Basics of Credit Card Late Fees

By Brooke Vaughan // July 24, 2020

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Courtesy of Andrea Piacquadio/Pexels

Among the plethora of credit card and bank fees—overdraft and ATM, interest charges, and more—late fees on credit card payments are a proven pain point for Cushion’s customers. We’ve detected nearly $2 million in late fees on our customers’ accounts since we launched in 2018, and that number grows daily. With late fees, time is of the essence—these charges not only sting in the moment, but they could have enduring consequences, such as on your credit score. First, let’s establish what a late fee is.

What is a late fee?

Your credit card company, credit union, or other issuer will send you a statement at least 21 days before your bill is due; it specifies your total amount due and the required minimum payment. If you don’t pay by the due date, or pay less than the minimum amount, you will get a late fee. 

How much does a late fee cost?

Issuers calculate their late fees differently. Some charge a percentage of your balance. Others operate on a tiered late fee system. For example, they will charge a relatively low fee if your balance is below $1,000, a little more if you’re between $1,000 and $2,000, and a higher fee if it’s more than $2,000. But many have a flat fee; after analyzing more than 50,000 late fees, Cushion found that the average late fee is $34.30. 

Some issuers don’t charge late fees at all or forgive the first incident; credit unions, in general, tend to charge less for late fees. When issuers do charge late fees, they are regulated by the Credit CARD Act of 2009. Late fees are capped based on a consumer price index, however the Consumer Financial Protection Bureau can increase or decrease the price ceiling each year to account for inflation. It’s common for issuers to charge less on your first late payment, then raise the fee for subsequent late payments. The current maximum charges allowed are $29 for first-time late fees and $40 for subsequent occurrences; this is up from $25 and $35, respectively, when the law passed in 2009. 

Specifics are laid out in your issuer’s terms and conditions. It may be rigorous, but it’s important to read these details carefully to ensure you understand their expectations for cardholders.

What can you do to prevent or minimize the effect of late fees?

There are several things you can do, both proactively and retroactively, to make sure you have a handle on your late fees: 

  • Set up automatic payments if you have trouble remembering to pay your credit card bill each month. If you don’t feel comfortable setting up autopay—that can lead to a non-sufficient (NSF) fee, after all—you can sign up for text or email alerts that remind you to pay. You can also customize your due dates for bills throughout the month so they fall on the same day; that way you can plan to pay all of your essential bills at one time.  
  • If nothing else, make the minimum payment. Interest will begin accruing since you haven’t paid off the full balance, but that’s better than getting hit with a late fee and the other, more serious consequences.
  • If you get a late fee, ask your issuer to waive it. Customer satisfaction is generally a top priority, so chances are they’ll waive or decrease the fee if you can prove a positive payment history and customer loyalty. During COVID-19, many issuers are waiving or refunding late fees for customers who need financial relief. However, this relief is not granted automatically; you will probably have to contact a representative to get late fees and other charges waived.
  • Finally, everyone makes mistakes—even banks and credit card companies. If you suspect you’ve been charged a late fee but you made a payment on time, contact your issuer to dispute the charge. Although it may not be your fault, it is your responsibility to make sure the issue is corrected. Ultimately, you are the one who will suffer the consequences.

Read more about the enduring consequences of late credit card payments here.

Cushion negotiates bank and credit card fees so you waste less money, save more, and live a financially healthier life. It’s your money after all, and we’re here to help safeguard it. Since Cushion’s launch in 2018, our customers have received more than $3 million in refunds. We leverage artificial intelligence, advanced fee-detection technology, and bank-level encryption to put money back into your account—quickly, efficiently, and securely. More than that, we equip you with the tools for success by providing the most up-to-date data and insights in banking, news, and financial wellness.