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In a short period of time, I've seen multiple major US banks change the terms on their credit cards to set the returned payment fee and late fee each at $27 for the first offense in a six-month period and $38 for each one thereafter.

When I first saw those numbers, I figured it was a bean counting algorithm at that bank that picked those particular amounts, but seeing multiple competitors choosing the same specific numbers at the same time makes me doubt it's a coincidence of independent choices. Was there some recent court decision or other event that set these particular maximums?

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  • Just competition and what the market will bear, as far as I can tell. You should be doing everything you can to avoid those fees anyway...
    – keshlam
    Sep 10, 2015 at 1:17
  • @BenMiller The CARD Act (of 2009, not 1999) stated only that the fees must be reasonable, and authorized a Board to issue rules that would be used in determining what is reasonable. Presumably the rules were indexed for inflation, or are such that $25/35 was considered reasonable when the Act went into effect (2011 or so), but $27/38 is reasonable now. Sep 10, 2015 at 11:21
  • @BenMiller - It can be adjusted for inflation I believe. The cap can be adjusted annually for inflation. (Editor's note: The late-fee cap rose to $26 in 2014).
    – Ross
    Sep 10, 2015 at 14:59
  • In a capitalist economy, companies will charge as much as they can get away with to make a profit.
    – davidjwest
    Sep 11, 2015 at 13:18

2 Answers 2

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The Credit CARD Act of 2009 limited late payment fees that credit card companies can charge. There are two ways that the fee is limited: first, the fee cannot be larger than the amount of the payment. For example, if your minimum payment is $15, the late fee can be no more than $15. Second, the Act requires Federal agencies to set maximum late payment fees.

When the Act first took effect, the late payment fee maximums were set at $25 for the first offense, and $35 for subsequent offenses within 6 months of the first offense.

The Bureau of Consumer Financial Protection updated these fee maximums last year, which took effect on January 1, 2015, to $27 and $38.

From the Federal Register / Vol. 79, No. 158 / Friday, August 15, 2014 / Rules and Regulations:

Effective January 1, 2015, the permissible fee threshold amounts are $27 for Sec. 1026.52(b)(1)(ii)(A) and $38 for Sec. 1026.52(b)(1)(ii)(B). Accordingly, the Bureau is revising Sec.
1026.52(b)(1)(ii)(A) and (B) to state that the fee imposed for violating the terms or other requirements of an account shall not exceed $27 and $38 respectively.

12 CFR Part 1026 is also called Regulation Z and is the regulation that deals with consumer credit. Section 1026.52(b) is the section that regulates penalty fees.

Specifically, 1026.52(b)(1)(ii) says:

A card issuer may impose a fee for violating the terms or other requirements of an account if the dollar amount of the fee does not exceed, as applicable:
(A) $27
(B) $38 if the card issuer previously imposed a fee pursuant to paragraph (b)(1)(ii)(A) of this section for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles;
...
(D) The amounts in paragraphs (b)(1)(ii)(A) and (b)(1)(ii)(B) of this section will be adjusted annually by the Bureau to reflect changes in the Consumer Price Index.

When these regulations are updated, there is a notice in the Federal Register, which is what is quoted above.

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  • The fee amounts are set at $25/$35 but will be updated yearly per CPI-W. Hence the Jan 1, 2015 fee threshold. The updates can go up or down depending on the CPI-W.
    – Ross
    Sep 10, 2015 at 16:09
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Yes the rules are set by the Fed for this issue:

In its final rules issued in June 2010, the Federal Reserve Board got more specific: It decided those who make one late payment will be assessed a $25 penalty instead of the $39 that was commonly charged before. A second late payment during the following six billing cycles will result in a $35 fee.

And card issuers can't impose penalty fees that exceed the amount of the violation. A consumer who exceeds a credit limit by $10 can't be charged more than a $10 penalty. Those late making a $25 minimum payment can't be charged a penalty of more than $25.

The rule also means that a consumer can't be charged multiple penalty fees for one transaction. So issuers can't charge both a late payment fee and a returned payment fee.

On the flip side, if someone doesn't pay a minimum payment for two or more consecutive billing cycles, the issuer can impose a late fee of up to 3 percent of the delinquent balance

and in response to the increase to $27:

The cap can be adjusted annually for inflation. (Editor's note: The late-fee cap rose to $26 in 2014).

It seems they recalculate the maximum fee that can be charged yearly based on the CPI-W.

Source

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