Will Credit Card Late Fees Be Capped at $8?

In March 2024, the Consumer Financial Protection Bureau (CFPB) published the "Credit Card Penalty Fees Final Rule." The ruling amended the Truth in Lending Act to put a cap on late fees charged on credit card accounts. 

The ruling was limited to "card issuers that...have one million or more open credit accounts" and set the late fee threshold at $8.

So far, so good. Unfortunately, the distance between when a new rule is published by the CFPB and when it becomes reality can be infinite. So let's talk about the CFPB, what it does, the challenges it's currently facing, and what that means for many consumer-friendly rule changes that are currently on hold.

What is the CFPB?

The Consumer Financial Protection Bureau exists primarily to protect consumers like you from unfair or abusive practices, specifically as it relates to financial services and products. It was created by an act of Congress in 2010 as part of the Dodd-Frank Act, and was born largely in response to the Great Recession of 2008, after years of unchecked predatory lending practices lead to a massive collapse of the American economy.

The primary functions of the CFPB are to:

• Enforce consumer protection laws and protect consumers from unfair, deceptive, or abusive practices.
• Oversee financial products, including credit cards, mortgages, and loans, ensuring fair practices.
• Investigate potential violations of these laws and enforce penalties.
• Investigate consumer complaints and resolve disputes.

It's the arm of government most directly tasked with protecting consumers from scammers and bad actors in the financial services industry. As of January 2025, the CFPB has returned $19.7 billion to American consumers through canceled debts, principal reductions, and other consumer relief efforts, plus an additional $5 billion in civil money penalties.

How do CFPB rules go into effect?

The CFPB follows a very structured rulemaking procedure, so it can take some time for consumer protections to go into place.

• Initial proposal: After a lengthy research period, including data gathering and consultation with experts and advocates, the agency creates a new proposal rule.
• Public comment: The proposed rule then goes in the Federal Register for 30-90 days, where stakeholders (members of the public, businesses, etc.) can submit feedback.
• Final rule: The proposed rule will likely be tweaked in accordance with the feedback received, before ultimately being published once again in the Federal Register as a final rule, along with an explanation of any changes to the rule, and an effective date.
• Enforcement: Once a rule is in place, impacted financial institutions must comply with this new rule by the effective date or risk facing penalties from the CFPB.

Of course, these new rules can have major impacts on the financial sector, so they're often challenged, delayed, and potentially dismissed entirely through legal action.

Does the CFPB still exist?

As of this writing, the CFPB's acting director has ordered that bureau basically stop doing everything. No rulemaking, no investigations, no enforcement actions, etc. 

The CFPB, however, continues to exist and will continue to exist, at least for the time being. The CFPB was created by Congress, and an act of Congress would be needed to dissolve the agency entirely. Unfortunately, although the CFPB is unlikely to go away any time soon, it's ability to protect American consumers may be severely limited.

What about caps on credit card late fees?

The CFPB's rule capping most credit card late fees at $8 (and note that the current average is $32) in currently blocked from going into effect thanks to a lawsuit brought by banking and business groups who, unsurprisingly, don't want such a significant cap on late fees.

Typically, the CFPB would defend it's rules against lawsuits, and that may still happen. But at the present, there seems a strong possibility that the agency will be forced to drop it's defense, ultimately sinking any chance of the rule going into effect.

What other protections are in trouble?

Any and all CFPB rules that aren't already in effect are at risk of being dropped, including:

• Capping overdraft fees: Similar to the late fee rule, the CFPB sought to cap overdraft fees at $5 (versus the current average of $35) but has faced opposition from the banking industry.
• Removing medical debt from credit reports: This rule would have prohibited medical debt from appearing on consumer credit reports and prevented lenders from considering medical debt when making loan decisions.
• Open banking rule: This rule requires "banks, credit unions, and other financial service providers to make consumers’ data available upon request to consumers and authorized third parties in a secure and reliable manner." The goal of the rule is to make it easier for consumers to switch accounts, leveling the playing field between traditional financial institutions and newer fintechs. 

It's hard to know which CFPB rules will ultimately survive and which will be dismissed. Hopefully, the outcome is in the best interest of consumers, but in the meantime it's always a good idea to be proactive wherever possible.

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