Shoppers already are spotting some cunning push back from credit issuers now that regulators want to cap late fees at $8.
Watch out for higher interest rates and new oddball fees on some cards, particularly credit cards issued by big name retailers. Definitely, read any paperwork that accompanies your statements. Review changes in terms. We're looking at a major fight between bankers and regulators — and some credit card issuers apparently aren't taking any chances.
Consumers applaud the change; bankers abhor it.
The limit on late fees, announced back in March by the Consumer Financial Protection Bureau, was set to be put in place May 14.
But the launch could be delayed as part of the legal battle that has ensued after the U.S. Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association and others quickly sued in federal court to stop the change. Opponents maintain that capping late fees would trigger higher card losses and higher costs for issuers, including money lost on risky accounts that some card issuers claim would not have been opened if an $8 late fee were in place.
The Consumer Financial Protection Bureau says consumers would save more than $10 billion in late fees each year. The average savings, according to the regulator, could be $220 per year for the more than 45 million people who are charged late fees. The finalized rule also puts an end to an automatic inflation adjustment that could have boosted late fees in the future.
An $8 late fee seems high enough to many lower-income and middle-income consumers who miss making a credit card payment. It's two boxes of cereal, after all, if you're shopping with coupons. On top of that fee, interest keeps building and consistently tardy consumers face the possibility of getting hit with sky-high penalty rates.
But credit card issuers say more people won't care about when they pay if a late fee is merely $8. Issuers stand to lose big money on such a change, given that they charge $32 on average for a late fee now.
The Consumers Bankers Association, which represents many of the nation's largest credit card issuers, calls the $8 limit a "misguided campaign" with far-reaching harmful consequences for many consumers. "Banks may be forced to increase rates and offer fewer credit options to mitigate the risk associated with more missed payments," the industry group stated.
Right now, some consumers are looking at higher costs, as some bankers put new rules into place to offset the expected loss of revenue and increase in risk.
Credit card issuers that specialize in co-branded cards offered by retailers — the cards shoppers often use to get perks with favorite brands — are out front now with some new fees and higher rates on some cards.
Some consumers open these cards out of loyalty to a brand; others are often first-time credit card holders who want easy access to credit. Many times, retailer cards are an option for those with a lack of a credit history. Standards to qualify tend to be lower than general purpose plastic.
Synchrony Financial — which specializes in co-branded store credit cards — told some consumers that they're looking at a $1.99-a-month fee — or $23.88 a year — if they continue to receive paper statements. Credit card holders would be charged this fee if they're sent a paper statement when they have a balance that's greater than $2.50. And that's true even if the customer also receives a statement in an electronic form, too.
The $1.99 fee is not charged each month "if you set up paperless statements and are sent your statements only in electronic form," according to an insert sent to some customers.
The change is marketed as a go-green kind of a thing. "Going paperless means less waste," according to the credit card insert. But many credit card issuers aren't charging monthly fees for statements, and a new fee that amounts to nearly $24 a year will offset some of the red that card issuers see as late fee revenue slumps.
Synchrony offers credit cards in partnership with long list of retailers and brands, including Sam's Club, Lowe's, QVC, Fanatics, Gardner White, American Eagle, Value City, Ziebart, the JCPenney, Dick's Sporting Goods, Walgreens and others.
But you'd need to check your Synchrony card to see what changes, if any, could be ahead for you if you receive paper statements. Fees and rules could vary by type of card. It's not an across-the-board type of change.
"Customers can avoid this fee by signing up to instead receive digital statements," said Lisa Lanspery, senior vice president corporate affairs for Synchrony.
"We are taking steps to ensure customers are aware of the change and will support them on how to easily opt-in to paperless statements.”
Many consumers — especially those with Synchrony cards like the Amazon Store Card or the PayPal-branded card — no doubt already receive e-statements and won't need to fret about the new fee.
In 2022, more than two out of three consumers received only e-statements for their general purpose credit cards, according to a report by the Consumer Financial Protection Bureau.
Even so, I'm troubled by a new fee for paper statements. Getting a bill in the mail shouldn't be treated as a luxury item that costs nearly $24 a year.
A paper statement can be essential for some lower-income households who don't have secure online access or fear not that they won't spot a bill on time. Consumers also could be less likely to spot erroneous or fraudulent charges, if they're not consistently reviewing their statements online.
An online statement makes more sense, perhaps, if you set up a system to automatically pay your bill each month. But someone without much room in the family budget might avoid such options, even though automatic payments can be set up to cover the minimum payment due, the total statement balance, or another fixed amount.
"Paper statements remain an important mechanism to prompt payment for many consumers, particularly lower-income families, and those without access to broadband internet, which includes many Americans 65 years or older," according to a CFPB report issued in 2021.
And, here's another thought: What if you pay a fee but somehow don't get a statement? Seriously, it has happened, according to consumer complaints and issues highlight in an October report about "junk fees" issued by the Consumer Financial Protection Bureau.
