How to Avoid Credit Card Late Fees after Court Rules Against Proposed Cap
By Cora Lewis, Associated Press
April 28, 2025
Background on the Recent Ruling
A Texas judge recently annulled a long-anticipated federal rule that sought to limit credit card late fees to $8. This regulation was finalized by the Consumer Financial Protection Bureau (CFPB) in a bid to curb excessive fees deemed "junk fees" as part of the Biden administration’s financial reforms. Initially projected to save American families over $10 billion annually in late fees, the rule, unfortunately, never came into effect, as it was suspended by the courts beforehand.
Banks and industry representatives argued that such a cap would restrict their ability to impose sufficient charges that could deter late payments and prevent recurring violations. The judge’s decision, delivered earlier this month, arrived just a day after a coalition, comprising major industry groups and the CFPB established during the Trump administration, consented to discard the rule.
Current Landscape of Credit Card Late Fees
The average late fee charged by major credit card issuers has gradually risen from $23 in 2010 to an average of $32 as of 2022. As of this year, WalletHub estimated the average late fee to be $30.50, with some fees reaching up to $41. According to a Consumer Reports study conducted in September 2023, approximately 1 in 5 American adults, equating to about 52 million individuals, incurred late fees within the past year. This burden disproportionately affects lower-income individuals and specific communities, thus exacerbating existing financial disparities.
Strategies to Avoid Late Fees
As consumers navigate the landscape of late fees following this court ruling, several strategies can be employed to protect against incurring these costs:
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Enroll in Auto-Pay: One efficient way to sidestep late fees is by enrolling in automated payment plans for credit card accounts. This approach helps ensure payments are made on time, thus mitigating the risk of penalties.
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Opt for No Late Fee Cards: Some credit cards like the Citi Simplicity Card and the Apple Card do not impose late fees. However, it’s crucial for consumers to be aware of the alternative fee structures or higher interest rates associated with these offerings.
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Appeal Late Fees: If late fees are charged, consumers can contact their credit card issuer directly to request a reversal, particularly if it is their first instance of late payment. Many companies will accommodate such requests.
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Make Payments Throughout the Month: To reduce the outstanding balance ahead of due dates, consumers can consider making multiple payments during the month. A lower balance relative to the credit limit can also positively impact the consumer’s credit score.
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Inquire about Hardship Programs: For those facing financial difficulties, contacting credit card issuers to inquire about hardship programs is advisable. These programs often assist individuals affected by loss of employment, medical issues, natural disasters, and other extraordinary circumstances.
CFPB’s Capped Fee Rule Explained
The CFPB’s earlier attempt to cap late fees arose from the Congressional intent expressed in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). This legislation sought to protect consumers from exorbitant fees and established clearer disclosure standards. A provision within the rule allowed card issuers to impose $25 for the first late payment and $35 thereafter, an allowance which has since escalated to $30 and $41 due to inflation adjustments.
Following in-depth analyses, the CFPB concluded that an $8 cap would enable issuers to recover their collection costs effectively, although banking industry groups claimed that the elimination of the cap would lead to higher interest rates and lesser credit accessibility for consumers.
Responses to the Ruling from Industry and Consumer Advocates
The court’s decision elicited mixed reactions. Industry groups, including the Consumer Bankers Association and the American Bankers Association, praised the ruling, arguing it prevents unintended consequences that could make credit harder to obtain. They stressed the importance of maintaining financial incentives for personal financial management.
Conversely, consumer advocacy groups expressed disappointment and concern. Horacio Méndez, president and CEO of the Woodstock Institute, decried the decision, labeling it a severe setback for everyday consumers and asserting that the earlier proposed cap was a necessary measure to alleviate the burden of excessive fees, particularly on vulnerable populations.
Conclusion
With the recent judicial ruling against capping credit card late fees, consumers must remain proactive in managing their financial commitments effectively. By leveraging various strategies, such as setting up auto-pay, appealing fees, choosing no-late-fee cards, and engaging with financial institutions about assistance programs, individuals can better navigate the challenges posed by late fees and maintain healthier personal finances.
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