CFPB Finalises Rule Capping Credit Card Late Fees at $8 for Large US Issuers

The Consumer Financial Protection Bureau finalised a rule on 5 March 2024 capping the late-fee safe harbour for large credit card issuers at $8, down from a typical late fee of $32. The rule applies to card issuers that manage portfolios of one million or more accounts.

The CFPB estimated that the change would save American consumers more than $10 billion per year in late charges.

RULE MECHANICS AND SCOPE OF APPLICATION

Under the existing regulatory framework, credit card issuers have been able to charge late fees up to a safe-harbour ceiling that adjusts annually for inflation. The new rule replaces that ceiling with an $8 safe harbour for issuers meeting the one-million-account threshold, with no annual inflation adjustment and no higher amount for repeat late payments; issuers may charge more only if they can show a higher fee is needed to cover their actual collection costs. The bureau said the lower figure is consistent with what it determined to be a reasonable cost-recovery amount for a missed payment.

The rule is set to take effect 60 days after its publication in the Federal Register. The CFPB first proposed the cap in early 2023.

The CFPB noted in its press release that the rule was grounded in the Credit Card Accountability Responsibility and Disclosure Act, which requires that late fees be reasonable and proportional to the violation. The bureau said $8 would be sufficient for larger issuers, on average, to cover their collection costs, and that issuers may charge more only if they can prove a higher fee is needed.

INDUSTRY RESPONSE

Large card issuers and banking trade associations criticised the finalised rule, arguing that the $8 cap would reduce the incentive for consumers to pay on time and would lead to higher interest rates or reduced credit availability for marginal borrowers.