This Credit Card Fee Dropping From $32 to $8 Is Good News for (Almost) Everyone

If you're one of the 45 million Americans who make a late credit card payment during the year, you know that those late fees can be harsh. But good news just came down from the White House — the Biden Administration enacted a rule that will impose an $8 limit on credit card late fees, down from an average of $32.

The Consumer Financial Protection Bureau finalized the rule Tuesday, and President Biden made the announcement, saying, "They're padding their profit margins and charging hard-working Americans," Biden said. "This action will collectively save families $10 billion in credit card late fees every year."

According to White House estimates, credit card companies make as much as five times more than what it costs to recoup missed payments, a violation of federal law that allows credit card companies to only charge consumers what it costs to recover a missed payment, not profit off that missed payment.

This new rule comes on the heels of moves by the CPFB to limit overdraft fees charged by American banking institutions. Though not finalized, the CPFB is in negotiations and discussing capping overdraft charges at $3, $6, $7, or $14, plus $0.50 per transaction.

These moves are obviously good for consumers who have seen credit card balances rise or bank balances drop due to these and similar fees, often finding themselves in a financial hole that's difficult to emerge from after one missed payment or one checking account oversight.

This is bad news for banks, though, that stand to lose a significant chunk of profit earned on so-called junk fees. "Today's flawed final [late fee] rule will not only reduce competition and increase the cost of credit but will also result in more late payments, higher debt, lower credit scores, and reduced credit access for those who need it most," President and CEO of the American Bankers Association Rob Nichols said in a statement.

A late fee cap will definitely be a boon to many Americans, but avoiding late fees entirely is a better way to improve your credit score and end up with more borrowing power in the future.

Setting up automatic payments through your bank or credit card company is the most obvious way to never miss a payment, but sometimes life just happens, and emergencies pop up to prevent you from making your monthly payment. In these instances, you can contact your credit card company and ask for a pause due to emergency circumstances. Your credit won't be dinged by late payments, and you'll avoid racking up late fees.

According to the National Consumer Law Center, junk fees are hidden charges lumped in with loans and bank accounts for example, masking the real price to consumers and profiting the seller.

Late fees and insufficient funds (NSF) fees are just two examples of this widely held, and some would argue unethical, practice. The Biden Administration also recently cracked down on junk fees charged by landlords, fintech companies, and auto dealers.

A cap on late fees, finalized by the NCPB this week, will save consumers around $10 billion every year, including on the best cash back credit cards. Banks are not happy with the move, saying it will ultimately do more harm than good and the U.S. Chamber of Commerce announced its intention of bringing legal action against the CPFB to prevent the new rule from starting.