White House’s Attempt to Lower Credit Card Late Fees to $8 Was Just Blocked

The CFPB decision to limit late fees was set to go into effect today. Here's what the halt means for your money.

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It looks like credit card companies are the ones getting a reprieve instead of their customers when it comes to late fees -- at least temporarily.

On Friday, US District Judge Mark T. Pittman put a pause on the Consumer Financial Protection Bureau’s rule to slash most credit card late fees from $32 to $8. He granted a preliminary injunction filed by a group of business and banking organizations against the CFPB over the policy that was set to go into effect today. 

The US Chamber of Commerce joined the groups in the lawsuit that argued the rule was unconstitutional and that the fees are essential for deterring customers from making late payments. The preliminary injunction means the policy cannot go into effect until after the case gets a final ruling.

The CFPB’s policy, which was announced in March, also aimed to stop issuers from charging more for subsequent late fees or raising the fee based on inflation.

American families would save more than $10 billion in late fees annually as a result of the policy, the CFPB estimated. The policy was part of the Biden administration’s efforts to slash what it called “junk fees.”

Here’s what you need to know, plus how to avoid credit card late fees.

Read more: 6 Important Dates to Know for Your Credit Cards

What was the ban on excessive credit card late fees?

In March, the CFPB repealed a provision that allowed card issuers to charge up to $30 for the first late fee and $41 for each subsequent violation.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 CFPB voted to implement what it called a “final rule” on what’s known as the “safe harbor threshold amounts” in the Truth in Lending Act. It came 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 wouldn’t have applied 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. 

But the lawsuit contended the CFPB’s new policy would end up limiting access to affordable consumer credit and punish responsible credit card holders by charging them higher interest rates.

“This ruling is a major win for responsible consumers who pay their credit card bills on time,” US Chamber of Commerce Litigation Center counsel Maria Monaghan said in a statement after the Northern District of Texas granted the Chamber’s motion for a preliminary injunction.

How to avoid credit card late fees

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. Payment history is the largest component of your credit score, so late payments could also 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.

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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Tiffany Wendeln Connors is a senior editor for CNET Money with a focus on credit cards. Previously, she covered personal finance topics as a writer and editor at The Penny Hoarder. She is passionate about helping people make the best money decisions for themselves and their families. She graduated from Bowling Green State University with a bachelor's degree in journalism and has been a writer and editor for publications including the New York Post, Women's Running magazine and Soap Opera Digest. When she isn't working, you can find her enjoying life in St. Petersburg, Florida, with her husband, daughter and a very needy dog.
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