With US credit card debt reaching over $1 trillion in 2017, fees and charges are a key concern for consumers. And, estimates suggest that with excessive late fees costing credit card holders up to $12 billion a year, it’s more important than ever that consumers are protected.
Because of this, the Consumer Financial Protection Bureau (CFPB) has announced that it is considering new rules that would close a loophole that allows excessive late fees.
According to the CFPB, credit card companies “have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee” and the proposal could “save families billions of dollars and ensure the credit card market is fair and competitive.”
The agency estimated that by removing these loopholes in the regulations and making excessive late fees illegal, consumers could save up to $9 billion a year.
Currently, when credit card customers miss their payment due date – even by a few hours – they are often hit by a late fee. The CFPB argues that these fees are usually disproportionate to the company’s costs for collecting late payments. Additionally, there are already consequences for paying late, like over-credit limit fees, lost grace periods on interest, and lower credit scores.
There are some companies charging as much as $40 for missed payments, which generates billions of dollars in revenue for credit card companies and has huge impacts on borrowers.
LendingTree Chief Credit Analyst Matt Schulz said: “Right now, the max late fee is $29 for a first offence and $40 for any others within the next six months. Even if you can’t pay in full, you have to make sure that you pay at least the minimum required by your issuer each month. Otherwise, it can do real damage to your credit. You can avoid that by using tools like autopay.”