The U.S. Consumer Financial Protection Agency released an in-depth study of credit card late fees Tuesday, finding that credit card issuers earn $12 billion per year from these charges and that revenue is earned disproportionately from poor Americans.
The government agency estimated that consumers are charged an average of $26 fee for late payments and that consumers with the lowest credit scores, who typically live in underprivileged zip codes, pay more than $300 per year on late fees alone.
“For some households, late fees are a costly mistake for payments that may only be a day or two late — for others, they are a significant added hardship during a time of of financial precarity,” the report said. “For credit card companies…late fees continue to bolster their bottom line.”
Credit card fees are regulated under authority granted by a 2009 law that says late fees must be “reasonable and proportional,” which was implemented at $25 for the first violation and $35 for subsequent missed payments, and the CFPB is required to adjust that figure each year for inflation.
The CFPB says that credit card issuers earn $120 billion per year from credit card fees and interest, with 10% of that revenue coming from late fees.
Credit cards are often issued by large banks like Chase and Wells Fargo in partnership with companies like Visa and Mastercard that maintain the payment networks. Many community banks, credit unions and retailers are also involved in credit-card issuance.
The report comes after the CFPB released an analysis of bank overdraft fees motivating some banks to eliminate those fees and a separate analysis of medical debt on credit reports. Major consumer credit report companies subsequently announced they would no longer include medical debt on their reports.