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CFPB Bans Excessive Credit Card Late Fees, Lowers Typical Fees

The CFPB finalized a rule today to cut excessive credit card late fees by closing a loophole it says is exploited by large card issuers. The CFPB estimates that American families will save more than $10 billion in late fees annually once the final rule goes into effect by reducing the typical fee from $32 to $8. According to the CFPB, this will be an average savings of $220 per year for the more than 45 million people who are charged late fees.

The CFPB’s final rule applies to the largest credit card issuers, those with more than 1 million open accounts. According to the CFPB, these companies account for more than 95% of total outstanding credit card balances. CFPB data shows that smaller issuers tend to charge lower rates and fees to their borrowers, while the vast majority of the largest issuers charge close to the maximum allowable late fee amount. Today’s final rule:

  • Lowers the immunity provision dollar amount for late fees to $8: Based on data analyzed by the CFPB, a late fee of $8 would be sufficient for larger card issuers, on average, to cover collection costs incurred as a result of late payments.
  • Ends abuse of the automatic annual inflation adjustment: The CFPB found that many issuers hiked their late fees in lockstep each year without evidence of increased costs. The CFPB’s final rule eliminates the automatic annual inflation adjustment for the $8 late fee threshold. This adjustment was added by the Federal Reserve Board and is not required by law. The CFPB will instead monitor market conditions and adjust the $8 late fee immunity threshold as necessary.
  • Requires credit card issuers to show their math: Larger card issuers will be able to charge fees above the threshold so long as they can prove the higher fee is necessary to cover their actual collection costs.

Last month, a survey from the CFPB revealed that credit unions and small banks offer lower interest rates than the 25 largest credit card companies.

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