The U.S. Consumer Financial Protection Agency released an in-depth study of credit card late fees on Tuesday, finding that credit card issuers earn $12 billion a year from these fees and the revenue comes from disproportionately poor Americans.
The government agency estimated that consumers had to pay an average fee of $26 for late payments and that consumers with the lowest credit scores, who typically live in disadvantaged ZIP codes, pay more than $300 per month. year in late fees.
“For some households, late fees are a costly mistake for payments that may be only a day or two late – for others, they are a significant additional hardship in times of financial insecurity,” says the report. “For credit card companies…late fees continue to bolster their bottom line.”
Credit card charges are regulated under a 2009 law that says late fees must be “reasonable and proportionate,” which was set at $25 for the first offense and $35 for payments subsequent misses, and the CFPB is required to adjust this figure annually for inflation.
The CFPB reports that credit card issuers earn $120 billion a year from credit card fees and interest, with 10% of that revenue coming from late fees.
Credit cards are often issued by major banks like Chase JPM,
and Wells Fargo WFC,
in partnership with companies like Visa V,
and Mastercard MA,
who maintain the payment networks. Many community banks, credit unions, and retailers are also involved in issuing credit cards.
The report comes after the CFPB released an analysis of bank overdraft fees motivating some banks to eliminate these fees and a separate analysis of medical debt on credit reports. Major consumer credit reporting companies subsequently announced that they would no longer include medical debt in their reports.