Credit card late fees capped at $8, bringing a sense of relief to consumers

SAN ANSELMO, CALIFORNIA - FEBRUARY 07: In this photo illustration, Visa credit cards are displayed on February 07, 2024 in San Anselmo, California. According to a report by the Federal Reserve Bank of New York, credit card debt in the United States has reached $1.13 trillion. (Photo Illustration by Justin Sullivan/Getty Images)
SAN ANSELMO, CALIFORNIA - FEBRUARY 07: In this photo illustration, Visa credit cards are displayed on February 07, 2024 in San Anselmo, California. According to a report by the Federal Reserve Bank of New York, credit card debt in the United States has reached $1.13 trillion. (Photo Illustration by Justin Sullivan/Getty Images)

1.1 trillion dollars. That is how much debt currently burdens American credit card holders. As many working class people know from experience, this debt accrues from junk fees for things like insufficient funds and late payments, but the Consumer Financial Protection Bureau (CFPB) has just changed that. After a ruling by the regulatory agency this month, late fees on credit cards will now be capped at $8, compared to the current average of $32. This new rule will save more than 45 million consumers an average of $220 a year, and credit card companies have a number of complaints, which the U.S. Chamber of Commerce and a number of banking agencies have detailed in a lawsuit against the federal regulator.

It’s worth noting that when credit cards emerged in the 1950s, they were never intended to serve consumers. Originally available only to businesses, interest rates were kept relatively low, since banks were confident that corporations would be able to return the investment. Once American Express cards became widely available to individuals, however, interest rates spiked as a way for companies to continue making returns on their investments when low-income cardholders weren’t able to pay in full. It wasn’t until some fifty years later in 2009 that Congress passed the CARD Act, which went after credit card companies for their rampant profit seeking through junk fees. Although the law did not place a cap on interest rates, it banned companies from charging excessive penalty fees.

However, the rule, which was passed a year before the creation of the CFPB, contained a loophole that “allowed credit card companies to sidestep accountability if they charged no more than $25 for the first late payment, and $35 for subsequent late payments, with both amounts to be adjusted for inflation each year. Those amounts have ballooned to $30 and $41, even as credit card companies have moved to cheaper, digital business processes,” the regulator said in a statement this month. Nearly fifteen years later, that loophole is finally being closed in another attempt to hold issuers accountable for predatory practices.

All of this is to say it comes as no surprise that credit card companies would like to keep their junk fees as high as possible. In their lawsuit, card issuers are arguing that the decision is a case of government overreach and will lead to more missed payments, lower credit lines, and higher rates of debt. This is a massive distortion of the truth, which is that Americans are already in over a trillion dollars in credit card debt, and that is in part  due to the unregulated junk fees that have plagued the industry for decades. Now, consumers will be able to feel some relief.

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