New Regulation Caps Credit Card Late Fees At $8 – Forbes Advisor – Technologist

Limiting late fees is the most recent update to the Credit Card Accountability Responsibility and Disclosure Act, better known as the CARD Act of 2009. This set of guidelines also regulates other credit card fees, communication around interest rate changes and establishes protections for underage cardholders, among other constraints.

While the rule itself is new, it remains in the spirit of the overall act and works to close a loophole never intended in the original legislation. The law states that penalty fees are expected to be “reasonable and proportional” to the violation. However, the CFPB found that previous limits of $30 for the first late payment or $41 for subsequent late payments constitutes for fees far in excess of actual costs associated with collecting payments.

This rule is expected to be wide-sweeping, but there are a few allowances built into the rule. The new $8 late fee cap only applies to card issuers that hold more than a million open accounts. Because of this, some smaller banks and local or specialty credit unions won’t be held to the same standard.

Additionally, larger card companies may still petition to charge higher fees. In order to be approved for a different cap, the company must demonstrate that their actual collection costs exceed the limit imposed by law.

While the new, lower late fee will make it easier for customers to bounce back from a mistake, paying on time should be taken seriously. The updated rule doesn’t touch other consequences for not paying on time: Credit card issuers may still impose interest charges, penalty APRs, reductions in credit limit, loss of grace period or negative credit reporting—all of which may have profound impacts on someone’s financial health.

Customers should familiarize themselves with the terms and conditions of their card to ensure they’re not surprised by a myriad of costs if they can’t pay their bill punctually. Often, meeting a minimum payment requirement can avoid many of these repercussions, though only paying in full will guarantee avoiding interest charges.

Anyone with a stable bank account balance should consider setting up credit card autopay for the minimum amount (or more) as a backstop against fees and other charges. If that’s not realistic for your finances, setting calendar reminders and other safeguards can make sure you don’t automatically miss your due date.

Households who miss payment deadlines, even by a single day, will appreciate that late fees are more affordable now. The new rule keeps costs at a more reasonable $8, allowing more of payments to be applied to credit card balances rather than extortionate fees. However, cardholders shouldn’t use this as an excuse to get lax about payments—neither the CARD Act or other regulations are all-encompassing consumer protections.