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Paying off your credit card statement on time and in full is an easy way to avoid fees, interest, and a host of other problems. Among those negative impacts are late fees — the penalty card issuers can levy if they don't receive your minimum monthly payment on time.
In a ruling handed down by the Consumer Financial Protection Bureau (CFPB), there will be some changes to how credit card late fees work. Here's what you need to know.
The CFPB Is Changing to How Credit Card Late Fees Work
In a ruling handed down on March 5, 2024, the CFPB closed a “loophole” in a well-familiar piece of legislation: the Credit Card Accountability Responsibility and Disclosure Act of 2009 (A.K.A. the CARD Act).
For the unfamiliar, the CARD Act polices what credit card issuers can and can't do. The goal of the legislation was to place limits on fees and interest charges and add a layer of transparency to otherwise confusing terms and conditions. Rarely does a piece of legislation wholly accomplish its goals — or fail to create unintended consequences — which is why the CFPB changed how credit card late fees work.
Since the law's inception, major card issuers have steadily increased late fees to track inflation. This was permissible under the CARD Act but won't be under the new ruling.
Now, large credit card issuers with 1 million or more active accounts are barred from charging a typical first late fee of $32 and instead can charge a maximum of $8. According to the CFPB, the $8 fee is sufficient for card issuers to cover collection costs associated with late payments. Plus, the automatic inflation adjustment will go away.
However, if card issuers can “show their math” and prove that collection costs are above the set thresholds, the press release contains language permitting higher charges.
What this means for you
Paying your statement on time and in full is the easiest way to avoid late fees, and it's also the key to building healthy credit.
You'll also avoid added expenses like fees and interest charges, which can add up quickly. Plus, quality management of your credit cards can help you grow your credit score. Late and missed payments can negatively impact your credit score, which makes future credit harder to obtain and less friendly when it comes to the terms and conditions.
Thus, if you manage your credit cards efficiently, this CFPB ruling shouldn't have any impact on you. It's a great reminder to keep your credit cards active, develop quality strategies to pay your statements off on time, and read the fine print in your credit card disclosures. That way, if something doesn't go as planned, you know what to expect.
Related: Buy Now, Pay Later Programs – And Why You Should Skip Them
Final Thoughts
The Consumer Financial Protection Bureau issued a ruling on credit card late fees. Now, major issuers have a defined cap on what they can charge for a late fee: $8. However, if you practice healthy credit card habits, this ruling won't change anything for you. If anything, it's a great reminder to keep practicing those healthy habits and avoid late fees altogether.
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