March 29, 2022

CFPB: New Report Finds Credit Card Companies Charged $12 Billion in Late Fee Penalties in 2020

The Consumer Financial Protection Bureau (CFPB) issued a report today showing that credit card issuers charged $12 billion in late fees in 2020. Late fee penalties are charged in addition to interest when a cardholder does not make the minimum payment by the due date.

“Many credit card issuers have made late fee penalties a core part of their profit model. Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost.” said CFPB Director Rohit Chopra. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.”

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) created a range of protections for cardholders, including limiting how much credit card companies could charge for penalties such as over-the-limit fees and late fees, as well as limits on interest rate increases. Many of these protections have been effective in reducing the total cost of credit for consumers, improving competition, and creating transparency on pricing. Nevertheless, today’s report highlights that late fees continue to negatively affect millions of families.

In 2010, the Federal Reserve Board of Governors  voted to implement provisions of the CARD Act that required penalties to be “reasonable and proportional.” In its rule the Federal Reserve Board included an immunity provision that allowed credit card issuers to set fees at a particular level, subject to an annual inflation adjustment. Today, these limits have climbed to $30 for the first late payment and $41 for a subsequent late payment within 6 billing cycles.

Congress removed the authority of the Federal Reserve Board of Governors to adjust these provisions and transferred them to the CFPB. The CFPB expects many major card issuers to hike fees further, based on inflation, given the existing reliance on the immunity provisions in the marketplace.

Significant findings in the report include:

To share how credit card late fee penalties have affected you or your family, please visit the CFPB’s junk fee webpage.

Read today’s report, Credit Card Late Fees .

This post was originally published here.