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Do credit card late fees actually protect consumers?

The Consumer Financial Protection Bureau is considering a new rule that would slash credit card late fees by 75%, from current highs of up to $41 to as low as $8

By JAIME HANSON of NerdWallet
Published - Jun 28, 2023, 07:03 AM ET
Last Updated - Jun 28, 2023, 07:03 AM EDT

In a time when inflation is driving up the cost of nearly everything you buy, something else has increased, too: credit card late fees. Thanks to a clause in the 2009 Credit Card Act, credit card issuers can raise late fees, and over time those fees have risen to current maximums of up to $41.

The Consumer Financial Protection Bureau recently proposed a rule that would slash credit card late fee maximums by 75%, to $8 per late payment. While lower fees may seem like a good thing for the consumer, some argue that paying less could do more harm than good. According to the American Banking Association, such a reduction “will result in more late payments, higher debt and lower credit scores.”

Habitual late payments can indeed damage your credit score, which impacts access to credit and how much you’ll pay in interest. And as payment due dates pile up, late payments can lead to an escalation of debt. That escalation is especially concerning when, according to a first-quarter 2023 study by TransUnion, credit card debt is at near-record levels, rising nearly 20% year over year.

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