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The CFPB will raise the ceiling on credit card late fees by one dollar to $38 starting in January 2017. American Express already announced that it will increase its late fees starting in January.
This means that if you are late on your Amex bill more than once in any 6-month period, you can be charged as much as $38.
Why Is Amex Increasing Late Fees?
Credit card issuers make money from three sources:
- Fees - including annual fees and late fees
- Processing fees - which are earned on each swiped transaction
- Interest charges - which you pay if you carry a balance
When Amex lost some high profile branded card business last year, that meant that they also lost a lot of revenue. Suddenly, a lot of Amex customers were charging transaction, paying fees, and incurring interest charges with other card issuers.
One way for American Express to make up this lost revenue is to increase late fees.
Didn't the CARD Act Cap Late Fees?
The Credit Card Act of 2009 did put a statutory cap on late fees. But it also allowed the CFPB to raise that cap.
Prior to its passage, consumers were racking up over $20 billion in late fees per year. Thanks to the CARD Act, late fee revenue was cut in half - and is now less than $12 billion per year.
So consumers certainly benefited by the curbs on late fees.
How Many People End Up Paying Late Fees?
It may be hard to believe, but the CFPB reports that approximately 20% of credit card users incur late fees during the course of a year.
So even a $1 increase in the fees can add a lot to the bottom line for card issuers.
Our advice at CreditShout is to make sure you set up your credit card accounts to automatically debit at least the minimum payment each month. This way you avoid incurring unnecessary late charges.
If you do happen to be late with a payment, try calling your card issuer. In many cases, they will waive the fee.
The problem is that most people never even ask.
Will Other Card Issuers Also Raise Their Late Fees
It is too soon to tell if other card issuers will follow American Express and raise their late fees.
Right now, most of the major issuers are charging a maximum late fee of $37. The one exception is Capital One, where late fees cap out at $35.
Also, be advised that the statutory limits on late fees do not apply to business credit cards. So you may see higher fees with those cards.