CFPB Rule Lowers Credit Card Late Fees to $8

America’s consumer protection watchdog finalized a rule lowering credit card late fees.

In a statement issued Tuesday (March 5), Consumer Financial Protection Bureau Director Rohit Chopra said the rule change will reduce the typical late fees charged by card issuers from an average of $32 to — in most cases — $8. The change will save families an average of $220 per year.

“Today, the credit card industry hauls in more than $14 billion in late fee revenue each year, which our research shows is more than five times the companies’ associated costs,” Chopra said. “They charge these fees to consumers even when their payment is only a little bit late or when it’s out of their control. This is on top of extra interest charges, negative credit reporting, and a slew of other consequences.”

The rule applies only to card issuers with more than 1 million open accounts, the largest issuers who hold more than 95% of outstanding balances. Smaller banks and credit unions will not be affected, Chopra said.

“We did not find evidence these smaller companies are employing the fee churning business model, and in fact they generally charge much lower fees overall,” he added.

The rule change was criticized by the American Bankers Association, which said Tuesday that the CFPB would end up reducing competition and credit access and lead to higher debt.

“It comes as the CFPB continues to use misleading blog posts and irresponsible press statements to paint an inaccurate and distorted picture of today’s highly competitive credit card market, which offers consumers a wide variety of card programs and features they value — provided by banks of all sizes across the country,” Rob Nichols, the association’s CEO, said. “Just days before the State of the Union, this supposedly independent agency is clearly choosing to put politics over sound public policy.”

The announcement arrives on the heels of a report last month by the CFPB that found that the largest credit card issuers charged customers interest rates that were 8 to 10 points higher than those offered by small- to medium-sized banks and credit unions, a discrepancy that can add a yearly interest burden of $400 to $500 to the average cardholder.

Meanwhile, PYMNTS wrote Tuesday that the CFPB’s new rule change could negatively impact banks’ ability to innovate. The late fee cap follows an industry-wide shift from overdraft fees, something that the regulator also aims to reduce.

“The dwindling, capped pool of fees may give the regulators grist for the headline mill, but eventually, the move may have unintended consequences as banks look to cut costs elsewhere to offset the impact by trimming some services and product features,” the report said.