News Release: Lower Late Fees Will Save Consumers $10 Billion


March 5, 2024

William Pierre-Louis, Jr.

Lower Late Fees Will Save Consumers $10 Billion

WASHINGTON, D.C. – The Consumer Financial Protection Bureau will prohibit excessive credit card late charges in a move that underscores its commitment to defend consumers from junk fees – and save them $10 billion in the process. 

“There are changes that fiddle at the edges of a problem and there are reforms like this one that will save consumers billions each year by slashing a particularly nasty kind of junk fee,” said Amanda N. Jackson, director of consumer campaigns at Americans for Financial Reform. “This new protection will help all credit card users, especially Black, brown and low-income consumers who bear the brunt of these abusive practices.”

The new regulation will knock down late fees from as high as $41 to no more than $8 for credit card issuers that have over 1 million accounts. The Federal Reserve, which regulated credit cards before Congress created the CFPB in 2010, had opened a loophole from a requirement that fees be “reasonable and proportional” to the costs incurred by the companies. The largest card issuers exploited the loophole by turning late fees into a profit center and took in $12 billion a year in revenue from late fees, approximately five times greater than the collection costs the companies incurred.

Consumer advocates have repeatedly highlighted that the burden of late fees disproportionately affects low- and moderate-income consumers and people of color. And late fees are merely salt in a wound; late-paying credit card users still face interest charges, hits to their credit report, and even lawsuits.

A CFPB study found that people with low incomes pay proportionately bigger fees because they tend to have smaller credit card balances. Borrowers who make $150,000 a year paid an average of $15 when charged a late fee, compared to borrowers who make $32,000 who paid twice that amount, around $32, according to the report. The CFPB also found that in ZIP codes where 90 percent of people are Black, the burden of late fees is felt hardest.

“The CFPB’s ongoing efforts to mitigate financial harm that disproportionately affects vulnerable communities promote financial inclusion while creating transparency in pricing that allows borrowers to determine what products best serve them,” Jackson added. “It is a start to a path to where junk fees no longer trip consumers up like they do now.”

A survey conducted by Consumer Reports showed 82 percent of Americans said they supported lowering the maximum late fee. The Biden administration has made fighting junk fees a signature part of its efforts to lower prices and create a fairer economy.