Americans spend billions of dollars annually on credit card late fees, but now there is a cap of $8.

Many credit card companies are seeing their late fees reduced due to new government regulations.

The CFPB finalized a rule on March 5, 2024, that limits the penalty for late payment to $8 per incident, down from an industry average of $32. The rule is expected to take effect 60 days after its publication in the Federal Register.

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Capping credit card late fees

The new rule change eliminates a loophole created by the CARD Act, which allowed companies with over a million open accounts to adjust their fees based on inflation automatically.

According to the CFPB, over 95% of outstanding credit card balances are held by larger card issuers.

The CFPB has accused some credit card companies of making late fees a crucial component of their profit model, as they have steadily increased from an average of $23 in 2010 to $32 in 2022. The bureau has stated that it will no longer allow automatic increases and will instead monitor economic conditions before adjusting the dollar threshold.

The CFPB clarified that the rule does not affect issuers' power to increase interest rates, decrease credit lines, or take other measures to discourage late payments.

Credit cards with no late fees

The Citi Simplicity® Card has eliminated late fees and has no annual fee or penalty APR, ensuring that your interest rate won't increase if you miss a payment. Additionally, the card offers a long 0% intro APR for 21 months on balance transfers and 12 months on purchases, with a variable interest rate of 19.24% - 29.99% after the intro period. Balance transfers must be completed within the first four months.

To avoid late fees and earn rewards, consider the Discover It Cash Back card. This card waives your first late fee and offers up to 5% cashback on rotating quarterly categories and 1% back on all other purchases (activation required). Additionally, Discover matches all the cash back earned by the end of your first year as a cardholder.

This card also comes with an introductory APR offer, which can help prevent your monthly bill from becoming unmanageable. Cardholders can enjoy a 0% intro APR for 15 months from the date of account opening on purchases and balance transfers (after, 17.24% - 28.24% variable APR).

A broader push to eliminate 'junk fees'

The CFPB estimates that American households pay more than $14 billion in late fees annually, but a new regulation will save consumers over $10 billion and provide an average savings of $220 per year for the 45 million Americans who are charged late fees.

The Biden administration's ongoing war on "junk fees" includes a fee cap, which is aimed at reducing unnecessary, unavoidable or surprise charges that inflate costs while adding little to no value. This measure will not affect issuers' ability to raise interest rates, reduce credit limits, or take other steps to discourage delayed payments. In January 2024, the CFPB proposed regulations to limit overdraft fees, but it has not finalized them yet.

Bottom line

The Consumer Financial Protection Bureau has capped late fees at $8 as part of the Biden administration's effort to eliminate junk fees. However, credit card issuers may raise other fees or tighten card approvals to make up for this.

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