CFPB finalizes rule reducing credit card late fees to $8 for larger issuers

This morning, the CFPB announced it has finalized a rule to cut excessive credit card late fees. The rule will curb fees that cost American families more than $14 billion a year. The CFPB estimates that American families will save more than $10 billion in late fees annually once the final rule goes into effect by reducing the typical fee from $32 to $8 for card issuers that together with their affiliates have one million or more open credit card accounts.

The final rule reduces the current maximum late fees from $30 for the first late payment and $41 for subsequent late payments to $8 and ends automatic inflation adjustments for that amount for issuers that have one million or more open accounts. Specifically, the final rule:

• Lowers the immunity provision dollar amount for late fees to $8
• Ends the automatic annual inflation adjustment. The CFPB will instead monitor market conditions and adjust the $8 late fee immunity threshold as necessary.
• Requires credit card issuers to show their math. Larger card issuers will be able to charge fees above the threshold so long as they can prove the higher fee is necessary to cover their actual collection costs.

The rule does not change the credit card issuer’s ability to raise interest rates, reduce credit lines, and take other actions to deter consumers from paying late.

The final rule does not adopt these revisions for “Smaller Card Issuers” (i.e., card issuers that together with their affiliates had fewer than one million open credit card accounts for the entire preceding calendar year). For Smaller Card Issuers, the final rule revises the safe harbor threshold amounts for late fees to $32 for the initial violation and $43 for each subsequent violation that occurs in one of the next six billing cycles.

The effective date of the final rule will be 60 days after publication of the rule in the Federal Register.

• Statement of CFPB Director Rohit Chopra
• Executive summary
• Key changes chart
• Unofficial redline of the final rule
• UPDATE:Updated 3/5/2024 to clarify that the reduced fee cap applies only to larger card issuers
• PUBLICATION AND EFFECTIVE DATE UPDATE: Published at 89 FR 19128 on 3/15/2024, with an effective date of 5/14/2024. However, the U.S. Chamber of Commerce has filed a suit in the Northern District of Texas seeing a preliminary injunction to stop the CFPB from implementing the rule.