High Credit Card Late Fees: Do They Harm or Protect Consumers in Singapore?

With the rise of credit card interest rates and fees at banks over recent years, you might be wondering: Are these charges really there to encourage us to pay on time, or are they just another way for banks to profit, potentially hurting those of us already facing financial challenges? It's a tricky question, and the debate surrounding high credit card late fees is definitely complex.

In the US, the Consumer Financial Protection Bureau (CFPB) introduced a rule aimed at slashing credit card late fees. However, this move has faced legal challenges. A federal judge blocked the CFPB's rule after the US Chamber of Commerce filed a lawsuit, arguing that the rule would prevent credit card companies from “collecting reasonable and proportional late fees when cardholders don’t pay their bills on time.” The CFPB, on the other hand, presented research suggesting that issuers’ late fee revenue significantly exceeded the companies’ associated costs.

This highlights a question that’s relevant globally: are credit card late fees a fair deterrent, or are they becoming an excessive burden?

On one hand, late payment charges can act as a deterrent, nudging cardholders to pay their bills punctually and avoid getting into debt. On the other hand, high credit card late fees can be a real burden, especially for those who are already struggling to make ends meet. This is especially true when you consider the serious implications of what happens if you don't pay credit card debt.

Credit card late fees in Singapore typically average around SGD 100, though this can vary between issuers. These fees often raise eyebrows among consumers, who are right to question whether they're a fair penalty for a late payment charge or an excessive charge that primarily lines the pockets of card issuers.

It's important to acknowledge that credit card late fees do contribute to the profitability of card issuers. Credit Bureau Singapore (CBS) data shows that late payments have a negative impact on credit scores, and financial institutions here use these scores to assess risk. So, late fees can be seen as a way for them to mitigate that risk and cover the costs associated with managing accounts where payments are overdue.

However, there's a valid concern that credit card issuers in Singapore might also be using late fees as a profit source. While The Monetary Authority of Singapore (MAS), regulates fees to ensure fairness, banks still have some discretion to set limits within the guidelines. This can, unfortunately, lead to a situation where consumers facing financial hardship are disproportionately impacted, as late fees tend to hit those with higher credit risks the hardest.

Finding that sweet spot is key: late payment charges should be high enough to discourage late payments but not so high that they become an undue burden on consumers, particularly those who are already struggling financially.

While high credit card late fees are one way to deter late payments, Singaporean consumers like you have access to some smart, alternative guardrails that can be just as effective – and less painful!

With the widespread use of mobile banking apps and digital notifications, you have easy access to tools that can help you manage your credit card payments like a pro. Most banks in Singapore offer handy mobile banking apps that provide digital notifications and reminders for upcoming due dates. These digital tools empower you to stay organised, keep track of your finances, and avoid missing those all-important payment deadlines.

Furthermore, you also have ready access to your real-time credit scores through banking apps and other platforms. This increased visibility into your credit standing can act as a powerful incentive to pay on time, as you can directly witness the negative impact of what happens if you miss a credit card payment on your credit score.

In Singapore, your credit score plays a vital role in your overall financial well-being. A good credit score is essential for accessing credit in the future, such as loans for that dream property or your future car. Missing payments can lower credit scores, making it harder to access credit down the line – a significant long-term consequence that you definitely want to avoid.

Late payments can also lead to rising debt and ongoing financial strain, further damaging your ability to manage your finances effectively. This is a crucial consideration when evaluating the effectiveness of credit card late fees as a deterrent.

While long-term consequences have an impact on getting you to pay your credit card bills on time, it's a question of whether they're always effective in influencing our short-term behaviour.

Sometimes it's easier to think about the here and now. There is some evidence to suggest that immediate deterrents like late fees or timely digital notifications may be more effective than the long-term consequences of having your credit score affected. Humans tend to "discount" the value of future consequences. A late payment charge is a certain and immediate cost – you know it's going to happen, and it's going to cost you. On the other hand, the impact on your credit score is often a less certain and more distant consequence. This discounting makes the immediate fee more salient and likely to drive behaviour at the moment, reducing late payments.

Regardless of the ongoing debate about the pros and cons of credit card late fees, you can take proactive strategies to avoid these penalties entirely. Here's how to avoid credit card late fees and take control of your finances:

Set up due date notifications

Most credit card issuers in Singapore offer handy SMS or email reminders for upcoming payments. Make sure you use these notifications to stay on track and avoid any nasty surprises.

Set reminders using banking apps like DBS NAV Planner or OCBC's Smart Budget. These apps provide tools to manage your finances, track payment deadlines, and keep you organised.

You can also consider using personal digital tools like your calendar or other financial apps to track payment deadlines. These digital tools are your friends – use them to stay organised and ensure you never miss a due date.

Embrace autopay

Setting up autopay is a highly effective way to avoid those dreaded late payment charges. Autopay ensures that your credit card payments are made automatically each month, completely eliminating the risk of missed due dates.

You can also opt to pay the minimum payment automatically and then pay the balance separately as your budget allows. This smart strategy ensures that you always meet at least the minimum payment requirement while still maintaining flexibility in managing your finances.

Don't be shy: Ask for a late fee waiver

Lastly, don’t be afraid to ask for a late fee waiver. Many credit card issuers in Singapore are actually willing to waive late fees, especially if it's the first instance of a missed payment. This is particularly true for customers with a good payment history – so it pays to be a responsible card user!

If you've been hit with a late fee, it's always worth contacting your credit card issuer to request a waiver. You might be surprised at how often they are willing to grant this request, especially if you have a history of responsible credit card use, so it’s definitely worth a shot!