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Subprime credit users were hit hardest as top issuers charge the maximum fees.
A new report from the Consumer Financial Protection Bureau (CFPB) highlights how much credit card issuers rely on late fees, which disproportionately impact subprime credit borrowers and private label card users, low-income individuals, and communities of color.
The report focuses on the $12 billion that credit card companies charged customers in 2020 amid widespread economic uncertainty due to the coronavirus pandemic.
Key Takeaways
- Credit card issuers charged $12 billion in late fees in 2020 while tens of millions of American workers were left unemployed or furloughed.
- Consumers with subprime credit cards and private label store cards are particularly susceptible, especially in relation to their credit limits.
- The report also highlights that consumers living in low-income and majority-Black communities are disproportionately impacted by credit card late fees.
CFPB Report Highlights How Credit Card Issuers Rely on Late Fees
The CFPB released a report this week on how credit card companies handled late payments in 2020 when the coronavirus pandemic and ensuing economic uncertainty dominated everyday life in the U.S.
According to the federal agency’s report, credit card companies raked in $12 billion in late fees that year. The report also found that late fee volume dropped shortly after consumers received their stimulus checks in 2020 and 2021, particularly for credit card users with low credit scores. The agency interprets the data to suggest that the fees are a penalty for low-income households rather than an incentive to pay on time.
Other key findings of the report include:
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- Most card issuers charge at or near the maximum amount allowed: 18 of the top credit card issuers in the U.S. have set their late fees at or near the maximum amount allowable by the Credit CARD Act of 2009—that’s $30 for the first late payment and $41 for subsequent late payments within six billing cycles.1
- Subprime and private label card users get hit particularly hard:Â On average, consumers with deep subprime credit card accounts pay $138 in late fees per year, accounting for 11% of their balances compared to 0.8% for super-prime accounts because of lower credit limits. Additionally, late fees make up a staggering 91% of all consumer fees charged by private label credit cards and 25% of total interest and fees. In comparison, late fees make up 45% of all consumer fees and 7% of total interest and fees on general-purpose credit cards.
- Disadvantaged and minority communities share more of the burden:Â The report found that card users in the country’s poorest neighborhoods paid double the amount in late fees as card users in the richest neighborhoods in 2019. Additionally, card users in majority-Black neighborhoods paid more in late fees for each card they had compared to majority-white neighborhoods. Finally, those who live in areas with the lowest rates of economic mobility paid roughly $10 more in late fee charges for each account than people living in the communities with the highest economic mobility rates.2
The CFPB expects credit card issuers to hike their late fees even further, citing an immunity provision in the CARD Act that adjusts the maximum fees annually based on inflation. The agency recommends visiting its website to learn more about late payment fees and other “junk fees” and to share your experience.
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