Late credit card payment fee penalties totaling $12 billion – that is, those fees charged in addition to interest when a cardholder does not make the minimum payment by the due date – were charged by credit card companies in 2020, the federal consumer financial protection agency alleged Tuesday.
And, the agency said, it expects those fees to rise further as inflation claims are made.
In a release, the Consumer Financial Protection Bureau (CFPB) indicated that a report it developed shows that many credit card issuers have made late fee penalties a core part of their profit model. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise,” said bureau Director Rohit Chopra.
The bureau report said that limits on card fees mandated through the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), and regulated by the Federal Reserve, have risen sharply. In particular, the Fed’s rule includes an immunity provision that allows card issuers to set fees at a particular level, subject to an annual inflation adjustment.
The bureau said the fees “have climbed to $30 for the first late payment and $41 for a subsequent late payment within six billing cycles.”
The bureau said significant findings of its report include:
- Many major issuers charge the maximum late fee allowed under the immunity provisions set by the Federal Reserve Board of Governors in 2010, with 18 of the top 20 issuers setting late fees at or near the established maximum level.
- Subprime cards and private label cards are particularly susceptible to late fee charges, with the average deep subprime account being charged $138 in late fees per year. Deep subprime accounts are more likely than super-prime accounts to carry smaller balances, the agency said. “As a result, deep subprime cardholders pay late fees that represent a higher percentage of their balances (11% compared to 0.8% for super-prime accounts),” CFPB said.
- Late fee volume fell when stimulus checks arrived in 2020 and 2021, particularly for households with lower credit scores.
- Low-income areas, areas with high shares of Black Americans, and areas with lower economic mobility all bear more of the late-fee burden. Cardholders living in the United States’ poorest neighborhoods in 2019 paid twice as much on average in total late fees than those in the richest areas, the bureau said. Cardholders in majority-Black areas paid more in late fees for each card they held with major credit card issuers in 2019 than majority white areas. And people in areas with the lowest rates of economic mobility paid nearly $10 more in late fee charges per account compared to people in areas with the highest rates of economic mobility, according to the CFPB.