The Consumer Financial Protection Bureau has determined that the cost of collecting on unpaid credit card debts for larger companies can be covered by charging an $8 late payment fee, but will allow those issuers to charge more if they are willing to show why their collection costs are higher than that threshold.
The move to cut late fees to $8 is the latest in a series of steps taken by the Bureau and the federal government to crack down on what it has labeled “junk fees” or fees that it has determined are more about generating profits. The CFPB estimates that consumers will save $10 billion in late fees once the rule goes into effect, which will happen 60 days after it is published in the Federal Register. On average, 45 million consumers are charged late fees for not making credit card payments on time, with the average consumer spending $220 per year.
Card issuers will also be prohibited from increasing the late fee payment every year based on inflation.
The U.S. Chamber of Commerce has said it plans to file a lawsuit against the Bureau to try and block the rule from going into effect. The American Bankers Association has said this change will result in more late payments, higher amounts of debt, lower credit scores, and reduced access to credit.
It’s expected that this will be mentioned in President Biden’s State of the Union address, which will be delivered later tonight.
Since 2010, card issuers have been required to charge fees that recover their costs associated with collecting on late payments. But there has been a loophole that exempts issuers from following those requirements as long as they capped the first late payment at $25 and subsequent late payments at $35, with both fees allowed to be adjusted for inflation. The average first late payment is now $30 and subsequent late payments are $41 each, according to the CFPB.
