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New government regulations are slashing the late fees charged by many credit card companies.
On March 5, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule limiting the penalty for late payment to $8 per incident, down from an industry average of $32. It is expected to go into effect 60 days after its publication in the Federal Register.
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Capping credit card late fees
The new rule change closes a loophole established by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) that allowed companies with at least a million open accounts to automatically adjust their fees for inflation.
These larger card issuers account for more than 95% of outstanding credit card balances, according to the CFPB, an independent federal agency that oversees banks, credit card companies, debt collectors and other financial institutions.
In a statement, the CFPB said many issuers raised their penalties each year like clockwork "without evidence of increased costs."
Late fees have steadily increased since the passage of the CARD Act, according to the CFPB, from an average of $23 at the end of 2010 to $32 in 2022. The bureau alleges some credit card companies have made them a key part of their profit model.
Instead of allowing automatic increases, it said it would monitor economic conditions and adjust the dollar threshold when necessary.
The CFPB also made it clear that this rule doesn't change issuers' ability to raise interest rates, reduce credit lines or take other actions to deter late payments.
Credit cards with no late fees
Several cards have done away with late fees altogether, including the Citi Simplicity® Card. The card also has no annual fee and no penalty APR, so your interest rate won't spike if you're late with a payment. Further, it also offers a long 0% intro APR for 21 months on balance transfers and 0% intro APR for 12 months on purchases from date of account opening (17.49% - 28.24% variable after; balance transfers must be completed in the first four months). There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
The Citi Simplicity® Card may not earn rewards, but it can still save you money due to its amazing intro-APR offers.
If you want to dodge late charges and still enjoy rewards, the Discover it® Cash Back card waives your first late fee and offers up to 5% cashback (on up to $1,500 worth of combined purchases, then 1%) on rotating quarterly categories and 1% back on all other purchases (activation required). It also offers a welcome bonus in which Discover will match all the cash back earned for all new cardmembers by the end of your first year as a cardholder.
This card, too, has an introductory APR offer, which can help keep your monthly bill from spiraling out of control. Cardholders can enjoy a 0% intro APR for 15 months from the date of account opening for purchases and balance transfers (after, 17.49% to 26.49% variable APR). There is a 3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*.
Information about the Discover cards has been collected independently by CNBC Select and has not been reviewed or provided by the issuer of the card prior to publication.
A broader push to eliminate 'junk fees'
Late fees cost American households more than $14 billion a year, according to the CFPB. The bureau estimates consumers will save over $10 billion annually, thanks to the new regulation, and that the 45 million Americans charged late fees will see an average savings of $220 a year.
The fee cap is part of the Biden administration's ongoing war on "junk fees," a catch-all for what the Federal Trade Commission calls "unnecessary, unavoidable or surprise charges that inflate costs while adding little to no value."
It won't affect issuers' ability to raise interest rates, reduce credit limits, or take other steps to discourage delayed payments.
In January 2024, the CFPB also proposed regulations to limit overdraft fees, but it has not finalized them.
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Bottom line
Credit card late fees have soared in recent years, saddling millions of Americans with additional debt. As part of the Biden administration's effort to eliminate junk fees, the Consumer Financial Protection Bureau has capped late fees at $8. On the flip side, credit card issuers may end up raising other fees or tightening card approvals to make up for this.
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For rates and fees of the Discover it® Cash Back, click here.
