Higher Late Penalty Fees On Your Credit Card Could Be Coming Your Way In January

Higher Late Penalty Fees On Your Credit Card

American Express announced its plans to increase the fee from $37 to $38 if a person is late more than once with their payment within a six-month timeframe. American Express said there are business costs that are linked to not paying a bill on time and the late fee is to gain back some of the cost.


The company said only a minute number of its customers miss two payments in one six-month period, but still, the penalties can surpass $12 million for every credit card issuer. Since American Express attains most of its money from the credit card business, the fees are going to affect its bottom line more so than competitors like Bank of America or Chase.

CARD Act Caps Late Fees and Other Fees

In 2009, with the passage of the CARD Act, late fees and other fees were capped. It also demanded credit card issuers to offer a better explanation about the costs of credit. Before the CARD Act has been passed, late fees could average around $39. The Consumer Financial Protection Bureau brought that limit to $35 in 2013 but has allowed the fees to increase ever since.

According to CFBP studies, 20 percent of people with credit cards often have late fees. The CARD Act limits the late fees to just consumer cards, not business-issued credit cards. According to a CreditCards.com study, late fees run about $49 on several corporate cards.

The CFPB carried out several studies on the effectiveness of the CARD Act and noted it reduced the cost of credit for people. During the 2013 study, the agency found the following:

Complete credit card dropped two percentage points for a four-year period (2008 to 2012). This included all interest, fees and finance charges the consumer paid to credit card issuers.

Over limit fees were eliminated. Before the Act went into effect, the card issuers were allowed to charge over-limit fees on transactions that cardholders used over their credit line. This resulted in $2.5 billion less money for card issuers than in 2008.

There was a decline in the size of late fees. According to the CARD Act, the penalty fees had to be “proportional and reasonable,” and the average late fees dropped $6 after the Act went into effect.

After these changes had gone into effect, consumers were far more satisfied. According to a 2013 U.S. Credit Card Satisfaction Study from JD Power & Associates, credit card satisfaction has been at an all-time high since the study was started in 2007. It noted people were happier with their credit cards, and JD Power notes that this increase in satisfaction ties back to the CARD Act.

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