Credit card borrowers face ‘consequences’ for late payments, CFPB says

The CFPB found that late fees are often layered on top of other punitive measures credit card companies impose on consumers who miss payments, including negative credit reporting, which can hurt their credit rating.

“When consumers don’t make required payments, they can face a long list of consequences. They pay extra interest, their credit report gets hit, their credit line can get cut, and, of course, they can face a late fee,” Rohit Chopra, director of the Consumer Financial Protection Bureau, said in a statement Tuesday.

Collectively, consumers are having a harder time managing debt amid high interest rates and higher prices. Americans now collectively owe $1.13 trillion on their cards, and the average balance per consumer is up to $6,360, both historic highs.

Not only are more cardholders carrying debt from month to month but more are also falling behind on payments, recent reports also show.

Credit card delinquency rates surged in 2023, the Federal Reserve Bank of New York found.

“Serious” card delinquencies — payments that are 90 days or more overdue — jumped more than 50%, which “signals increased financial stress,” the New York Fed reported.

Generally, the higher your credit score, the better off you are when it comes to getting a loan. You’re more likely to be approved, and if you’re approved, you can qualify for a lower interest rate.

Alternatively, “the lower the credit score the less likely you could get approved for financing and the higher your interest rate is going to be,” said Ann Kaplan, founder of iFinance, based in Toronto.

Already, the average credit card charges over 20%, a record high, but borrowers with lower credit scores pay even more. “It’s difficult in this current economy not to have a good credit score,” Kaplan said.

For the most part, consumers are still faring well. The national average credit score now stands at 717, according to FICO, developer of one of the scores most widely used by lenders. FICO scores range between 300 and 850.

However, that national average is down 1 point from where it stood in the beginning of 2023, marking the first decrease in credit scores in more than a decade.

“We are starting to see the increases in missed payments and debt levels weigh down on that overall aggregate measure,” said Ethan Dornhelm, FICO’s vice president of scores and predictive analytics.

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