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Regulators are slashing credit-card late fees. When will customers see the charges shrink?

The new rule slashes the typical late charge to just $8. Federal regulators are slashing credit card late payment fees.

The Consumer Financial Protection Bureau finalized a rule on Tuesday that caps credit-card late fees at $8, a fraction of what most issuers typically charge. 

The rule is part of a broader campaign within the Biden administration taking aim at so-called junk fees. It’s been sharply criticized by card issuers and lobbyists, who say fees that low don’t cover the cost of customers falling behind and won’t do enough to deter credit card users from making late payments.

Read more: For a growing share of Americans, credit-card debt now exceeds savings. Here’s how to build an emergency fund while paying off debt.

The new cap on late fees may be small compared to what the average consumer is paying in interest. Most credit cards charge well over 20% in interest, and the average credit card balance was $6,864 in the fourth quarter of 2023, according to personal-finance site LendingTree.

“Given the levels of credit card debt in the economy, making a late payment cheaper than buying popcorn at the movie theaters does not help consumers,” said Kelvin Chen, head of policy at the Consumer Bankers Association.

More on credit-card debt (November 2023): Is America’s record credit-card debt a red flag for the economy? ‘The trends are definitely not good.’

Regulators say the new rule is a win for consumers, who will no longer have to contend with expensive penalties when they’re already struggling to make credit-card payments. 

The rule has been in the works since early last year — but it’ll probably be a while before you see the charges at your card issuer shrink.

Here’s what you need to know about the rule, and when — or if — you can expect changes to go into effect.