“How the CFPB’s New Rule on Credit Card Late Fees Will Save You Money”

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Understanding the New Credit Card Late Fee Rules

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding your credit card management. For any mortgage service needs, call us at 213-732-3074.

Why Are Credit Card Late Fees Changing?

The Credit CARD Act of 2009 introduced broad consumer protections, including a cap on late fees. However, a loophole allowed credit card companies to charge fees up to $25 for the first late payment and $35 for subsequent ones. These thresholds, adjusted for inflation, led to an average late fee of $32 by 2022. The Consumer Financial Protection Bureau (CFPB) has now capped these fees at $8, potentially saving Americans billions annually.

How Does the Credit Card Late Fee Cap Work?

The new rule applies to credit card issuers with over 1 million open accounts, covering 95% of outstanding credit card balances in the U.S. Key changes include:

• Maximum late fee cut to $8: The cap is now $8, sufficient for larger issuers to cover collection costs.
• No inflation adjustment: The CFPB removed the inflation adjustment, stating that issuers were increasing fees without proof of increased costs. Future adjustments will be based on market conditions.

The rule will be effective 60 days after its publication in the Federal Register.

Exceptions to the New Rule

While the new cap applies to most users, there are exceptions:

• Smaller card issuers: Issuers with fewer than 1 million open accounts are exempt. However, these issuers typically charge lower fees and interest rates.
• Larger issuers with proof: Larger issuers can charge more than $8 if they can prove higher collection costs.

How Will the New Credit Card Rule Affect Customers?

The CFPB estimates that 45 million consumers are charged late fees annually. With the new rule, consumers could save an average of $220 per year, totaling over $10 billion in savings annually. However, this rule does not affect other penalties like penalty APRs, revoking grace periods, or reducing credit limits.

5 Ways to Avoid Credit Card Late Fees

Even with reduced late fees, it’s essential to pay your credit card bill on time to avoid other penalties. Here are some tips:

• Set up automatic payments: Autopay can help you avoid missed payments. Ensure you have enough funds in your account to cover the payment.
• Request alerts: Set up email or text alerts to remind you when your payment is due.
• Change your payment due date: Align your due date with your payday or consolidate multiple due dates for convenience.
• Opt for a card with no late fee: Some cards do not charge late fees. It may be worth finding one that suits your needs.
• Contact your card issuer: If you’re struggling financially, reach out to your issuer for potential hardship programs.

The Bottom Line

The CFPB’s new rule can save credit card users significant amounts each year, reducing the financial burden of late payments. However, missing a payment can still harm your credit score. Aim to pay your credit cards on time, preferably in full, to avoid interest charges. For any mortgage service needs, call O1ne Mortgage at 213-732-3074.

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