Consumer advocates point to savings

Consumer advocate groups, however, lauded the new rule for helping consumers save money. According to Chi Chi Wu, senior attorney at the National Consumer Law Center (NCLC), in a press release issued by the organization, “The CFPB’s credit card late fee rule will help the balance sheets of millions of households stretched thin by record-high housing costs and other expenses.”

Further, Ira Rheingold, executive director of the National Association of Consumer Advocates (NACA), was quoted in a press release by the agency as saying that, “The $8 cap on allowed late fees not only relieves American families from burdensome charges, it also brings credit card practices back in line with the statutory requirements of longstanding federal laws.”

Other deterrents to late payments

Considering that the new rule would substantially lower credit card late fees, some argue that it provides an incentive for consumers to be tardy with their card payments.

The CFPB, however, expects the rule to create an incentive for card issuers to encourage consumers to pay on time, since late fees will not be a source of income for them.

“Late fees are layered on top of many other punitive measures credit card companies impose on consumers who miss payments, including extra interest charges, loss of their grace period, negative credit reporting, reductions in their credit limit, and a higher interest rate on future purchases.”

Given the many downsides to late payments, consumers should always prioritize making their card payments on time. Even if the idea of a smaller late fee makes a late payment seem less daunting, being late on a payment could lead to other significant negative effects, such as higher interest rate payments and reduced access to credit.

The bottom line

The CFPB has finalized a rule it proposed last year and will cap credit card late fees for the largest card issuers at $8. According to the agency, these issuers are profiting from late fees that do not reflect their actual costs incurred as a result of late payments. Issuers can still charge a late fee that is higher than the $8 cap, but they will have to justify it based on their costs. The new rule also doesn’t allow issuers to automatically adjust their late fees annually, based on inflation.

Banking groups have opposed the cap, saying that it will raise the cost of credit for all consumers, while consumer advocates see it as a measure that will save consumers money. While the reduced late fee could mean there is less incentive for consumers to pay on time, late payments could cause you to pay higher interest rates and reduce your access to credit. That’s why you should always aim to make your credit card payments on time, regardless of any late fee you might pay.

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