Consumer complaints about late payment fees have grown in recent years as the fees charged by banks have risen high and higher.
In the new credit regulations that were activated in 2010, those complaints resulted in laws that limit how late fees and over limit fees can be applied by credit issuing institutions.
Prior to the new regulations, late fees had reached $39 and that fee was charged by all major lenders. In addition, if you charged a purchase that exceeded the spending limit of your credit card, an over limit fee of $39 was added to your balance.
Late Payment Fees Led to Abuse by Lenders
The profit generated from high late fees led banks to impose other limitations to further increase the profit of late fees. One of the most common recent practices was for lenders to change the due date on accounts frequently.
What consumers noted was the dates never changed to a later day but always were moved forward. A credit card payment might be due on the 18th of each month for several months.
Then without warning the date due was listed at the 15th of the month. Two months later the due date might change to the 13th of the month.
In addition, lenders imposed business hours for online transactions. Rather than a due date of the 15th of the month, the date due would be “close of business” on that date. This was usually 5 pm but confusing for consumers due to changing time zones.
Laws Limit Late Payment Fees on Credit Cards
Under the new laws, credit card late fees may not exceed $25. In addition, consumers may not be charged two penalty fees for one transaction.
For example, a payment received late which is not honored by the account holder’s bank cannot be charged both a late fee and a returned payment fee.
However, the new rules provide liabilities for those who miss two or more payments on their account. When that happens, lenders may charge a late fee of up to 3% of the account balance.
For the first time, consumers can opt out of allowing any charge to be approved that would exceed the spending limit on their credit card. In addition, lenders may not impose an over limit fee that is higher than the amount of the excessive charge.
Previously, if you charged a $40 purchase that results in your credit account going $10 over the spending limit, the lender would charge a $39 fee. This is no longer allowed. If you were $10 over limit, the fee could not exceed $10.
How to Avoid Late Fees on Your Cards?
When you make a purchase using your credit card, you have a grade period that is 20-25 days. During that time you may pay for that purchase and avoid any interest or other fees associated with that purchase.
If you spread payments out over several months you will pay finance charges based on the APR of your credit account. However, failure to make every payment in a timely way can result in high fees being added to your credit balance.
Do not wait until the due date to make your monthly payment. Each day you wait adds more interest charges and increases the risk of a late payment.
Check your credit card bill carefully each month and know when the payment is due. This includes the time of the day when payments can be made.
Payments made after 5 pm may not be credited until the following day by your lender. This could result in a $25 late fee if you have waited until the due date to pay online.
Avoid two late payments consecutively at all costs. Missing two payments or being late on two payments allows the lenders to charge a much higher late fee and also to charge a temporary (six months) higher interest rate.
The Lender and Credit Card Customer Relationship Has Changed
Consumers can no longer call their credit card company to explain a late payment or to request a few extra days to pay.
Fees are automatically added to accounts today and your past good payment record will not save you from late fees if you don’t pay on time.
Your credit card is strictly a business transaction today with no allowance for personal considerations. Failure to pay your monthly bill on time can have long term effects on your credit rating, your interest rate and your bank account.
Summary
The new credit regulations limit how much lenders can charge for cedit card late payment fees. Protections have been added for the most common predatory lending practices. The protections are meant for those who use credit responsibly and pay on time.
Those who have problems paying their monthly credit card bill or who pay late have minimal protection and may be at greater risk of damaging fees and APR changes than ever before. P.S, I also recommend you to read our guide on why your credit card application was rejected.
