Most credit card late fees are capped at $8, saving consumers $220 per year.

On March 5, the Consumer Financial Protection Bureau (CFPB) issued final regulations aimed at curbing excessive credit card late fees. This ruling limits the amount credit card issuers can charge for these fees. Credit card companies charged Americans more than $14 billion in late fees in 2022, according to the agency. But this will soon change. Here’s what you need to know:

Credit card companies took advantage of this loophole.

Credit card issuers make a lot of money from fees, and late fees are a lucrative business. A fee is charged if a consumer forgets or is behind on a credit card payment. Credit card late fees have continued to rise in recent years.

But the CFPB has issued a final ruling to close a loophole that allows credit card companies to charge consumers expensive fees.

Here’s how credit card issuers avoid charging exorbitant fees. The CARD Act banned excessive fees and allowed banks to charge only fees to recover the costs of collecting late fees.

However, the loophole allowed credit card companies to charge up to $25 for the first late payment and up to $35 for subsequent late payments. Additionally, fees can be adjusted for inflation, resulting in higher average fees.

Recently, banks could charge up to $30 for the first late payment and $41 for subsequent late payments. The average credit card late fee is currently $32.

Most credit card late fees will soon be capped at $8.

The final rule released by the CFPB on March 5 closes the above loopholes and ends excessive credit card late fees. In most cases, the credit card late fee limit is $8. The rule also ends automatic inflation adjustments.

Larger credit card issuers may still charge fees exceeding this threshold. These companies must show accounting and prove that higher fees are necessary to cover actual collection costs. Otherwise, you must adhere to the $8 fee limit.

This is good news for credit card users who are affected by rising prices. Credit card users will not see any immediate changes. This regulation will become effective 60 days after publication in the Federal Register.

Here’s how much Americans will save:

According to CFPB estimates, once this final rule goes into effect, American families will save more than $10 billion annually in late fees. This saves the more than 45 million consumers who have late charges on their credit cards an average of $220 per year. More reasonable fees could help Americans keep more money in their bank accounts.

Do this to avoid late fees

Paying your bills late can have consequences. The first is the late fee charged by your credit card company. The additional costs you pay in fees will impact your personal finances.

Another risk you face is having a negative score on your credit report. Your credit report includes an overview of your payment history, including missed and late payments. If you care about your credit report and credit score, it’s best to avoid late payments.

Claimants can report delinquent payments to the three major credit bureaus if the payment is at least 30 days past due. However, it is wise to pay your bills by the due date every time. If you forget, set your bill to pay automatically so you no longer have to manually schedule payments.

Many billers, including credit card companies, allow customers to use automatic payment tools. You can enable automatic payments through your online credit card account. This will help you continue to process your payments and avoid being charged credit late fees.

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