The days of double digit late fees for late credit card payments may be coming to an end.
On Tuesday, the Consumer Financial Protection Bureau finalized a rule that will cap credit card late fees at $8. Currently, card users are typically hit with a $32 fee for late payments, according to the agency.
The CFPB says the new cap will help the 45 million Americans who are hit with late fees to save an average of $220 per year. The ruling only applies to the largest credit card issuers that have at least 1 million open accounts and does not impact lenders’ ability to increase the interest rates charged to customers.
Additionally, larger credit card issuers will be allowed to charge more than the $8 threshold as long as the lender can prove that the higher fee is needed to cover its collection costs.
The rule is expected to go into effect 60 days after its publication in the Federal Register, per the CFPB’s March 5 press release.
“Today’s rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines,” CFPB Director Rohit Chopra said in the press release.
For the past decade, consumers have faced increasing credit card late fees with the average cost of a late payment rising from $23 at the end 2010 to $32 in 2022, according to the CFPB. However, the agency says many larger credit card issuers hiked those late fees each year without proving why the increase was necessary.
Still, the new rule may have some “unintended consequences,” says Ted Rossman, a senior industry analyst at Bankrate.com.
“I think this cap is too low, to be honest. I don’t think $8 is enough of a deterrent [against making late payments],” he tells CNBC Make It.
The “rule will not only reduce competition and increase the cost of credit, but will also result in more late payments, higher debt, lower credit scores and reduced credit access for those who need it most,” the American Bankers Association, an industry trade group that represents banks and lenders, said in a written statement to CNBC Make It.
How late payments impact your credit score
It’s important to note that while late fees can kick in if you’re even an hour late paying your credit card bill, payments made more than 30 days after the due date begin to damage your score.
Since your payment history accounts for 35% of how your credit score is calculated, making on-time payments is key to maintaining good credit health.
“Even one 30-day late payment could really tank your score,” Rossman says. “That could make it much harder to access credit, and much more expensive if you get approved.”
If you find yourself struggling to make your payments, it may be time to seek help managing your credit card debt, he says.
“If you speak up at the first sign of trouble, you might be able to head off credit score damage and negotiate a payment plan,” he says. “The vast majority of lenders are willing to work with you, potentially waiving the occasional late fee or rearranging your due date or giving you a lower interest rate.”
However, this isn’t a strategy you should rely on long term.
If you’re consistently missing your payment date, you may need to reevaluate your budget and adjust your spending habits. Additionally, you may want to consider working with a reputable non-profit credit counseling agency, such as Money Management International, he says.
Want to land your dream job in 2024? Take CNBC’s new online course How to Ace Your Job Interview to learn what hiring managers are really looking for, body language techniques, what to say and not to say, and the best way to talk about pay. CNBC Make It readers can save 25% with discount code 25OFF.
Plus, sign up for CNBC Make It’s newsletter to get tips and tricks for success at work, with money and in life.
