WASHINGTON DC – The Consumer Financial Protection Bureau (CFPB) released a report today showing that credit card issuers charged $12 billion in late fees in 2020. Late fees 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 fees a central part of their profit model. Markets work best when companies compete on price and service, rather than relying on management fees that hide the true cost. said CFPB director Rohit Chopra. “Given their current practices, we expect credit card issuers to increase fees, in line with inflation, as limits continue to increase.”
The Credit Card Accountability and Disclosure Act of 2009 (CARD Act) created a range of protections for cardholders, including limiting the amount credit card companies could charge for penalties such as overlimit fees and late fees, as well as limits on interest rate hikes. Many of these protections have reduced the total cost of credit for consumers, improved competition, and created pricing transparency. Nevertheless, today’s report highlights that late fees continue to negatively affect millions of families.
In 2010, the voted to implement provisions of the CARD Act that required penalties to be “reasonable and proportionate”. 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 annual adjustment for inflation. Today, those limits have increased 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 large card issuers to increase fees further, in line with inflation, given the existing reliance on immunity provisions in the marketplace.
Key findings of the report include:
- Many large issuers charge the maximum late fees allowed under immunity provisions set by the Federal Reserve Board of Governors in 2010. 18 of the top 20 issuers set late fees at or near the established maximum level.
- Subprime cards and private label cards are particularly susceptible to late fees. For example, the average deep subprime account is charged $138 in late fees per year, and deep subprime accounts are more likely than superprime accounts to have smaller balances. As a result, deep subprime cardholders pay late fees that represent a higher percentage of their balances (11% vs. 0.8% for superprime accounts). These late fees are in addition to accrued interest. For private label cards, late fees accounted for the vast majority – 91% – of all consumer charges and 25% of total interest and fees (compared to 45% and 7%, respectively, for credit cards). general purpose credit).
- The volume of late fees dropped when stimulus checks arrived in 2020 and 2021, especially for households with lower credit scores. documented that stimulus checks improved household balances and liquidity. The fact that late fees for credit card issuers have fallen over the same period suggests that late fees are a penalty for households living paycheck to paycheck rather than an incentive. significant in making payments on time.
- Low-income areas, areas with a high proportion of Black Americans, and areas with low economic mobility all bear more of the burden of late fees. In 2019, credit card accounts held by cardholders living in the poorest areas of the United States paid on average twice as much in total late fees as those in the wealthiest areas. Cardholders in majority black areas paid more late fees for each card they held with major credit card issuers in 2019 than majority white areas. And people in regions with the lowest economic mobility rates paid nearly $10 more in late fees per account than people in regions with the highest economic mobility rates.
To share the impact credit card late fees have had on you or your family, please visit the CFPB’s Unwanted Charges webpage.
Consumers with an issue with credit card charges or other consumer financial products or services can file a complaint with the CFPB online or by calling (855) 411-CFPB (2372).