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The Consumer Financial Protection Bureau (CFPB) finalized a rule that will cap credit card late fees at $8. But does it really mean that we will soon see lower late payment fees?
Currently, credit card late fees are capped at $30 for a first late payment and at $41 for a second and subsequent late payments. Card users typically pay a $32 fee for late payments. If the typical fee is reduced to $8, American families will save more than $10 billion in late fees annually, according to the CFPB estimates. That means more than 45 million people who are charged late fees will be saving $220 per year on average.
The CFPB's final rule will apply to the largest issuers, those with more than 1 million open accounts, as they tend to charge higher late fees. Smaller issuers tend to charge lower rates and fees. However, big issuers will still be able to charge higher fees (above the $8 threshold) if they are able to justify them.
While lower credit card late fees can be good news for consumers, there may be some unpleasant side effects. For example, this may cause card issuers to cut credit lines or toughen standards for new applicants. Issuers may also raise interest rates for all consumers, even for those who pay on time.
The CFPB expects the law to go into effect 60 days after it is published in the Federal Register, but there may be some obstacles. Therefore, it is currently not clear when or if the rule will actually take effect.
