How Much do Consumers Pay in Credit Card Late Fees?

Consumer Bureau report says card issuers charged $12 billion in late fees in 2020

Andy Spears

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Photo by Ales Nesetril on Unsplash

Credit cards can be a convenient way to manage expenses and can be a useful tool for consumers if they are managed well. However, there are pitfalls to the ubiquitous products.

Besides the high interest rates you pay if you only pay the minimum payment each month, there’s also the risk of late fees.

The Consumer Financial Protection Bureau (CFPB) issued a report showing that card issuers charged $12 billion in late fees in 2020.

The CFPB’s leadership has suggested that card issuers should be working to compete on services offered rather than earning money by profiting from punitive fees.

“Many credit card issuers have made late fee penalties a core part of their profit model. Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost.” said CFPB Director Rohit Chopra. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.”

The CFPB report notes that the maximum allowable late fee penalty is $30 for the first late payment and $41 for subsequent late payments in a 6 month billing cycle.

The report tells us card issuers tend to charge the maximum allowable fees:

18 of the top 20 issuers set late fees at or near the established maximum level.

Other key findings of the report include:

Subprime cards and private label cards are particularly susceptible to late fee charges. For example, the average deep subprime account gets charged $138 in late fees per year, and deep subprime accounts are more likely than super-prime accounts to carry smaller balances. 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).

Low-income consumers tend to be hardest hit by late fee charges:

In 2019, credit card accounts held by cardholders living in the United States’ poorest neighborhoods paid twice as much on average in total late fees than those in the richest areas.

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.

The CFPB’s report on credit card fees continues a trend of the bureau becoming increasingly aggressive in highlighting economic justice issues and pushing industry to take action.

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Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .