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In 2023, the Consumer Financial Protection Bureau (CFPB), a U.S. government agency that helps protect consumer finances, floated a potential rule to cap credit card late fees—which amounted to an eye-popping $14.5 billion in 2022. The CFPB rule proposed cutting these fees considerably to save consumers money and curb large credit card issuers’ exploitative business practices.
The agency issued its final ruling on March 5, 2024, and late fees with major issuers are expected to drop to just $8 later this spring. This change will not impact smaller issuers with less than 1 million open accounts. While an $8 monthly late fee cap might seem like a positive step—after all, several major card issuers charge late fees of up to $41—there are concerns it could backfire. Here’s what you need to know.
Why the New Rule?
The new ruling will amend Regulation Z and it aims to close a huge loophole and lack of clarity in the U.S. Congress’ 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act. While the Act was developed to protect consumers and reduce excessive credit card fees, credit card issuers were allowed to charge “reasonable and proportional” late fees, provided that fees didn’t exceed a certain amount—$30 for the first late payment and $41 for subsequent late payments. These fees were intended to encourage consumers to make on-time payments to keep their costs low.
However, since the Act’s implementation in 2009, credit card companies have increased their late fees every year, citing inflation as the primary reason for fee hikes. Many major issuers now consistently charge late fees of $41 per month. These high fees, combined with higher interest rates on cards in recent years, have resulted in major profits for the largest credit card companies.
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Simultaneously, these added costs have placed a big burden on certain consumers, many of whom are struggling to stay on top of their debts. Per the CFPB, about one-tenth of credit card consumers report being in “persistent debt” where their interest charges and fees account for a larger portion of their payments than principal balances. This “persistent debt” cycle is very difficult to break.
The recently introduced ruling aims to alleviate this burden by reducing major card issuers’ late fees to just $8 and prohibiting inflation-related increases. If credit card companies determine that $8 isn’t enough to offset the cost of collections, they’ll need to justify charging a higher fee. The CFPB’s goal is closing the 2009 loophole and reducing consumer costs.
How the Fee Cap Rule Will Impact Consumers
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The CFPB estimates this legislation will save consumers over $10 billion annually, with individuals behind on payments saving around $220 in late fees each year. While this savings could be significant for many, some industry experts are concerned that a late fee cap could unintentionally backfire.
The potential for cardholders charging higher interest rates to recoup lost income is a primary concern, says the Consumer Bankers Association (CBA). The CBA President and CEO Lindsey Johnson issued a statement saying “the rule’s policy goals are, at best, consumer redistribution, not consumer protection…They will benefit a small minority of frequent late-payers by offsetting the costs of their late payments by increasing costs amongst the 74 percent of cardholders who pay their bills on time.”
Johnson goes on to say that “the CFPB has openly conceded that the majority of cardholders will likely see their credit card interest rates increase.”
Potential Benefits
Assuming these policy changes don’t have unintentional negative consequences, which they may, here are some potential benefits of a formal late fee cap.
- Lower costs for late payers—an estimate of $220 in savings annually
- Lower costs may make it easier for some to pay down credit card debt
- Those able to repay a higher percentage of principal due to lower fees could increase credit card rewards balances
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Potential Drawbacks
The major potential drawback industry experts cite is higher credit card interest rates or increased general fees across the board. Late fees have historically accounted for a large amount of income for major credit card issuers—around $14.5 billion in 2022, up from $11.3 billion in 2021.
Experts predict they’ll look for ways to recoup lost income after the late fee cap becomes effective, which is a very real concern—one that the CFPB calls out in its ruling. It states that “larger card issuers also may undertake efforts to reduce collection costs or use interest rates or other charges to recover some of the costs of collecting late payments.”
The Bottom Line
While we’ll need to wait and see how the CFPB’s new ruling affects customers, it will be interesting to see how major credit card issuers respond. The new changes will only impact the largest card issuers in the U.S., or those with more than 1 million open accounts. Smaller banks and credit unions won’t be affected by the late fee cap, though the CFPB indicates they generally charge much lower rates and fees anyway.
The new policy changes might have the consumers’ best interests in mind, but it’s possible large card issuers will charge higher rates or other fees to account for any lost income. Only time will tell.
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- Consumer Bankers Association. 2024. https://www.consumerbankers.com/cba-media-center/media-releases/cba-statement-consumer-harm-caused-cfpb%E2%80%99s-misguided-credit-card-late
- Consumer Financial Protection Bureau. 2023. https://www.consumerfinance.gov/about-us/newsroom/cfpb-report-finds-credit-card-companies-charged-consumers-record-high-130-billion-in-interest-and-fees-in-2022/
- Consumer Financial Protection Bureau. 2024. https://www.consumerfinance.gov/about-us/newsroom/cfpb-bans-excessive-credit-card-late-fees-lowers-typical-fee-from-32-to-8/
- Consumer Financial Protection Bureau. 2024. https://www.consumerfinance.gov/about-us/newsroom/statement-of-cfpb-director-rohit-chopra-on-the-final-rule-to-close-the-credit-card-late-fee-loophole/
- Federal Register. 2024. https://www.federalregister.gov/documents/2024/03/15/2024-05011/credit-card-penalty-fees-regulation-z
Jessica Ullrich
Jess is a freelance personal finance writer. She's been creating financial and business content for over a decade. Before venturing into freelance writing, Jess was on the editorial teams at Investopedia, The Balance, and FinanceBuzz. She's created content across several verticals, including budgeting, credit, debt, insurance, investing, loans, and side hustles. In her spare time, you can find Jess reading about money, working in her garden, or spending time with family.
