Most Credit Card Late Fees Will Be Capped at $8, Saving Consumers $220 Per Year

On March 5, the Consumer Financial Protection Bureau (CFPB) announced a final rule to curb excessive credit card late fees. This ruling will limit how much credit card issuers can charge for these fees. According to the agency, credit card companies charged Americans more than $14 billion in late fees in 2022. But that will soon change. Here's what you need to know.

Credit card companies have taken advantage of this loophole

Credit card issuers make a lot of money from their fees, and late fees are a money maker. When a consumer forgets to pay their credit card bill or makes a late payment, they're charged a fee. Credit card late fees have continued to climb in recent years.

However, the CFPB announced a final ruling to close a loophole credit card companies have used to charge consumers expensive fees.

Here's how credit card issuers have gotten away with charging excessive fees: The CARD Act banned excessive fees and made it so banks could only charge fees that recovered the costs of collecting late payments.

But a loophole allowed credit card companies to charge up to $25 for the first late payment and $35 for subsequent late payments. Additionally, fees were allowed to be adjusted for inflation, driving the average fee even higher.

Banks have most recently been allowed to charge up to $30 for the first instance of a late payment and $41 for subsequent late payments. Now, the average credit card late fee is $32.

Most credit card late fees will soon be capped at $8

The final rule announced by the CFPB on March 5 will close the above loophole and end excessive credit card late fees. Credit card late fees will be capped at $8 in most instances. The rule also ends automatic inflation adjustments.

Larger credit card issuers will still be allowed to charge fees above this threshold. These companies must show their math and prove that the higher fee is necessary to cover their actual collection costs. Otherwise, they must abide by the $8 fee limit.

This is excellent news for credit card users feeling the impact of rising prices. It's worth noting that credit card users won't see immediate changes. The rule will go into effect 60 days after publication in the Federal Register.

Here's how much Americans will save

According to estimates from the CFPB, once this final rule goes into effect, American families will save more than $10 billion in late fees annually. This will result in an average savings of $220 per year for the more than 45 million consumers charged credit card late fees. More reasonable fees can help Americans keep more money in their bank accounts.

Do this to avoid late fees

Paying your bills late can have consequences. The first is late fees, such as those charged by credit card companies. Any extra money you pay in fees impacts your personal finances.

Another risk you face is a negative mark on your credit report. Your credit report includes an overview of your payment history, including missed and late payments. If you care about your credit report and credit score, avoiding late payments is in your best interest.

Billers can report a late payment to the three major credit bureaus if it's at least 30 days past the due. But it's wise to pay your bills by the due date every time. If you're forgetful, you may want to set your bills on autopay so you no longer have to schedule payments manually.

Many billers, including credit card companies, allow customers to use autopay tools. You can enable automatic payments through your online credit card account. This way, you stay caught up on payments and avoid being charged credit late fees.

Check out our best credit cards list if you're thinking about applying for a new credit card.