By Alice Seeley
On March 29, The U.S. Consumer Financial Protection Bureau (CFPB) released an in-depth report on credit card late fees, which found that credit card companies earned $12 billion in late fees in 2020 alone.
According to the report, the average consumer is charged $26 for late fees penalties in addition to interest when the consumer does not make the minimum payment by the due date. The report stated that credit card late fees disproportionately burden consumers in low-income and majority-black neighborhoods. These cardholders paid more in late fees in 2019 than those in majority-white areas. People living in low economic mobility areas paid close to $10 more in late fee charges per account than those living in high economic mobility areas.
Late fees are a costly mistake and add significant hardships to consumers. However, credit card companies do not care and rely on these late fees to increase their overall revenue.
“Many credit card issuers have made late fee penalties a core part of their profit model. Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost,” said CFPB Director Rohit Chopra.
Based on credit card companies’ current practices, Chopra predicted that credit card companies would increase late fees as inflation rises.
According to a 2009 law, credit card late fees must be reasonable and proportionate. The first late fee penalty is $25, and $35 for subsequent missed payments. The CFPB must adjust the late fee penalty according to inflation each year. Credit card companies make $120 billion annually from credit card fees and interest, with 10% of that revenue coming from late fees.