from $41 to as low as $8 as soon as next year.
The Consumer Finance Protection Bureau argues that these high late fees are excessive, especially given that they surpass the “credit card company’s costs to collect late payments.” In fact, credit card companies earned $12 billion from late fees alone in 2020, according to the CFPB.
As a whole, the CFPB’s proposed rule would do the following:
Lower late fees to $8
End credit card companies’ ability to automatically hike fees based on inflation
Cap late fees at 25% of the required minimum credit card payment
While the new rules don’t require congressional approval, the CFPB aims to enact the plan next year after seeking public comments regarding the change.
Right now, credit card companies charge an average of $31 whenever you can’t pay your bill on time. On top of interest.— President Biden (@POTUS) February 1, 2023
It doesn’t cost these companies $31 to process a late payment. And my Administration is working to cut most of those fees to $8.
Naturally, credit card companies aren’t happy, with some industry experts already speaking out against new regulations.
“By almost eliminating the fee, it could increase the number of late payments, which harms the credit worthiness of the consumer,” said Jodie Kelley, chief executive officer of the Electronic Transactions Association, in an interview with the Wall Street Journal.
However, the CFPB says that “excessive late fees may not be needed to deter late payments,” adding that the fees are often levied on top of other negative consequences, such as a lower credit score.
That bears out in the data, too. According to a 2022 CFPB report, consumers with lower credit scores missed their payments more often than customers with high credit scores despite the high fees. The same report also found that credit card late fees disproportionately affect low-income and Black consumers.
Wednesday’s CFPB announcement is part of a larger push to crack down on what the administration is calling “junk fees” across a wide variety industries.
Gallery: How You're Destroying Your Credit Score Without Knowing It