Is This the Beginning of the End for Credit Card Late Fees?

This new rule could save Americans $9 billion a year in late fees.

Paying your credit card late can not only hurt your credit score and increase your interest rates, but it also costs American families $12 billion a year. Even though Congress banned excessive credit card late fees in 2009, credit card companies have been able to use a loophole to continue charging what is known as "junk fees." The Consumer Financial Protection Bureau (CFPB) is proposing a new rule that can save consumers as much as $9 billion a year in late fees, but how will it impact credit card late fees? Let's take a closer look.  

The impact of junk fee prevention

The CFPB's proposed rule is intended to prevent lenders from charging excessive late fees on credit cards. Currently, most late fee charges are around $30 per month, with some companies charging as much as $41 for each missed payment. However, if this rule goes into effect, the typical charge for a single late fee will be reduced to $8 per month. The CFPB states that $8 is enough to cover collection costs by the card company. This reduction in fees could save consumers significant amounts of money in the long run. 

In addition to reducing the amount of money charged for each individual late fee, this proposed rule would cap late fees at 25% of the required minimum payment. Currently, a cardholder can potentially pay up to 100% of the minimum payment in late fees. Lastly, the rule would end the automatic annual inflation adjustment and would base any late fee increases on market conditions.

The future of credit card late fees

If implemented as written, this proposed rule could potentially revolutionize how lenders handle late payments by eliminating many of the costly junk fees associated with them. By capping the amount of money lenders can collect from each late payment and limiting future fee increases, it should make it easier for people who struggle with managing their finances to stay current on their bills. They won't have to worry about excessive or multiple charges eating away at their already strained personal budgets. 

For years, consumers have had to deal with costly late fees. These fees can add up quickly, leaving consumers with little recourse against them. The CFPB has proposed a rule that would drastically reduce credit card late fees and make debt more manageable for everyone involved. The CFPB's proposal is still in its early stages so it may take some time before we see any real changes in how lenders handle late payments. However, if enacted into law as currently written, it could potentially revolutionize how much money in late fees cardholders will have to pay!