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Credit Card Late Fees Don’t Reflect a Customer’s Risk of Defaulting

Tuesday, June 8, 2010

Contrary to what they say, credit card companies don't price late fees for risk, a new report by the Center for Responsible Lending shows. Instead, the study finds issuers that engage in predatory pricing in general are more likely to charge the highest late fees, ones that bear little relationship to the issuers' potential loss.

"The largest credit card issuers claim they use these fees as a deterrent to late payments or to cover their losses," says CRL senior researcher Joshua M. Frank, author of the report. "But the evidence shows late fees are just another way to charge customers more."

The report, "A Just Fee or Just a Fee? An Examination of Credit Card Late Fees," finds late fees aren't pegged to the risk a borrower might default on their credit card debt. Instead, nine of the top ten characteristics of issuers who charge high late fees are other unfair or deceptive practices, such as imposing a much higher interest rate if a customer pays just a day late or aggressively marketing cash advance checks. For the full report go to

The findings come as the Federal Reserve prepares to issue the last set of rules implementing the Credit CARD Act of 2009. The Fed issued the bulk of its CARD act rules earlier this year, but left until now those that will define what a "reasonable" and "proportional" penalty fees is. This report shows that the Fed should help consumers by setting standards for appropriate and fair penalty fees.

For this report, CRL studied data collected in the summer of 2009 from the top 100 credit card issuers. Credit card terms from direct-mail offers, from Better Business Bureau reports and from issuers' financial data were used to create 28 variables for the statistical analysis.

For more information: Kathleen Day at (202) 349-1871 or; Ginna Green at (510) 379-5513 or; or Charlene Crowell at (919) 313-8523 or