STATEMENT: Credit card late fees to fall as CFPB closes loophole

WASHINGTON –  The Consumer Financial Protection Bureau (CFPB) announced Tuesday that it will close a loophole that costs Americans $14 billion per year in late fees on their credit cards.  

The CFPB says 45 million Americans get charged one or more credit card late fees a year. The average penalty is currently about $32. However, the new rule sets a maximum of $8 and ends automatic inflation adjustments to that amount for issuers with 1 million or more open accounts.

Large credit card companies have been exploiting a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which PIRG helped get passed and was intended to only allow banks to charge late fees to recoup their costs. However, a related Federal Reserve rule allowed credit card companies to sidestep accountability if they charged no more than $25 — an amount that has risen along with inflation. Since then, two big changes have happened. First, banks’ costs have gone down because of digital efficiencies. Second, Congress transferred authority for administering CARD Act rules from the Fed to the CFPB.

In response, Ed Mierzwinski, the senior director of U.S. PIRG’s Federal Consumer Program, said:

“For too long, big banks have imposed higher late fees because a loophole in the old Federal Reserve Board rules allowed them to raise fees, even when their costs declined. The CFPB found that many issuers hiked their late fees in lockstep each year without evidence of increased costs. 

“Well, there’s a new sheriff in town changing the rules to even the playing field for cash-strapped consumers. The CFPB has closed the door on unfair late fees and says that they must be based on costs.

“In our increasingly cashless modern lives, credit cards are necessary. It’s fair for banks to recoup the costs associated with late fees. It’s not fair for them to take advantage of consumers who have no options to fight back. Unlike with fees for hotels or event tickets, consumers can’t stop the transaction or choose another bank at that moment to avoid the fee.”