I was on vacation when I forgot to pay one of my credit cards. When I returned home a few days later I got a notice that my payment was late, and that my account was assessed a late fee. 

I was annoyed at myself—and by the fee—but at least I could take comfort in knowing I’m not alone. The Consumer Financial Protection Bureau (CFPB) reports that American consumers are charged some $14 billion a year in late fees. 

That may change. 

The Consumer Financial Protection Bureau has announced an $8 cap on the late fees that most credit card holders pay, though legal challenges have so far stopped it from going into effect. 

What Is the Biden Administration’s Plan for Capping Credit Card Late Fees?

The Consumer Financial Protection Bureau (CFPB) announced a rule that would drop typical late fees on credit cards to $8 in most cases, down from an average of $32.

In remarks by President Joe Biden and the Competition Council, Biden said: 

“Today, we’re also announcing that the Consumer Financial Protection Bureau is finalizing a rule that will help stop some credit card companies from ripping you off with late fees.  Under the law, banks are not supposed to charge late fees that are higher than the cost the banks have to engage to collect the late payment.

But we estimate banks were generating five times more in late fees than it costs to collect late payments.  They’re padding their profit margins and charging hardworking Americans more than — a cumulative effort — a number — $14 billion in 2022.”

This is part of the Biden administration’s efforts to tackle what he refers to as “junk fees” more broadly. In October 2023, the White House announced an effort to provide more transparent cost information up front. In addition to the CFPB, agencies proposing new rules include the Federal Trade Commission (FTC), the Federal Communications Commission (FCC), the Department of Housing and Urban Development (HUD), and the Department of Transportation (DOT).

How Will the New Rule on Credit-Card Late Fees Impact Consumers?

In announcing this rule, CFPB Director Rohit Chopra stated, “We estimate this change will save families $10 billion every year, an average savings of $220 per year for the more than 45 million people who are charged late fees.”

It will only apply to large card issuers; in this case, big banks that have at least 1 million open accounts. 

A little background may be in order here. For many years, late fees were completely unregulated. Costs crept up, and so did some sneaky practices like “floating due dates” that could change each month, making it more likely consumers may miss a payment.

Then in 2009, then President Obama signed the Credit Card Act, which curbed a number of credit card tactics popular at the time, including double-cycle billing and interest rate hikes at any time and for any reason. It also limited certain credit card fees, including late fees and overdraft fees, to those that are “reasonable and proportional”. 

Notably, the Credit Card Act law does not apply to business credit cards, though most major issuers have adopted some or most of its protections for those types of cards as well. 

Does the New Credit Card Late Fee Cap Affect Businesses?

Business credit cards can be a popular way to fund a small business or improve cash flow. Many business owners love their credit card rewards. And business credit cards can also help build business credit. So it’s understandable that those cardholders may wonder if they will also see lower fees.

The new rule would apply to an “open-end (not home-secured) consumer credit plan” as defined in the federal Truth in Lending Act. That law states: “Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes.” 

If you get a small business credit card issued for business purposes, the cap would not apply.

Will a 2 Day Late Payment Affect Credit Scores?

If you pay your consumer credit card two days late, you will likely be charged a late fee. You may also pay interest because a late payment typically erases the benefits of a grace period until you pay in full again. 

But it probably won’t be reported as a late payment to the major credit bureaus. Most credit card issuers and other lenders don’t report late payments on credit reports until an account is past due by one billing cycle. 

However, business credit reports can be more detailed when it comes to payment history. With business credit, payments may be reported as “days beyond terms.” Pay 2 days past the due date and the account may be reported as 2DBT. 

It’s especially important to pay credit cards and other tradelines that report to business credit on time (even early) when you’re trying to establish business credit, or maintain strong business credit scores. 

How To Get Late Fees Removed

If you get charged a late fee, you may be able to get it removed by simply asking. That’s what I did after missing my payment. Since it was my first infraction they removed the fee. I was, however, charged interest which I normally try to avoid by paying in full. I wasn’t able to get that removed.  

Why Are Credit-Card Companies Opposed to the CFPB’s Rule Capping Late Fees?

In addition to credit card issuers, a number of groups, including the U.S. Chamber of Commerce, American Bankers Association, and the Consumer Bankers Association oppose the fee rule and have sued  to block its implementation. They maintain it is unlawful and have said it will raise costs for all credit card holders, including those who pay on time. In a statement, they said:

“Once again, the Consumer Financial Protection Bureau has exceeded its authority. The agency’s final credit card late fee rule punishes Americans who pay their credit card bills on time by forcing them to pay for those who don’t. This will result in fewer card offerings and limit access to affordable credit for many consumers. The Chamber will be filing a lawsuit against the agency imminently to prevent this misguided and harmful rule from going into effect.”

Florida Senator Rick Scott is among Republican members of Congress who oppose the rule, and has said he will use the Congressional Review Process to fight it. 

Federal Court Blocks Rule That Would Cap Credit Card Late Fees

On May 10, 2024, the Texas federal district court granted their preliminary injunction motion, which stops it from taking effect for now. The case has been moved to the D.C. Circuit Court in Washington, where litigation will continue. 

What Happens Next

The Consumer Financial Protection Bureau will continue to defend the rule in court, and the groups opposing it will continue to fight it in court. That will take time, and there’s no guarantee of the outcome. 

In the meantime, an increasing number of consumers are struggling with credit card debt. Bloomberg reports that the “share of credit card debt that’s more than 90 days overdue rose to 10.7% during the first quarter, a 14-year high, according to the Federal Reserve Bank of New York’s report on first-quarter household debt.”

Consumers and small business owners who are having a tough time keeping up with credit card payments are likely paying high interest rates along with late fees, and the combination of the two can make it very difficult to get out of debt. 

If you are having trouble making your credit card payments on time, consider reaching out to a reputable credit counseling agency for assistance. The CFPB offers borrowers helpful advice for finding a credit counselor on its website. 

Read: What to Do If You Can’t Pay Your Credit Cards

If you’re having trouble paying your small business loans, you may need to take a somewhat different approach, as business debt isn’t covered by the same protections as consumer debt. A guide from Nav explains options if you can’t pay your small business debt.