The government’s consumer finance watchdog has set its sights on credit card late fees, a move suggesting they could become the next financial charge to be curtailed by banks.
A report issued Tuesday by the Consumer Financial Protection Bureau said that many credit card companies are charging as much as they possibly can in late fees, and that they’re disproportionately collecting the fees from minority and low-income communities. Late fees are penalties that are charged in addition to interest when a cardholder doesn’t make the minimum payment on time.
Out of the top 20 credit card issuers, 18 charged late fees that were at or near the inflation-adjusted maximum that government regulations allow—$30 for the first late payment, $41 for another within six billing cycles, the report said. Cardholders with the lowest credit scores are especially prone to such fees, paying an average of $138 for them each year, the bureau said. People living in the country’s poorest neighborhoods paid twice as much in total late fees as those in the wealthiest, it added. There were racial disparities, too, with majority Black neighborhoods paying more late fees on average than majority White ones.
The American Bankers Association, a trade group representing the industry, said that the government already requires fees to be clearly disclosed, and that their levels are capped by regulators.
“Left out of this report is any mention of the millions of consumers who value and appreciate the safety and convenience provided by the credit cards they use every day, as well as the wide array of options they have to choose from when they pick a credit card,” an association spokesman said in an email.
Credit card late fees are the latest type of charge the bureau has targeted in its campaign against what it calls financial “junk fees,” or unfair fees that banks charge customers. In recent months, the country’s top banks have reduced or eliminated fees for overdrawing accounts after the bureau said it was scrutinizing them late last year.
“Many credit card issuers have made late fee penalties a core part of their profit model,” Rohit Chopra, the bureau’s director, said in a statement. “Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost. Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise."
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