Late Fees Slam Borrowers With Lowest Credit Scores

That’s how much credit cardholders with the lowest credit scores paid in late fees in 2019—more than 10 times the average for those with the highest scores and one reason regulators say penalties can aggravate financial hardship.

A new study by the Consumer Financial Protection Bureau showed accounts belonging to borrowers with credit scores below 580 were charged  an average of $138 in late fees, while those with credit scores of 720 or above were charged $11. And those figures are only per credit card, according to the study released Tuesday. The bureau notes that borrowers in the lower credit score range typically have two or more cards, meaning fees for not making minimum payments on time will really add up for them.

While it’s hardly surprising that those with the worst credit scores pay the most in late fees—after all, paying bills late is one of the things that reduces your credit score—the bureau points out those customers are also most likely carrying balances and paying interest on the money they owe on top of the late fees, which may blindside borrowers. In recent months, the bureau has scrutinized what it calls “exploitative junk fees'' that it says are unfair or unexpected, including credit card late fees and bank overdraft fees. 

The bureau’s campaign has met with one major success so far: The largest banks have reduced or eliminated their overdraft fees in recent months.

The American Bankers Association, a trade group representing the industry, said the government already requires fees to be clearly disclosed, and their levels are capped by regulators.

“Left out of this report is any mention of the millions of consumers who value and appreciate the safety and convenience provided by the credit cards they use every day, as well as the wide array of options they have to choose from when they pick a credit card,” an association spokesman said in an email.

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