On March 5, 2024, the CFPB finalized a rule to cut excessive credit card late fees by closing a loophole exploited by large card issuers. According to the CFPB’s estimates, American families will save more than $10 billion in late fees annually once the final rule goes into effect by reducing the typical fee from $32 to $8.
Concerns about credit card practices led to the 2009 CARD Act, banning excessive fees and improving disclosures. The Fed's 2010 regulation limited late fees, now $30 and $41, linked to inflation. The authority for CARD Act rules was transferred from the Fed to the CFPB, and after a thorough review of market data related to the 2010 immunity provision, the CFPB’s final rule adopts a lower threshold of $8 and ends automatic inflation adjustments for that amount for issuers that have 1 million or more open accounts.
The CFPB’s final rule applies to the largest credit card issuers, those with more than 1 million open accounts. The final rule:
Lowers the immunity provision dollar amount for late fees to $8;
Ends abuse of the automatic annual inflation adjustment; and
Requires credit card issuers to prove the higher fee is necessary to cover their actual collection costs if they charge fees above the threshold.
The CFPB clarified that the rule does not change the credit card issuer’s ability to raise interest rates, reduce credit lines, and take other actions to deter consumers from paying late. In fact, the rule would increase the desire for credit card companies to facilitate on-time payment, since it would lower incentives to build a business model on late fees.
Read the CFPB’s press release here.
The final rule can be found here.