Democratic lawmakers introduced legislation to codify an $8 limit on credit card late fees on Jan. 15. The move comes less than a year after a federal court vacated the Consumer Financial Protection Bureau’s (CFPB) discretionary final rule designed to do the same thing.
The Credit Card Fairness Act (CCFA) would provide a statutory basis for the late-fee cap, which was lacking when the bureau finalized its rule in March 2024.
Sens. Cory Booker (D-N.J.), John Fetterman (D-Pa.), and Tammy Baldwin (D-Wis.) introduced legislation that would put an $8 cap on credit card late fees into statute.
“American consumers shouldn’t be hit with predatory late fees that are three to five times higher than the actual cost of collection,” Booker said in a press release. “This legislation keeps money in the pockets of working families by putting a clear cap on credit card late fees and cracking down on banks that make billions of dollars of profit each year on the backs of their customers.”
Citing data reported by the CFPB in 2022, the release stated that “consumers currently pay $14 billion per year in credit card late fees, which pads the profits of the biggest banks.”
“As costs continue to skyrocket under this administration – from groceries, to housing, to health care – Wisconsin families are already stretched thin,” Baldwin said. “The last thing they need is big banks and credit card companies gouging them with credit card late fees that make it harder to stay afloat, let alone get ahead. Our bill will crack down on big banks, cap late fees at $8, and give families a little breathing room.”
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) established “safe harbor” amounts deemed reasonable for credit card issuers to charge in terms of late fees. These fees are permitted to be up to $30 for a first late payment and $41 for a subsequent late payment within six billing cycles. These amounts are adjusted annually for inflation pursuant to Regulation Z under the Truth in Lending Act.
Several trade organizations representing large banks and other card providers argued, among other things, that the bureau had exceeded its statutory authority when issuing the rule.
A resolution seeking to overturn the credit card late fee rule was introduced in April 2024 with support from the financial services industry but pushback from consumer advocates, which have expressed support for the fee-cap. These organizations include Americans for Financial Reform, the Brookings Institute, the Consumer Federation of America, Groundwork Collaborative, the National Consumer Law Center (on behalf of its low-income clients), Public Citizen and Protect Borrowers.
“Penalty fees shouldn’t be profit centers,” said Adam Rust, director of financial services for the Consumer Federation of America. “Families shouldn’t have to choose between paying an exorbitant late fee or meeting their basic needs. The Credit Card Fairness Act sets a reasonable cap on credit card late fees, restoring a standard of fairness and affordability to the cost of consumer credit.”
“Credit cards should be basing profit on the economics of the business, not on the backs of people who are paying late fees,” said Aaron Klein, senior fellow at the Brookings Institution. “Credit cards that use late fees, paid by people already paying interest, to subsidize rewards for wealthy people who never carry a balance and get a month of interest free float is a regressive reverse Robin Hood that should be stopped.”
Financial industry groups have asserted that a cap on credit card late fees would be detrimental to consumers and financial institutions because it would hamper card issuers’ ability to cover costs associated with delinquent accounts. As a result, these issuers might seek to offset the lost revenue by raising interest rates, imposing other fees, tightening credit standards or reducing rewards, which could harm consumers overall and reduce access to credit.
When the bureau issued its late-fee rule, Consumer Bankers Association (CBA) President and CEO Lindsey Johnson accused the CFPB of presenting “misrepresented facts” to justify its rulemaking activities.
“In the run-up to its credit card late fee rulemaking, the bureau released a steady cadence of ‘data reports’ describing a card market defined by a lack of competition and perceived consumer exploitation,” Johnson said. “But CBA has shown in a series of responses that each of the bureau’s recent card data reports is refuted by the bureau’s own data. More than 4,000 credit card issuers compete fiercely to be top-of-wallet for American consumers. This is one of the most competitive marketplaces you can find.”
The ruling vacating the late-fee cap came only a week after the House and Senate voted to repeal the CFPB’s controversial rule to cap overdraft fees at $5 per overdraft, citing many similar arguments about the bureau’s statutory authority and potential harm to institutions and consumers.