Unusual Whales

Millions of Americans could soon see lower credit card bills after a federal rule that caps late fees at $8 a month was finalized by the Consumer Financial Protection Bureau

Unusual Whales -

Millions of Americans could soon see lower credit card bills after a federal rule that caps late fees at $8 a month was finalized by the Consumer Financial Protection Bureau.


On March 5, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule that reduces the penalty for late payment to $8 per incident, down from the industry average of $32. This rule is expected to take effect 60 days after its publication in the Federal Register.

The rule change addresses a loophole created by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which allowed companies with at least a million open accounts to automatically adjust their fees for inflation. These larger card issuers, which account for more than 95% of outstanding credit card balances, according to the CFPB, often raised their penalties each year without evidence of increased costs.

Since the passage of the CARD Act, late fees have risen steadily from an average of $23 at the end of 2010 to $32 in 2022, according to the CFPB. The bureau alleges that some credit card companies have relied on these fees as a significant part of their profit model. The new rule will monitor economic conditions and adjust the dollar threshold for late fees as necessary, rather than allowing automatic increases.

The CFPB clarified that this rule does not change issuers' ability to raise interest rates, reduce credit lines, or take other actions to deter late payments.

Late fees cost American households more than $14 billion a year, according to the CFPB. The bureau estimates that consumers will save over $10 billion annually due to the new regulation, with the 45 million Americans charged late fees seeing an average savings of $220 a year.

This fee cap is part of the Biden administration's broader effort to reduce "junk fees," which are unnecessary, unavoidable, or surprise charges that inflate costs without adding value, as defined by the Federal Trade Commission.

The rule does not impact issuers' ability to raise interest rates, reduce credit limits, or take other actions to discourage late payments. In January 2024, the CFPB also proposed regulations to limit overdraft fees, but these regulations have not been finalized yet.