Introduction
Late fees are the amount charged when a credit card payment is received after the due date listed on your statement, or when you make a payment that is less than the minimum required amount. When you have a balance on your credit card, the due date will not be earlier than 21 days after the end of your billing cycle.
How Late Fees Work and How Much They Are
The law sets a maximum amount for late fees that credit card issuers can collect. As of January 1, 2020, issuers can collect up to $29 the first time you are late on a payment, or up to $40 if you have been late more than once in the previous six months. (The maximums for 2019 were one dollar lower.)
It is noted that as part of the Fair Credit Billing Act, the Consumer Financial Protection Bureau reviews late fee thresholds annually to ensure they are in line with inflation in the United States.
Additionally, late fees cannot exceed the amount of the violation. For example, if you were late on the minimum payment of $10, the late fee cannot be greater than $10.
Most credit cards set fees based on how often you are late with payments. However, some credit cards impose tiered late fees based on your credit card balance. For instance, if your balance is under $1,000, your late fee may be $10, but if it’s between $1,000 and $2,000, it could be $20, and if it’s more than that, it might be $25.
If you do not pay the late fees before the next billing cycle ends, your upcoming minimum payment will include the regular minimum payment, the late fees, and any past due payment from the previous billing cycle.
How to Avoid Paying Late Fees
You can avoid paying late fees by paying the full minimum amount due by the due date. It’s important to send your payment in advance if you are mailing your payments. If you easily forget, consider scheduling payments through your credit card issuer’s website or through your bank’s online bill pay system.
You should also pay close attention to your payment due time, especially if you know you will be paying at the last minute. If payment is made after the cutoff time, even if it is on the due date, you may incur a late fee. Credit card issuers cannot require payment due before 5 PM, and some accept payments until midnight. Check with your issuer to know the specific cutoff time on your card.
When it gets close to your due date, make the payment online or by phone. Some lenders may charge a rush payment fee, especially if a customer service representative helps process the payment. However, this fee may be less than the late fee.
If you are not frequently late on your credit card or loan payments, be sure to ask for a late fee waiver. An issuer may grant you a one-time waiver if they can see that you have not had payment issues in the past.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Check out our editing process to learn more about how we verify facts and maintain the accuracy, reliability, and quality of our content.
Agency
Consumer Financial Protection. “Ask CFPB: I paid my bill on time last month and yet I was charged a late fee. How can that happen?”
Federal Trade Commission. “Credit Card Accountability Responsibility and Disclosure Act of 2009.” See Section 163. Timing of Payments.
Federal Register. “Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards and HOEPA Qualified Mortgages).”
Consumer Financial Protection Bureau. “§ 1026.52 Limitations on Fees.” See (2) Prohibited Fees, paragraph (a).
Consumer Financial Protection Bureau. “§ 1026.10 Payments.”
Source: https://www.thebalancemoney.com/what-is-a-late-fee-960701
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