CFPB: Credit Card Companies Charged $12B in Late Fees in 2020

Credit card companies charged $12 billion in late fees in 2020, with poorer Americans paying far more than wealthier people.

That’s according to a report issued Tuesday (March 29) by the Consumer Financial Protection Bureau (CFPB), which also found that many major card issuers charge the maximum fees allowed by law.

“Many credit card issuers have made late fee penalties a core part of their profit model,” said CFPB Director Rohit Chopra said in a news release.

Read more: CFPB Extends ‘Junk Fees’ Deadline After Receiving 25,000 Comments

“Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost. Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.”

According to the report, low-income areas, areas with high populations of Black Americans and areas with a lower economic mobility “all bear more of the late fee burden.”

In 2019, cardholders in America’s poorest neighborhoods paid twice as much on average in total late fees than people in the wealthiest sections of the country. Cardholders in majority-Black areas paid more in late fees for their cards in 2019 than people in predominantly white areas. And people in areas with the lowest rates of economic mobility paid almost $10 more in late fees versus places with the highest levels of economic mobility.

Read more: CFPB: Credit Applications Returning To Pre-Pandemic Levels

The report also found that late fees dropped when stimulus checks arrived in 2020 and 2021, especially among people with lower credit scores.

“Other evidence has documented that stimulus checks improved household balances and liquidity,” the CFPB said. “The fact that late fee charges for credit card issuers fell during the same period suggests that late fees are a penalty on households living paycheck-to-paycheck rather than a meaningful incentive to make on-time payments.”