At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.
In this article:
Credit card late fees, which currently average $32, will be capped at $8 under a new rule finalized by the Consumer Financial Protection Bureau (CFPB). The federal agency expects the change to save Americans billions of dollars annually.
With credit card debt in the U.S. surpassing $1 trillion at the end of 2023, according to Experian data, and delinquency rates rising, the new rule could provide significant relief to credit card users struggling to keep up with their payments.
Why Are Credit Card Late Fees Changing?
The Credit CARD Act of 2009 created broad consumer protections for credit card issuers, one of which was a cap on late fees. In particular, the law prohibited credit card issuers from charging fees in excess of the cost associated with the late payment.
That said, there was a loophole that allowed credit card companies to have immunity from the provision if they limited their first late payment fee to $25 or less and subsequent late fees to $35 or less.
These thresholds were adjusted for inflation, resulting in the average late fee ballooning from $23 in 2010 to $32 in 2022. As a result, Americans paid more than $14 billion in late fees in 2022 alone, according to the CFPB.
How Does the Credit Card Late Fee Cap Work?
The new rule applies only to credit card issuers with more than 1 million open accounts, which represent 95% of the total outstanding credit card balances in the U.S. Here are the main changes:
- Maximum late fee cut to $8: The rule cuts the maximum amount under the law's immunity provision to $8, which the federal agency says is enough for larger card issuers to cover collection costs.
- The cap no longer adjusts with inflation: The CFPB has removed the inflation adjustment provision, primarily because it says card issuers were increasing their fees with inflation without proof of increased costs. Going forward, the CFPB will adjust the cap based on market conditions.
The rule will be effective 60 days after its publication in the Federal Register.
Exceptions to the New Rule
While the new cap on credit card late fees applies to the vast majority of credit card users, there are two exceptions that could impact you:
- Smaller card issuers are exempt. Credit card issuers with fewer than 1 million open accounts aren't subject to the new rule. So, if you have a card offered by a smaller bank or credit union, your late fee may not go down—though the CFPB has found that smaller issuers already charge lower interest rates and fees.
- Larger card issuers can charge more if they prove they should. The CFPB allows larger card issuers to charge more than $8 if they can provide evidence that they need to charge more to cover their actual collection costs.
How Will the New Credit Card Rule Affect Customers?
According to the CFPB, 45 million consumers are charged late fees each year. With the new rule, the federal agency forecasts that consumers will save an average of $220 per year. Overall, the CFPB expects card users to collectively save more than $10 billion each year.
Keep in mind, though, that this rule doesn't impact other actions card issuers can take against delinquent card users, such as charging a penalty annual percentage rate (APR), revoking the account's grace period or reducing the credit limit.
5 Ways to Avoid Credit Card Late Fees
While late fees are going down, it's still a good idea to make it a priority to pay your credit card bill on time every month to avoid other consequences. Here are a few steps you can take to avoid late fees:
- Set up automatic payments. If you're worried about forgetting to pay your bill, consider setting up autopay on your account. You can usually opt to pay the minimum amount due, the statement balance, the current balance or another amount. Just make sure you always have sufficient funds in your checking account to cover your costs. Otherwise, you may be subject to a returned payment fee.
- Request alerts. Credit card issuers typically allow you to set up alerts via email or text, so you'll be notified when your payment is due.
- Change your payment due date. If your card's due date doesn't align with your payday or you have multiple cards with different due dates, it could make sense to adjust your due date to a more convenient time of the month.
- Opt for a card with no late fee. Most credit cards charge a late fee, but not all. It can take some shopping around, but it may be a worthwhile exercise if this is a concern.
- Contact your card issuer. If you're struggling financially and aren't sure whether you can pay the minimum amount due on your credit card, reach out to your card issuer to talk about potential options. Many card issuers offer hardship programs that could help you avoid late fees and get other forms of relief with your debt.
The Bottom Line
The CFPB's new rule for credit card late fees can save credit card users hundreds of dollars each year, easing some of the financial burden of falling behind on payments. That said, there are still several other consequences for missing a credit card payment, including potential damage to your credit score.
As such, it's crucial to make it a goal to pay your credit cards on time every month, preferably in full, to avoid interest charges. Consider Experian's free credit monitoring to know where your credit stands and steps you can take to improve it if necessary.