Credit Card Late Fee in the US – New $8 Cap and Strategies to Avoid Fees

US credit card users now benefit from a reduced maximum late fee of $8, down from the previous average of $32, following a regulatory change by the CFPB. This marks a substantial shift in late payment charges imposed by credit card companies.

Credit Card Late Fee in the US

The Consumer Financial Protection Bureau (CFPB) has recently taken decisive measures to tackle excessive credit card late fees in the United States. 

The finalised rule by the CFPB aims to cut these fees significantly, reducing the typical charge from $32 to $8. 

The government is actively supporting this initiative, working towards implementing a cap on credit card late fees at $8, thereby bringing down the average late fee. 

New Rules for Credit Card Late Fee in the US

Credit card late fees were capped at $30 for the first late payment, with higher fees for subsequent delays. The CFPB found these charges excessive and burdensome for consumers, given the additional repercussions of missing payments.

  • Interest Rate Increase: Late payments could trigger a penalty APR, a significantly higher interest rate applied to your entire remaining balance, further inflating your debt.
  • Loss of Grace Period: Many credit cards offer a grace period where interest doesn’t accrue on new purchases until your statement balance is due. Missing a payment could forfeit this grace period, causing interest to start accruing immediately.
  • Credit Score Damage: Late payments are reported to credit bureaus and can negatively impact your credit score, hindering your ability to secure loans and other forms of credit in the future.
  • The CFPB estimates that this new rule will save American families over $10 billion annually in late fees, with an average individual saving around $220 per year.

Who is affected by the Credit Card Late Fee Change?

The new $8 cap on credit card late fees isn’t directly related to individual eligibility, but rather applies to specific types of credit card issuers.

Who the Cap Applies To:

  • Large credit card issuers: This encompasses institutions with more than 1 million open accounts. 
  • These companies account for over 95% of the total outstanding credit card balances in the US, according to the CFPB.

Who the Cap Might Not Apply To:

  • Smaller credit card issuers: This includes institutions like community banks and credit unions, which often have lower late fees already in place and may not be subject to this specific cap.

Common reasons to pay credit card Late fees in the US

Here are some common reasons why people might incur late fees:

Overspending and Insufficient Funds: 

  • This is a common scenario where individuals spend more than they can afford to repay by the due date, leading to insufficient funds available for the minimum payment.

Forgetting or Missing Due Dates: 

People can simply forget or miss due dates due to various reasons like:

  • Not setting reminders: Failing to set up calendar alerts, email notifications, or relying solely on paper statements can lead to missed deadlines.
  • Unfamiliarity with billing cycles: Confusion between billing dates and due dates, especially for new cardholders, can result in late payments.

Procrastination and Waiting Until the Last Minute: 

  • Putting off payments until the last day can lead to delays in processing, especially if using methods like mail or bank transfers, resulting in missed deadlines.

System Errors or Payment Outages: 

  • While uncommon, technical issues with online payment systems or bank errors can sometimes lead to failed payments, even if initiated on time.

Lack of Awareness of Automatic Payments: 

  • Individuals who rely solely on automatic payments might miss situations where insufficient funds are available in the linked account, causing payment failure and late fees.

How can you avoid paying credit card late fees in the US?

Here are several ways you can avoid paying credit card late fees:

Set up automatic payments: 

  • This is the most effective way to ensure you never miss a payment. 
  • Most credit card issuers and banks allow you to schedule automatic payments for either the minimum amount due or your full statement balance. 

Set reminders: 

  • If you don’t want to set up automatic payments, you can set reminders for yourself. 
  • You can use your phone’s calendar app, a to-do list app, or even a physical calendar to set reminders for your credit card due dates. 

Track your spending and budget accordingly: 

  • Keeping track of your spending throughout the month can help you avoid racking up a large balance that you can’t afford to pay off by the due date. 
  • Budgeting can also be helpful in ensuring you have enough money set aside to cover your credit card payment each month.

Pay more than the minimum amount due: 

  • While paying the minimum amount due will prevent a late fee, it won’t pay off your balance quickly and will lead to you paying more in interest charges in the long run. 

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