The CFPB Announces a New Credit Card Late Fee Cap of $8
The Consumer Financial Protection Bureau has announced a final rule that they are capping credit card late fees at $8 for most credit cards (down from the current average of $32) – as part of a broader government-wide effort to curb corporate “junk fees” for consumers. The move is projected to save Americans $14 billion. This sounds great, on the surface, but there are some potential risks for consumers that aren’t disciplined in following the best practices with credit cards. I’ll get into the why, but let’s first summarize the upcoming change, which credit card issuers are impacted, and when the changes go into effect.
Credit Card Late Fee Cap Summary:
Here’s a summary of the new CFPB $8 credit card late fee cap rule that will be going into effect this year:
- Credit Card Late Fee Cap Rule Summary: credit card late fees from “large issuers” will be capped at $8, unless they can prove that their late fee collection costs exceed that amount (highly unlikely). It also ends “automatic inflation adjustments” on late fees that were previously allowed.
- Credit Card Issuers Impacted: larger issuers with at least 1 million open accounts. The CFPB did not clarify which issuers will be impacted, but it likely will include Chase, American Express, Citi, Capital One, Discover, Bank of America, U.S. Bank, Barclays, and Wells Fargo – among others.
- Effective Date: 5/14/24
- Full Rule Change Language: found here.
The Potential Risk of the New CFPB Rule Change
Nobody (aside from those who charge them) likes late fees. But, if you think banks will stand idly by and shrug at $14 billion in lost revenue, you will be sorely disappointed. Credit card issuers can and will claw back the lost revenue in other areas to recoup shareholder value. My prediction is that this will come from increased balance transfer fees and increased credit card balance APRs – both of which are already at excessively high levels that are permitted. I don’t think you will see increased membership/annual fees from this rule change.
My concern is that the less punitive $8 late fee results in relaxed discipline in paying off credit card bills on time, and consumers will be hit with even higher unpaid balance APR fees. Total U.S. credit card debt has already reached an all-time high of $1.13 trillion at the end of last year. Late credit card payments can also result in a negative impact on credit scores, which can further increase the costs of borrowing and reduce access to credit.
Follow These 3 Credit Card Best Practices to Avoid Fees
There’s a harsh winner/loser dichotomy when it comes to credit cards: those who pay off their balance in full and on time each month can come out ahead with credit card use with benefits such as points, miles, cash back, welcome bonuses, perks, etc. Case in point: profiting from using a credit card to pay your taxes. Those who don’t pay their balance in full every month typically fund those benefits (and more).
To be a winner in the credit card game, there are 3 credit card rules that consumers should consider to be non-negotiable:
- Pay your balance on time every month (I set monthly alerts as a reminder and use a spreadsheet, but using auto-pay works as well)
- Pay your balance in full every month
- Don’t let the convenience of credit/debit cards change your purchasing habits for the worse
If you stay disciplined with your credit card use, you should have little to worry about. If you do not, you’ll end up funding benefits for others (and shareholders). Consume wisely, my friends.
Related Posts: