SACRAMENTO, Calif. — Junk fees are those annoying extra fees tacked onto some purchases like hotel rooms, concert tickets and credit cards. Now, some of those fees are capped due to the federal government, which is working to lower credit card late payment fees.
ABC10 spoke with an expert who says it’s a start, but some big financial pitfalls haven’t gone away.
The Consumer Financial Protection Bureau placed a cap on credit card companies for late fees, capping them at $8 — down from the industry standard of $32.
“For anybody who's experienced carrying credit card debt and then not being able to pay it on time, incurring something around like a $30+ fee really hurts,” said financial coach Maureen Paley.
But why the change?
The bureau says late fees cost American households more than $14 billion a year. It says the new regulation will save consumers more than $10 billion on junk fees.
“What was happening was that credit card companies were just kind of almost carte blanche raising them not necessarily connected to inflation but raising them and raising them until they got exorbitant,” said Paley.
A lower late fee still doesn’t mean you should be late paying. You’re still responsible for paying interest.
Let’s say you bought a lamp online with your credit card for $100 and didn’t pay it off on time. You could be charged the $8 late fee plus 22% interest on the cost of the lamp. So, you’ve effectively paid $130 for a lamp or $30 more than you did when you first bought it.
“There's a lot of permission that we can give ourselves, but we want to remember the overall impact of late payments on credit," said Paley. "It's not just about the fees, it's also about the credit score."
Late payments play a big role in credit scores. Nerdwallet says a payment more than 30 days past due can knock as many as 100 points off your credit score.
“I would recommend that everybody kind of comes back to basics, takes another look at all their income and all their expenses, getting really grounded in what it is they're working with month to month and understanding that every time they choose to put something on credit, it's something that has added consequences,” said Paley.
Some credit cards have done away with late fees altogether, but double check the fine print because there could be other penalties. Beyond the potential impact to credit score, the new change doesn’t prevent credit card companies from raising the interest rate or reducing the credit limit.
If you have questions for Dollars & Sense, email Lora Painter at Lpainter@abc10.com
WATCH MORE ON ABC10: America is hitting 'peak 65' this year. Here's how it will impact everyone
