A Just Fee or Just a Fee?

Published: June 8, 2010

An Examination of Credit Card Late Fees

Read the entire “A Just Fee or Just a Fee?” 13 page research report.

Brief background on the report plus report findings:
The CARD Act of 2009 brought strong credit card reform to the industry and benefits to cardholders, but the penalty late fee issue remains to be addressed. Congress assigned the Federal Reserve to interpret what “reasonable and proportional” penalty fees means according to the borrower’s violation, a credit card late payment, for example. This timely CRL report informs the discussion of credit card issuers and penalty late fees, building on previous credit card industry research.

Report author Joshua M. Frank’s study and statistical analysis found that a pattern exists in which higher late fees are designed to yield issuer profits, but not to deter customer behavior for missed payments or serve to cover their losses. Late fees are just another way to raise costs on credit card customers.

“A Just Fee or Just a Fee?” reveals that: 

  • Issuers that resort to combining multiple deceptive or aggressive pricing practices tended to charge higher fees. Nine of the 10 best predictors of late fees fell into this category. 
  • Issuers that are aggressive in areas outside of pricing tended to charge higher late fees. Ploys like cash advance checks or aggressive collection tactics accompany higher late fees.
  • Credit losses are a very weak predictor of late fee amounts imposed on the consumer. When other variables were included in the statistical analysis, higher risk was not correlated with higher late fees.

Read the “A Just Fee or Just a Fee?” executive summary.


For additional research on credit card abuses not covered by Credit CARD Act provisions, see CRL’s December 2009 report, Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate.