By John Zasada, JD, CAMS – Shareholder, Financial Institutions Group

In March 2022, the Consumer Financial Protection Bureau (CFPB) issued a 17-page report on the consumer impact from credit card late fees and financial institutions’ reliance on them. In 2019, the average late payment charge by major credit card issuers was $26. For each subsequent late fee within six billing cycles of an earlier late payment, the average fee rose to over $34. According to the CFPB, credit card late fees disproportionately burden consumers in low-income and majority-Black neighborhoods and are negatively correlated with indicators of upward economic mobility.

Late fees account for 99% of penalty fees and over half of the credit card market’s total consumer fees. They represent a larger share of charges for issuers primarily serving consumers with lower credit scores than for issuers that extend little to no credit to such consumers. Most smaller banks and credit unions charge a maximum late fee of $25 or less. In contrast, the largest credit card issuers charge at or near the higher fee amounts permitted by Regulation Z. The CFPB indicated a small but increasing percentage of companies charge no late fees or offer products with increased flexibility for late payments. In general, the CFPB believes the overall credit card market continues to rely on late fees disproportionately paid by economically vulnerable consumers.

Want to learn how to remain compliant regarding your institution’s late fees? Contact Doeren Mayhew’s regulatory compliance specialists.