CFPB Focuses on Credit Card Late Fees

A recent CFPB report asserts that most credit card companies charge the maximum late fee allowed under provisions set by the Federal Reserve Board of Governors (FRB) in 2010.  These late fees are charged in addition to interest and are, according to the CFPB, a core part of the companies’ profit models.  The report continues the CFPB’s recent focus on additional fees charged to consumers of financial services.

A 2010 FRB rule requires penalties to be “reasonable and proportional,” but specifically permits credit card issuers to set late fees up to a specified level, subject to an annual inflation adjustment. These limits have recently climbed to $30 for the first late payment and $41 for a subsequent late payment within 6 billing cycles.

The CFPB report also made several additional findings.  First, it reports that subprime cards and private label cards are more likely to charge late fee penalties.  Second, the CFPB asserts that late fee volume fell when stimulus checks arrived in 2020 and 2021, which the CFPB says suggests that late fees serve as a penalty for households living paycheck-to-check rather than an incentive to make on-time payments.  And third, the CFPB found that consumers in low-income areas, areas with high shares of Black Americans, and areas with lower economic mobility all paid higher late fees per capita than consumers in other areas.