Lower Credit Card Late Fees Could Save Americans Billions

Estimated read time 6 min read

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  • The Biden administration has limited credit card late fees to $8, a 75% reduction.
  • This change could add $2.7 billion to household expenditures annually, boosting the US economy.
  • Critics worry credit card companies may raise costs to compensate for lost profits.

The Biden administration set a new limit on credit card late fees, and it could be worth billions to Americans, especially those in lower income brackets.

On March 5, the Consumer Financial Protection Bureau finalized a new rule to limit all credit card late fees to $8 from $32 for first violations and $41 for subsequent violations. This comes as credit interest charges and fees are soaring, costing Americans more than $1,100 each year, and leading to record levels of credit card debt.

A new economic impact study provided to Business Insider by IMPLAN, an economic software and analysis company, showed that lowering the limit on credit card late fees would add more than $2.7 billion to household expenditures annually. The study also projected a $3.6 billion increase in US GDP and support for nearly 34,000 jobs annually.

This new limit was part of the Biden administration’s crackdown on “junk fees,” which are fees that can confuse consumers because they are not obvious upfront.

The CFPB estimated that credit card late fees cost Americans about $12 billion each year and that the new rule could save them up to $9 billion per year. About 45 million people are charged late fees annually, and that group could save up to $220 a year, according to the CFPB.

According to the Federal Reserve Bank, more than 6% of credit card balances are in serious delinquency — behind by 90 days or more on payments — more than double the rate seen two years ago.

There are concerns from opponents of the limit that credit card companies will attempt to compensate for lost profits by raising costs for all users. Economist Vance Ginn argued in a column for The Daily Caller in February that this could ultimately hurt small businesses and low-income households if credit companies limit who can get credit.

Debts in serious delinquency.

Debts that are 90+ days delinquent, by type.

Federal Reserve Board

A study by the CFPB published in 2022 showed that credit card late fees are disproportionally collected from people in low-income neighborhoods.

Some industries will benefit more than others

The benefits go beyond the typical consumer. The food, medical, and real estate industries will also see a positive impact, per the study.

The food industry, including restaurants and retail stores, is expected to receive about $447 million in economic impact. More money back in the pockets of Americans would be expected to first go to immediate needs, such as food. The ripple effect extends beyond food.

According to Jenny Thorvaldson, IMPLAN’s chief economist and data officer, employment services, such as temporary staffing and recruitment services, are also expected to be economically boosted. If there’s an increased demand in the food industry, then those businesses will need to expand their teams.

“Given the tight labor market and additional household spending on those services, those businesses will need to staff up or increase current staff hours,” Thorvaldson added.

A server delivers food and a beer in a bar.

More people spending money at restaurants means those businesses will need more staff.

The Good Brigade/Getty Images

Reduced credit card late fees would also be worth about $414 million to the real estate industry. If homeowners had more money to spend, they would start by making repairs, down payments, and mortgage payments on top of typical expenditures.

Medical services, such as hospitals, nursing care facilities, and physician offices, would also gain about $550 million.

According to Thorvaldson, the boost in medical expenditures is tied to people being less inclined to put off procedures and treatments they might consider optional.

“This is backed up by data that showed that people spent less on healthcare during the pandemic when they delayed care or went without,” she added.

According to the Centers for Disease Control and Prevention, about 40% of American adults reported avoiding medical care early in the pandemic.

A drop in the bucket of credit card costs

Credit card debt is now at record levels and interest rates on those cards have soared.

Late fees are just a small portion of the total amount that Americans are charged for using credit cards each year. If Americans saved $9 billion, based on the CFPB estimate, that would still leave about $155 billion in interest and other fees.

Interest and other credit card fees cost consumers more than $1,100 a year and are still growing. As a result, more people are finding themselves in holes they are struggling to escape.

According to data provided to Business Insider by Money Management International, a nonprofit credit counseling agency, Americans who sought debt counseling soared to record levels in January after the holidays.

Number of people seeking debt counseling and average volume of debt.

Number of people seeking debt counseling with MMI and average volume of debt.

Money Management International

The credit card crisis Americans are now facing will weigh on the US economy in the foreseeable future, but capping late fees could be a bit of relief, even if it is a small one.

Are you struggling with credit card debt or taking on extra jobs to pay your bills? Contact this reporter at cgaines@businessinsider.com.

Cork Gaines


Cork is a correspondent for Insider’s sports desk.
Previously, he was a contributor at MLB Trade Rumors, and he has written for Yahoo Sports, Deadspin, and The Hardball Times. He has authored chapters in three books, including “The Hardball Times 2009 Season Preview.” 
Cork’s work has been featured on ESPN’s “SportsCenter” and “Mike & Mike,” “Any Given Wednesday with Bill Simmons,” ESPN.com, BBC, Yahoo, USA Today, Sports Illustrated, Drudge Report, the Washington Post, the Kansas City Star, the Houston Chronicle, and the Dallas Morning News, among others.
He is a graduate of the University of Iowa and holds a doctorate from Fordham University.
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