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Understanding the New Credit Card Late Fee Cap and How It Affects You

At O1ne Mortgage, we prioritize your financial well-being and aim to provide you with the best information to make informed decisions. Recently, the Consumer Financial Protection Bureau (CFPB) introduced a new rule that caps credit card late fees at $8, a significant reduction from the current average of $32. This change is expected to save Americans billions of dollars annually. In this article, we will explore the details of this new rule, its impact on consumers, and provide tips to help you avoid late fees altogether.

Why Are Credit Card Late Fees Changing?

The Credit CARD Act of 2009 established broad consumer protections for credit card users, including a cap on late fees. However, a loophole allowed credit card companies to charge higher fees under certain conditions. Over time, these fees increased due to inflation, leading to Americans paying over $14 billion in late fees in 2022 alone. The new rule aims to address this issue by capping late fees at $8, providing much-needed relief to consumers.

How Does the Credit Card Late Fee Cap Work?

The new rule applies to credit card issuers with more than 1 million open accounts, covering 95% of the total outstanding credit card balances in the U.S. Here are the main changes:

• Maximum late fee cut to $8: The rule reduces the maximum late fee to $8, which the CFPB believes is sufficient for larger card issuers to cover collection costs.
• No inflation adjustment: The cap will no longer adjust with inflation. Instead, the CFPB will adjust the cap based on market conditions.
• Effective date: The rule will take effect 60 days after its publication in the Federal Register.

Exceptions to the New Rule

While the new cap applies to most credit card users, there are two exceptions:

• Smaller card issuers: Credit card issuers with fewer than 1 million open accounts are exempt from the new rule. However, these issuers typically charge lower fees and interest rates.
• Larger card issuers with higher costs: Larger issuers can charge more than $8 if they can prove that their actual collection costs are higher.

How Will the New Credit Card Rule Affect Customers?

The CFPB estimates that 45 million consumers are charged late fees each year. With the new rule, consumers are expected to save an average of $220 annually, totaling over $10 billion in savings each year. However, it’s important to note that this rule does not affect other penalties for delinquent accounts, such as penalty APRs, loss of grace periods, or reduced credit limits.

5 Ways to Avoid Credit Card Late Fees

While the new rule reduces late fees, it’s still crucial to pay your credit card bill on time to avoid other penalties. Here are five tips to help you avoid late fees:

1. Set Up Automatic Payments

Consider setting up autopay on your account to ensure your bill is paid on time. You can choose to pay the minimum amount due, the statement balance, or another amount. Just make sure you have sufficient funds in your checking account to cover the payment.

2. Request Alerts

Most credit card issuers offer email or text alerts to remind you when your payment is due. Setting up these alerts can help you stay on top of your payments.

3. Change Your Payment Due Date

If your payment due date doesn’t align with your payday or you have multiple cards with different due dates, consider adjusting your due date to a more convenient time of the month.

4. Opt for a Card with No Late Fee

Some credit cards do not charge late fees. It may be worth shopping around to find a card that offers this benefit.

5. Contact Your Card Issuer

If you’re facing financial difficulties, reach out to your card issuer to discuss potential options. Many issuers offer hardship programs that can help you avoid late fees and manage your debt.

The Bottom Line

The CFPB’s new rule on credit card late fees is a positive change that can save consumers hundreds of dollars each year. However, it’s still essential to pay your credit card bills on time to avoid other penalties and protect your credit score. At O1ne Mortgage, we are committed to helping you achieve financial stability. If you have any mortgage service needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to assist you every step of the way.

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