Federal Regulators Seek to Limit Credit Card Late Fees

The Consumer Financial Protection Bureau plans to lower the amount credit card companies can charge for late fees.

By , Attorney

Credit card companies often charge penalty fees for late payments, over-limit charges (if you opt in), and payments returned for insufficient funds. Under the federal Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act), these fees are limited to:

  • the actual amount the violation cost the company, or
  • a maximum of $30 for the first violation and $41 for a second violation if it occurred within six billing cycles of the first violation (2023 figures). (12 C.F.R. § 226.52.) (These amounts are adjusted annually.)

So, if you miss the deadline to make your credit card payment, even by only a couple of hours, the law allows your credit card company to charge you a steep late fee—currently as much as $41—an amount that's way more than what it costs the credit card company to collect your late payment.

This loophole in the law allows credit card companies to charge exorbitant late fees, a significant revenue source. The Consumer Financial Protection Bureau (CFPB) found that in 2020, credit card companies charged $12 billion in late fees alone.

To address this issue, the CFPB proposed an amendment to the regulations implementing the CARD Act, which would lower the maximum late fee amount to $8. This reduction would ensure that the late fee is reasonable and proportional to the costs credit card companies incur to handle overdue payments.

The proposed amendment would also prohibit late fee amounts over 25% of your required payment and eliminate the automatic annual inflation adjustment for the fee amount. The CFPB did not propose amending the amounts as they apply to other types of penalty fees, including returned-payment fees and fees for over-the-limit transactions.

Effective date: February 1, 2023