Missing a credit card payment just got a little less expensive for those struggling to pay off debt, as the Consumer Financial Protection Bureau Tuesday issued a ruling (PDF) that reduces typical late fees by 75%, from $32 to $8.
The CFPB repealed what’s known as the current “safe harbor threshold amounts” in the Truth in Lending Act. This allowed card issuers to charge up to $30 for the first late fee and $41 for each subsequent violation. Issuers were also allowed to raise the fees based on inflation.
The new ruling sets the threshold at $8, and eliminates the option for issuers to charge more for subsequent late fees. Plus, issuers can’t raise the fee based on inflation.
Here’s what you need to know about the changes, plus what to keep in mind when it comes to credit card late fees.
Read more: 6 Important Dates to Know for Your Credit Cards
What to know about the ban on excessive credit card late fees
The CFPB voted to amend provisions in Regulation Z, which implemented TILA, with what it’s calling a “final rule” on credit card late fees. This comes after the CFPB reviewed the practices of large card issuers -- those with one million or more open credit card accounts -- determining those issuers were not following TILA’s requirement that penalty fees “be reasonable and proportional.”
The new rule does not apply to smaller card issuers, which the CFPB recently found charged lower interest rates and fees overall.
The CFPB found that the safe harbor limits were well above what large card issuers needed to charge and that subsequent fees for additional violations were high enough to make it hard for consumers to make future payments on their accounts.
How the ban can help those with credit card debt
The best way to avoid credit card late fees altogether is to pay your credit card bill on time every month -- and preferably in full to avoid accruing interest charges. But sometimes life happens, and so do late payments.
This ruling helps consumers who may already be struggling to pay credit card bills because it doesn’t burden them with additional expenses, notes credit card expert and CNET Money Expert Review Board member Aaron Hurd.
“Saving $24 on a missed payment fee may not sound like much, but if you frequently miss payments, this change could save you several hundred dollars a year between interest and fees,” he said.
It’s important to remember that you should still avoid making late payments whenever possible. Payment history is the largest component of your credit score, so late payments could cause your score to plummet.
In addition to the late payment fees, missing a credit card payment could also cause you to lose your grace period so new purchases on your credit card begin to accrue interest immediately. If you’re taking advantage of a 0% intro APR offer, you could also get hit with a penalty annual percentage rate.
How to avoid credit card late fees
You can avoid credit card late fees by making on-time payments every month. Even if you can’t pay the full balance, it’s important to make at least the minimum payment every month. Here are a few tips to help if you have trouble keeping track of payments and due dates:
- Set up alerts and automatic payments for at least the minimum amount on your credit card’s website or app.
- Reach out to your card issuer to change the due date for your credit card payment to a date that makes it easier for you to remember when your bill is due.
- Make payments online or over the phone to avoid incurring late fees due to delays in mail delivery.
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