Late fees on credit cards in the US have decreased: what debtors need to know

The Consumer Financial Protection Bureau (CFPB) published a new rule on March 5th. It will limit late payment fees on credit cards. The move reduces late fees from an average of about $32 to just $8. The rule will save an average of about $220 per year, reports Lifehacker.

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Credit card companies have been steadily raising late fees over the past decade by exploiting a loophole in the 2009 CARD Act. This law allowed issuers to increase fees to adjust for inflation, which they took full advantage of.

“For more than a decade, credit card giants have exploited loopholes to extract billions of dollars in unnecessary fees from American consumers,” wrote CFPB Director Rohit Chopra said in a press release. “Today’s rule ends an era in which large credit card companies used inflation as a cover.”

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The rule reduces the amount provided for late payments to $8. A late payment fee of $8, on average, would be enough for large card issuers to cover collection costs, according to the CFPB.

In addition, the rule ends the abuse of automatic annual inflation adjustments. The CFPB found that many issuers increased their late fees annually without any evidence of increased costs.

The CFPB's final rule eliminates the automatic annual inflation adjustment for late payments. Instead, the CFPB will monitor market conditions and adjust the threshold as necessary.

The rule requires credit card issuers to show their mathematical calculations. Larger card issuers will be able to charge fees above the $8 threshold. But this is only possible if they can prove that a higher fee is necessary to cover their actual collection costs.

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By capping late fees at a reasonable $8, the CFPB estimates the new policy will save consumers billions of dollars annually in excessive fines. The rule will go into effect this spring.

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