“New year, new fees” is probably not a slogan anyone wants to hear. But 2020 may bring an increase in credit card late fees.
Regulation Z, which implements the Truth in Lending Act, allows credit card issuers to impose certain penalty fees on consumers for violating account terms.
Each year the Consumer Financial Protection Bureau is responsible for calculating the amount of certain provisions in Regulation Z to account for inflation. One of the provisions the CFPB looks at is the amount of late fees.
For 2020, the CFPB’s calculation indicates that the amount for a first late payment will increase to as much as $29 — up from $28 in 2019.
If you make an additional late payment on a card within the next six billing cycles, card issuers will be able to charge you up to $40 in 2020 — up from $39 in 2019. Not all issuers charge the max late-fee amounts, but some do — so make sure to read your terms and conditions closely.
There’s an exception, though. The late fee can’t be more than the minimum payment due on a credit card.
But a late-payment fee isn’t the only possible consequence for a late credit card payment. Any payment that’s 30 days late or more can be reported to the credit bureaus, which would mean a ding to your credit scores. And any reported late payments can stay on your credit reports for up to seven years.
Card issuers can also charge you a penalty APR after missing a payment, which means more interest will accrue if you keep a balance on your card.
How can you avoid late payments?
If news of higher credit card late fees has you worried, here are some tips to help you avoid making late payments.
- Set up autopay. Setting up automatic monthly payments on your account for at least the minimum due can help you avoid late fees. Make sure you keep an eye on your bank account to avoid an overdraft fee, though.
- Set up payment reminders. Many credit card issuers offer email and text alerts to remind you that payment is due a few days before the due date. Signing up for these alerts can help you remember to make your credit card payments.
- Make a budget. Consider using the 50-30-20 method, where 50% of your budget goes toward necessities, 30% toward discretionary spending, and 20% toward paying off debt or putting money in savings. Make sure you take into account at least the minimum monthly credit card payments you have so that you’ll be able to plan for past and future credit card spending.