If you’ve ever been late with a credit card payment and thought that late fee you got popped with was steep, you’re one of 42 million Americans who will face that dilemma in 2022.[1] Credit card companies’ penalty policies cost consumers around $12 billion each year. In fact, the U.S. central bank known as the Federal Reserve just launched an investigation to determine if credit card late fees and other penalties are “reasonable and proportional.”
Late fees account for over one-tenth of the $120 billion customers pay in interest and fees annually.[2] It shows how deeply the credit card market relies on these charges. “We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” says Consumer Financial Protection Bureau Director Rohit Chopra. “This effort is particularly timely since current rules might give companies the incentive to impose big hikes based on inflation.”
How much are credit card late fees currently?
Consumers have been paying more in credit card fees than ever before.[3] Peaking at $14 billion in 2019, the total fees paid by consumers did decline slightly in 2020 to $12 billion due to record-high payment rates and public and private relief efforts. However, in 2021 late fees were back on the rise.
However, there are federal laws that limit the fees that credit card companies can charge. Enacted in 2009, the Credit CARD act limits how much lenders can charge for a late payment.[4] However, the Consumer Financial Protection Bureau (CFPB) adjusts the amount each year to account for inflation. Based on how inflation is now, a statistical hypothesis would point to that fee getting even higher.
According to the CFPB, more than 175 million Americans have at least one credit card. As of 2022, the most a credit card company can charge you is $30 for your first late payment. That can rise to $41 should you miss another payment within six billing cycles. To put the extent of the credit card fee problem into perspective, if each American who held one card missed just one payment, that would come out to $5.25 billion in fees.
How much you are charged does depend on how big your balance is.[5] Lenders adjust the fee based on your current balance. If you have more than $1,000 in payments, you may be charged a higher fee than someone with just a few hundred dollars.
How to avoid late fees on credit cards
It may seem simple, but the easiest way to avoid fees is to always pay your bills on time. A big part of that is understanding when your payment date is. When the CARD Act of 2009 was implemented, it made payments consistently due on the same date each month. Find out when your date is by reviewing past bills or checking the terms of your card. Most banks now will have an app where you can review your balance, find your payment date, and make payments.
A surefire way to make sure that you never miss a payment again is to enroll in automatic payments. This allows your credit company to pull money directly from your account on the date specified. It also gives you the option to pick how much you’d like to pay each month. If you are trying to pay down your balance quickly, you should choose to pay more than just the minimum payment. Just make sure you will have the funds to cover the payments you set. You don’t want to get popped with NSF fees on top late fees. if you’re worried about paying more than the minimum through AutoPay, then you can set up AutoPay for the minimum payment amount and then make extra payments to pay off the debt faster when you have the cash available.
How to get late fees waived on a credit card
Sometimes life takes over and you forget to make a payment. While it is OK for it to happen once or twice, you don’t want to make it a habit.
The first thing that you should do is to make sure you were charged a late fee. You can do this by looking at your statement. If you know that you missed a payment, you can be proactive by contacting your credit card company. In some cases, the fee may not have been applied yet and can be waived, especially if only a few days have passed.
Something that most people overlook in their frustration is not paying the bill right away. It will help you avoid additional penalties, like penalty APR and limit the damage done to your credit score. Even missing one payment can stay on your credit report for up to 7 years. If you don’t make a payment on time, call your credit card company and speak with them about removing the fee. If you are a good customer who otherwise makes payments on time, you have a stronger case of getting it cleared. A good motto while on this call is “treat people how you’d like to be treated”. The representative on the phone can only do so much and if there is a clear history of you missing payments, not much can be done. Being respectful and polite increases your chances, but there is no guarantee.
How late fees can affect your credit score
Making your payments on time is the biggest factor impacting your credit score. Paying a bill 30 days late or later can drop your credit score as much as 100 points. Late payments are not reported to the Credit Bureau until they are 30 days past due, which gives you time to pay them off though generally with a late fee. This is so important because what is on your credit report dictates your 3 scores.
Consolidated Credit can help
Consolidated credit’s mission is “to assist families throughout the United States to end financial crises and solve money management issues through education and professional counseling.” If you are struggling with credit card debt and late fees incurred with it, a debt management program can help. When you enroll in a debt management program, future penalties like late fees get stopped. It will also reduce your total payments, lower the interest rate, help you avoid negative credit report information. You can pay off your debt in 36 – 60 months instead of getting bogged down by all those penalties.
Connect with a certified credit counselor to get the help you need to get out of debt.
Sources
[1] 42 Million Americans Expect to Miss a Credit Card Due Date in 2022 (wallethub.com)
[3] Credit Card Fees and How to Avoid Them – Consolidated Credit
[4] Credit CARD Act – Consumer Bill of Rights | Consolidated Credit
[5] Common Credit Card Fees: The Latest Changes | Consolidated Credit
