The Consumer Financial Protection Bureau wants to slash credit card late payment fees, a move that would save credit cardholders as much as $9 billion a year.
Credit card late fees cost American families about $12 billion a year, according to the Consumer Financial Protection Bureau (CFPB). Most large banks currently charge customers as much as $30 for the first late payment and $41 for subsequent missed payments within six months.
After studying the marketplace, the CFPB concluded that 75% of that revenue has no purpose beyond “padding profits,” something that was supposed to be prohibited by the Credit Card Act passed by Congress in 2009.
“One of the things that the Credit Card Act said was that credit card penalty fees should be reasonable and proportional to what the violation costs the lender,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center.
The CFPB’s proposed rule would cap credit card late fees at $8 and require financial institutions to justify any future price hikes.
“The CFPB has said this is the cap,” Wu explained to Checkbook. “If you can show that your costs incurred because of late payments are greater than $8, you can charge more. But you got to show us the math.”
Consumer groups support the rule. Rachel Gittleman at the Consumer Federation of America says it would “profoundly impact consumers and their financial well-being,” especially those with subprime credit and consumers of color.
The American Bankers Association blasted the agency’s proposal, calling it “extreme” and claiming it would “harm consumers,” including those who pay on time by raising interest rates and reducing access to credit.
So, what do you think? The Consumer Financial Protection Bureau is accepting comments on its proposed rule until April 3rd.
The bureau is also asking for comments on a potential rule change that would give credit card customers a 15-day grace period after the due date before late fees could be charged.
“Adding something like a 15-day grace period before a credit card late fee can be charged would be a consumer-friendly update,” said Ted Rossman, senior industry analyst at Bankrate.com.
Right now, if you slip up, the best you can do is contact the credit card company, explain what happened, and see if they’ll waive the fee.
“You can’t do this every month, of course, but card issuers will usually give you a break if it’s an isolated event,” Rossman told Checkbook.
Bankrate did a survey a few years ago and found that 82% of cardholders who asked for a credit card late fee to be waived got at least some relief.
More Info from Checkbook.org:
Proposed Rule Would Curb Excessive Credit Card Late Fees
Federal Regulators Cracking Down on Hidden Fees
Herb Weisbaum, The ConsumerMan, is a contributing editor at Checkbook.org, a nonprofit organization with a mission to help consumers get good service and low prices. It does this by providing unbiased ratings, advice, and price information. Checkbook is supported by consumers and takes no money from the service providers it evaluates.