/CFPB_2tone_Horiz_RGB-57bbffb95f9b58cdfde37029.png "Credit Card Users Paid $12 Billion in Late Fees in 2020 1")
A brand new report from the Shopper Monetary Safety Bureau (CFPB) highlights how a lot bank card issuers depend on late charges, which disproportionately influence subprime credit score debtors and personal label card customers, low-income people, and communities of shade.
The report focuses on the $12 billion that bank card corporations charged prospects in 2020 amid widespread financial uncertainty because of the coronavirus pandemic.
Key Takeaways
- Bank card issuers charged $12 billion in late charges in 2020 whereas tens of hundreds of thousands of American staff have been left unemployed or furloughed.
- Customers with subprime bank cards and personal label retailer playing cards are significantly inclined, particularly in relation to their credit score limits.
- The report additionally highlights that buyers residing in low-income and majority-Black communities are disproportionately impacted by bank card late charges.
CFPB Report Highlights How Credit score Card Issuers Depend on Late Charges
The CFPB launched a report this week on how bank card corporations dealt with late funds in 2020 when the coronavirus pandemic and ensuing financial uncertainty dominated on a regular basis life within the U.S.
In accordance with the federal company’s report, bank card corporations raked in $12 billion in late charges that 12 months. The report additionally discovered that late price quantity dropped shortly after shoppers acquired their stimulus checks in 2020 and 2021, significantly for bank card customers with low credit score scores. The company interprets the info to recommend that the charges are a penalty for low-income households reasonably than an incentive to pay on time.
Different key findings of the report embody:
- Most card issuers cost at or close to the utmost quantity allowed: 18 of the highest bank card issuers within the U.S. have set their late charges at or close to the utmost quantity allowable by the Credit score CARD Act of 2009—that is $30 for the primary late fee and $41 for subsequent late funds inside six billing cycles.
- Subprime and personal label card customers get hit significantly onerous: On common, shoppers with deep subprime bank card accounts pay $138 in late charges per 12 months, accounting for 11% of their balances in comparison with 0.8% for super-prime accounts due to decrease credit score limits. Moreover, late charges make up a staggering 91% of all client charges charged by personal label bank cards and 25% of whole curiosity and charges. As compared, late charges make up 45% of all client charges and seven% of whole curiosity and charges on general-purpose bank cards.
- Deprived and minority communities share extra of the burden: The report discovered that card customers within the nation’s poorest neighborhoods paid double the quantity in late charges as card customers within the richest neighborhoods in 2019. Moreover, card customers in majority-Black neighborhoods paid extra in late charges for every card they’d in comparison with majority-white neighborhoods. Lastly, those that stay in areas with the bottom charges of financial mobility paid roughly $10 extra in late price costs for every account than folks residing within the communities with the very best financial mobility charges.
The CFPB expects bank card issuers to hike their late charges even additional, citing an immunity provision within the CARD Act that adjusts the utmost charges yearly based mostly on inflation. The company recommends visiting its web site to be taught extra about late fee charges and different “junk charges” and to share your expertise.