Current:Home > FinanceThe U.S. sharply limits how much credit cards can charge you in late fees -WealthMindset Learning
The U.S. sharply limits how much credit cards can charge you in late fees
View
Date:2025-04-13 03:10:38
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%.
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."
veryGood! (6)
Related
- What were Tom Selleck's juicy final 'Blue Bloods' words in Reagan family
- Federal criminal trial begins in death of Tyre Nichols with more than 200 potential jurors
- Video captures big black bear's casual stroll across crowded California beach
- Illinois man wrongly imprisoned for murder wins $50 million jury award
- In ‘Nickel Boys,’ striving for a new way to see
- iPhone 16, iPhone 16 Pro, Airpods: What's rumored for 2024 Apple event Monday
- 'Beetlejuice Beetlejuice' has a refreshingly healthy take on grief and death
- Colorado man found dead at Grand Canyon is 15th fatality there this year, NPS says
- In ‘Nickel Boys,’ striving for a new way to see
- Wolf pack blamed in Colorado livestock attacks is captured and will be relocated
Ranking
- Rams vs. 49ers highlights: LA wins rainy defensive struggle in key divisional game
- Bachelorette’s Jenn Tran and Jonathon Johnson Address Relationship Speculation
- All the best Toronto film festival highlights, from 'Conclave' to the Boss
- 1 Day Left! Extra 25% Off Nordstrom Clearance + Up to 74% Off Madewell, Free People, Good American & More
- Costco membership growth 'robust,' even amid fee increase: What to know about earnings release
- White Stripes sue Donald Trump over the use of ‘Seven Nation Army’ riff in social media post
- Ian McKellen talks new movie, bad reviews and realizing 'you're not immortal'
- Tyreek Hill: What to know about Dolphins star after clash with Miami police
Recommendation
A South Texas lawmaker’s 15
Prince William Addresses Kate Middleton's Health After She Completes Chemotherapy
ACLU plans to spend $1.3M in educate Montana voters about state Supreme Court candidates
Shilo Sanders, Colorado safety and Deion Sanders' son, undergoes forearm surgery
Elon Musk's skyrocketing net worth: He's the first person with over $400 billion
Body cam footage shows police throwing Tyreek Hill to ground before Dolphins opener
Police are questioning Florida voters about signing an abortion rights ballot petition
Johnny Gaudreau's wife reveals pregnancy with 3rd child at emotional double funeral