Credit Card Issuers Raise Rates Ahead of Late Fee Cap

Credit card issuers reportedly have been raising interest rates on the cards and adding new fees to make up for revenue they may lose from a cap on late fees.

These moves have contributed to the average credit card interest rate being near the highest level seen in Federal Reserve data that goes back to 1994, The Wall Street Journal (WSJ) reported Monday (Oct. 7).

The Consumer Financial Protection Bureau (CFPB) rule that would cap late fees at $8 was finalized by the regulator earlier this year but was challenged by a lawsuit filed by banking and business groups and was halted before its implementation by a Texas judge in May, according to the report.

The rule remains tied up in court, per the report.

Still, card issuers and banks have been looking to offset potential losses caused by the rule, the report said.

For example, Capital One CEO Richard Fairbank said in April that the bank was implementing unspecified “mitigating actions”; Bread Financial got rid of a “soft cap” on rates and said it would also charge additional fees; and Synchrony raised interest rates on one of its store cards and implemented a $1.99 fee for each paper statement for some of its card programs, according to the report.

The American Bankers Association has said that the rising rates charged by card issuers in recent years reflect the growing number of subprime borrowers they have served since the 2008 financial crisis, per the report.

Third-quarter bank earnings will provide new data about card balances and delinquencies, the report said.

When announcing its rule lowering credit card late fees in March, the CFPB said the change will reduce the typical late fees charged by card issuers from an average of $32 to — in most cases — $8.

“Today, the credit card industry hauls in more than $14 billion in late fee revenue each year, which our research shows is more than five times the companies’ associated costs,” CFPB Director Rohit Chopra said.

When challenged with a lawsuit , the rule experienced some rounds of “jurisdictional ping pong” before a federal judge in Texas bounced the lawsuit back to Washington, D.C., PYMNTS reported in May.