On Wednesday, February 1, 2023, the Consumer Financial Protection Bureau (CFPB) has proposed a new rule to curb excessive credit card late fees, which cost American families approximately $12 billion every year. The proposed rule seeks to ensure that over-the-top late fees are illegal and could reduce late fees by as much as $9 billion annually.

Excessive Late Fees

Currently, credit card issuers can charge as much as $41 for each missed payment, which leads to billions of dollars in annual revenue for credit card companies. Late fees may be levied even if the payment is made only a few hours after the due date and may not be justified based on the consumer’s conduct in paying late. These fees may also be in addition to other consequences of paying late, such as a lost grace period on paying interest or a lower credit score.

Proposed Changes

The proposed changes to the regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) would lower the immunity provision for late fees to $8 for a missed payment, eliminate the automatic annual inflation adjustment, and ban late fee amounts above 25% of the consumer’s required payment. The CFPB believes that a late fee of $8 would be sufficient for most issuers to cover collection costs incurred as a result of late payments. Companies would be able to charge above the immunity provision as long as they could prove the higher fee is necessary to cover their incurred collection costs.

The CFPB has also requested comment on several other potential changes to CARD Act regulations. For instance, it requests comment on whether the proposed changes should apply to all credit card penalty fees, whether the immunity provision should be eliminated altogether, whether consumers should be granted a 15-day courtesy period before late fees can be assessed, and whether issuers should be required to offer autopay in order to make use of the immunity provision.

Final Thoughts

The proposed rule follows a request for comment on junk fees, a research report, and an advance notice of proposed rulemaking on credit card late fees that the CFPB issued last year. Comments must be received on or before April 3, 2023, or within 30 days after publication of the Notice of Proposed Rulemaking in the Federal Register, whichever is later.