What may be even more troubling for those who don't pay off the balance each month is a trend in 2024 to hike interest rates on credit cards. We're not talking about Federal Reserve driven rate hikes, either.
The Fed last moved to raise interest rates back in July 2023, so the latest rate hikes on credit cards now aren't connected to Fed action.
One notice relating to a Synchrony account said a new higher rate will take effect for purchases or cash advances made after May 15. The notice also indicated that a penalty rate will be added and may be applied to the account if the total minimum payment due isn't paid by the due date two or more times during any 12 consecutive billing cycles, including one billing cycle prior to the effective date of the new notice. The penalty APR could "potentially remain in effect indefinitely."
A cardholder of a Synchrony-issued T.J. Maxx credit card, for example, was notified that the annual percentage rate would jump to 34.99%, according to an April report in the American Banker. And the penalty rate, which could still be applied when customers are late, would go up to 39.99%. The notice also said Synchrony is adding a $1.99 monthly fee if T.J. Maxx card customers continue to receive paper statements.
Credit card rates on store issued credit cards are typically much higher than regular credit cards, but a rate of 35% really can cause your eyes to pop.
The average rate on retail cards is now 29.33% for all retail cards — credit cards offered by the 100 largest retailers, according to a Bankrate.com survey done in April. That rate is the highest level ever recorded by Bankrate.com.
Back in December, the overall average for all retail cards was 28.93% back in December, up from 26.72% in 2022, according to Bankrate.com.
By contrast, the average credit card rate on a general purpose card or bank-branded card has hit 20.66% — up from 20.23% a year ago and 16.4% on May 1, 2022, according to Bankrate.com data.
The Macy's credit card had an annual percentage rate of 31.99% back in December, but that rate is now listed at 34.49% online.
Putting rates of 30% and higher on ordinary credit cards used to be a psychological "barrier few dared to cross," said Ted Rossman, senior industry analyst for CreditCards.com and Bankrate.com.
He noted that banks can get around state interest rate caps by setting up shop in states like South Dakota and Utah that either don't have an interest rate cap or have a very high one. Yet, he said, there is a 36% national cap on interest rates that can be charged to members of the military.
More typically, he said, consumers would see these kind of rates above 30% being charged to consumers with extremely low credit scores that put them in a deep subprime category for credit. But that's far from the case anymore, as rates on retail cards are often the same for anyone who carries a balance, regardless of credit score.
The CFPB rule does not change the credit card issuer's ability to raise rates — and that's likely to be "one of the main mitigation strategies for the industry," according to a report issued in March by Goldman Sachs analyst Ryan Nash. He also expected the potential introduction of account maintenance fees.
Credit card issuers also could still reduce lines of credit for consumers who show financial stress when they're consistently paying late. "Larger card issuers would be able to charge fees above the threshold," the report noted, "if they can prove the higher fee is necessary to cover their actual collection costs."
Late fees contributed 12% to 2023 revenues on average for the five major card issuers tracked by Goldman Sachs. Late fees were estimated to be 25% of revenues at Bread Financial Holdings, and 20% of revenues at Synchrony.
More: Regulators want to slash credit card late fees to $8 from $32 average
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The credit card industry's disdain toward the $8 fee had dripped throughout the lengthy debate.
Credit card issuers argue that they must revamp their pricing models to compensate for lost revenue, especially if the issuer caters to everyday consumers who can often be late with payments and might not worry about an $8 fee.
A mere $8 fee was labeled a "venti latte" by Bread Chief Financial Officer Perry Beberman at a conference in March 2023, according to the industry publication Payments Dive. Co-branded partnerships in the Bread portfolio, include the NFL Extra Points Visa, Victoria's Secret, and Forever 21, Zales, Lane Bryant, Torrid, Big O Tires and Burlington.
The CFPB made a proposal back in February 2023 to effectively cap credit card late fees at $8 and then issued a final rule in March on an $8 fee, which bankers said was lower than many expected it would be.
Brian Doubles, Synchrony president and CEO, said on an earnings call in late January that Synchrony was reviewing "pricing actions and offsets that we would deploy when we see the final rule." Without these offsets, Doubles said, a meaningful portion of retail store customers who are approved for the retail cards now would no longer have access to credit.
The Consumer Bankers Association warns: "All cardholders, including the 74% who pay on time, could see lower credit lines, tighter standards for new accounts, and increased annual percentage rates," thanks to a low $8 limit on late fees. The argument is that costs will be shifted somewhere else and reduce access to credit.
Consumer advocates, though, see high late fees as one more way to ding consumers with yet another junk fee.
CFPB Director Rohit Chopra said in early March that the new rule "ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines."
Right now, the CFPB stated, large card issuers typically charge consumers $30 for the first late credit card payment and $41 for subsequent late payments, with the average late fee at $32.
The flat $8 late fee sounded so simple when the CFPB made its announcement in March. The pushback, as we've seen, can come in all sorts of fees and fashions.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.
This article originally appeared on Detroit Free Press: Credit cards fight $8 late fee limit, add new fees, higher rates
