The CFPB was created by the Dodd-Frank Act back in 2010 and acts as a watchguard and regulator for the country’s financial industry.
Consumers are able to file complaints to the CFPB against financial institutions, similar to DOT complaints against airlines.
As with the DOT, I’ve had some big wins thanks to CFPB complaints, including a complaint against a bank for taking too long to transfer funds from a CD that I closed. I had paid an early withdrawal penalty as the CD was well underwater due to rapidly rising interest rates. I asked the CFPB to waive that penalty and grant additional interest due to the delay, and the bank agreed to both requests!
The agency is now capping late fees on credit cards. Previously those could range from $32-$41, but will now generally be capped at $8 for cards from large banks. That fee won’t automatically increase based on inflation as it has in the past, though the CFPB may increase it as warranted. Banks can apply to charge higher late fees, if they can prove that they’re necessary to cover collection costs.
In response, the Independent Community Bankers of America put out the following statement in response to the new rule,
“While ICBA and the nation’s community banks are encouraged that the CFPB’s final rule on credit card fees for late payments exempts community banks due to their relationship-based business model, we remain concerned about the unintended consequences of the rule.
The CFPB’s rule sends the wrong message that punctual credit card payments are not a significant priority, which could result in consumers making more late payments and incurring additional interest charges that would harm them in the long term. Credit card late fees — which are clearly disclosed — deter late payments and help offset the significant costs of collection for issuers. Generally, late fees are used by businesses — and by federal and state governments — to encourage timely payment.
Further, while we generally oppose regulatory efforts to regulate the free market and set prices that interfere with competition and consumer choice, relationship-based community banks offer credit cards as a service to their customers under contracts voluntarily entered into by these consumers and are rightly not targeted by today’s rulemaking.
ICBA and the nation’s community bankers look forward to fully reviewing today’s rulemaking and working with the CFPB to minimize the negative impact of its policies on consumers’ access to credit in local communities.”
As I’ve said many times, you shouldn’t use a credit card unless you treat spending like cash and can repay your bills in full monthly. The only exception to that is if you have a 0% intro APR offer and you invest the funds into a savings account or CD that will earn hefty interest during that intro period without any risks.
It’s nice to see late fees lowered, though interest can be much higher than late fees. The ICBA is obviously against this, though I don’t think more people will pay late because of lower fees as they suggest. But I’m also not sure there should be more regulations for the sake of regulations.
In general, banks will waive late fees and interest fees if you forget to make a payment one time and ask for a waiver, but that’s why it’s always good to have your cards set to auto-pay. To help boost your credit score, you should always pay off your bill, aside from a buck or 2, before the statement period closes.
What do you think of this new fee cap?
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10 Comments On "CFPB Caps Credit Card Late Fees At $8 (But If You Can’t Pay Your Bills On Time, Don’t Get A Card In The First Place!)"
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Will they cap fees on unpaid taxes also?
Not unless you’re in an oppressed minority group that has been historically and systemically disenfranchised.
Horrible decision. Of course the ICBA is cautiously optimistic; it is not their ox being gored. Small banks are no more and no less virtuous than big ones. All regulation just distorts the market in favor of those who are able to influence their promulgation (not that all regulation is bad, we should merely be open-minded about the trade off). Follow-up regs often follow to correct for earlier mistakes in a never ending cycle.
As noted, this may encourage risk.
This may slightly hurt the CC points game. Though to be fair, a fairly persuasive body of evidence exists suggesting that poorer cash payers are subsidizing us wealthier CC users. Presumably the effect will lessen over time as digital payment’s expand.
PSA: for the idea of using a 0% APR card for short term investing, people need to make sure they understand opportunity cost, cash advance rules, cash flow and minimum payment policies before attempting such a scheme.
Keep up the great work Dan!
“To help boost your credit score, you should always pay off your bill, aside from a buck or 2, before the statement period closes.” – can you please explain the part about a buck or 2? when do you pay that last buck or 2? Thanks
Let it autopay on the due date.
It is a good idea, but some banks charge the original statement balance versus the current remaining statement balance, even though you had some items returned and were refunded.
I think you may have misunderstood the original advice given. The advice was to pay off 99% of the amount owed BEFORE THE STATEMENT IS GENERATED so that the original statement balance will be $2 or so, every single month.
Interesting. I took no issue with the late fee (there’s a real problem and credit issue if a customer can’t even make their minimum payment). Wonder if banks will have to increase fees/rates somewhere else to make up for the loss here.
Nothing is free in life – other costs will go up / benefits decrease.
Just another example of the cost of deadbeats being pushed to others.
We will all pay for it in another way. The bank is in business to make money