The CFPB Seeks to Resolve Legal Dispute Over Proposed $8 Cap on Credit Card Late Fees

In March of 2024, the Consumer Financial Protection Bureau (CFPB) announced that it was seeking to amend Regulation Z, which provides protections to consumers who use credit products. Specifically, the CFPB aimed to cap the late fees large credit card issuers charge cardholders when they miss a payment due date.

The Consumer Financial Protection Bureau defines large credit card issuers as those that, combined with their affiliates, have at least 1 million open credit card accounts. The CFPB sought to cap late fees at $8 for those institutions. An $8 cap on late fees represents a significant reduction from current charges for late fees. 

According to the CFPB, current regulation “sets forth a safe harbor of $30 generally for penalty fees, except that it sets forth a safe harbor of $41 for each subsequent violation of the same type that occurs during the same billing cycle or in one of the next six billing cycles.”

The bureau outlined in its final rule that those fees were excessive and expressed concern “based on data from certain Larger Card Issuers that this amount is higher than is justified based on consumer conduct and to deter future violations and, indeed, a late fee that is too high could interfere with a consumer’s ability to make future payments on the account.”

A significant amount of revenue is at stake for credit card issuers if the proposed late fee cap moves forward. The CFPB reported that issuers collected more than $14 billion in late fees in 2022.  

It didn’t take long for concerned groups to voice their opposition to the CFPB’s credit card late fee plans. Plaintiffs, including the American Bankers Association and the U.S. Chamber of Commerce, filed a lawsuit to prevent the late fee cap from moving forward days after the CFPB issued the rule outlining the cap.

“Congress has recognized that credit card late fees appropriately serve three commonsense, important purposes: deterring late payments, accounting for cardholder conduct, and compensating credit card issuers for the costs they incur when payments are late,” the plaintiffs wrote in their complaint. 

But that was last March, and a lot can change in one year’s time. One need look no further than the Consumer Financial Protection Bureau itself for evidence of that. 

The bureau has come under fire during President Donald Trump’s second term. Rohit Chopra was the Director of the CFPB in March 2024, but Trump fired him not long after he was sworn into office. 

Moreover, the CFPB’s future is in question in 2025. Late last week, a D.C. judge granted an injunction to prevent further dismantling of the bureau, a move that prompted a quick appeal from the Trump administration.

The Consumer Financial Protection Bureau stood by its proposed cap on credit card late fees in 2024 amid legal opposition, but the bureau has changed its tune this year. 

In March 2025, the CFPB and its Acting Director, Russell Vought, issued a status report communicating its belief that it can settle outstanding litigation against the bureau in regards to its proposed late fee cap.

The report, filed on March 12, reveals that the CFPB’s legal counsel has been working with the parties who sued the bureau over the proposed cap to find a resolution to the issue.

“Based on those conversations, the Bureau is optimistic that an agreement can be reached within 30 days, but the parties require additional time to see if an agreed resolution is feasible,” the defendants wrote in the report. 

While we wait to see if the parties can reach an agreement, let’s examine the effects a reduced late fee may have on how issuers structure their credit card offerings.

To offset revenue losses resulting from a lowered late fee charge, issuers may raise other fees, such as annual card charges and fees for foreign transactions. Popular card benefits, including travel perks and cash back rewards, could be on the chopping block if issuers look to rein in expenses. 

Credit card issuers could also raise interest rates to make up for lost revenue. A report that came out during the fourth quarter of last year — before the CFPB indicated it was working with plaintiffs to resolve the late fee issue — indicated that some institutions had already begun raising rates in anticipation of the cap.

Though the CFPB’s proposed rule only applies to credit card issuers who have at least 1 million open credit card accounts, issuers with fewer credit card customers may also experience adverse effects. A post from the America’s Credit Unions blog argued that a late fee cap on larger issuers may have a trickle-down effect on smaller ones.

“If consumers are aware that large card issuers only charge $8 for late payments, but that a small issuer is still charging $32, the consumer may choose to use the larger issuer for their credit needs,” the post reads. “Thus, small card issuers may feel pressure to lower their late fees to remain competitive with large card issuers.”