Is Enforcement of Credit Card Late Fees Unconstitutional?

Seana Shiffrin of UCLA discusses the constitutionality of the enforcement of credit card late fees in her article "Are Credit Card Late Fees Unconstitutional? 15 William & Mary Bill of Rights Journal 1 (2006).  Here's the abstract:

State Farm Mutual Automobile Insurance Co. v. Campbell articulated serious and specific constitutional constraints upon the imposition of punitive damages. Justice Kennedy's majority opinion announced that, apart from exceptional cases, punitive damages should not exceed nine times the amount of the actual losses sustained by the plaintiff and should usually be far lower. Indeed, the opinion observed, they typically should be much lower, citing double, treble, and quadruple multipliers as instructive examples. Some commentators have worried that the decision could adversely affect consumer interests by offering insulation for tortuous behavior that is difficult to detect or litigate. This Article will explore, however, the decision's unheralded ramifications for contract law, ones that may serve consumer interests.

The constitutional standards articulated in State Farm call into question the constitutionality of those statutes and regulations that authorize credit card issuers to charge legally enforceable late penalties but place no significant limitations on their size. Analyzed through the lens of traditional contract law, these penalties are punitive damages for breach that, as such, would typically be invalidated but for positive legislative efforts to override this traditional treatment. Through federal and state statutes and regulations, credit card companies have gained government authorization to levy enforceable penalties that far exceed what the guidelines identified in State Farm permit. To be precise, disproportionately high credit card late fees themselves are not unconstitutional, but State Farm calls into constitutional question their legal enforcement. It also calls into constitutional question the federal and state statutes that authorize and facilitate the imposition of these high late fees, which override both consumer protection statutes to the contrary and traditional contract doctrines that entirely disallow punitive damages.

You can find the article at http://ssrn.com/abstract=961030.

Comments

[Tiffany]

Your link is broken; you can find the article at http://ssrn.com/abstract=961030 (wouldn't want anyone to miss it!)

[JoAnna]

orchard bank sends out its regular credit card bills and when you pay them on time the amount they specify, you have nothing owed until next month, right? wrong. After you pay your minimum for the month that they say you owe for, then they charge you interest fees and than charge you a $30 over limit fee. I called them on it, and they took it off but would not take it off for having done it months prior.Or you pay to make a rush payment of $12.95 to get it done on time only to have them say it wasn't done on time, that it posted late so they can charge you a late fee of $35. They are scoundrols.

[Wendi Damerval]

Washington Mutual company bought out our original Providian Pay Pal credit card contract and immediately loaded our credit card with tricks and traps that caught us as consumers into traps that resulted in fees and fines and huge increases in our interest rate and now we are caught in a snare from which we cannot escape. Washington Mutual has used a bled of increased, high interest rate raises, extorts late charges by posting payments far after they're received, over-limit fees, double cycle billing, disappearing grace periods, $15 phone payment charges, long hold times on phone, incompetent non english speaking foreign help, no follow-up, gives wrong numbers out and every other possible way to run up our bill, to keep us paying and paying and paying. The card was cancelled when they began demanding payments on a $4000 balance in excess of 600 a month.

[Travel Guy]

There is some excellent credit card company info in the book discussed in this blog: http://mitpress.typepad.com/mitpresslog/business_and_finance/index.html.

[Doxie Luver]

Household Bank, which finances for Best Buy, will send you to Collections over one Late Fee of $39 - even if the payment posted only one day past the due date. They refuse to add the late fee to the balance, as do most other creditors and also are very rude - no one you finally reach on the phone speaks clear English. No payments on my account were missed, but one was posted 1 day late and since I made my regular payment the following month, they are now stating I am delinquent and have turned me over to collections. I need to know if it is even legal for them to refer my acct to collections over a late fee...???

[Doxie Luver]

Household Bank, which finances for Best Buy, will send you to Collections over one Late Fee of $39 - even if the payment posted only one day past the due date. They refuse to add the late fee to the balance, as do most other creditors and also are very rude - no one you finally reach on the phone speaks clear English. No payments on my account were missed, but one was posted 1 day late and since I made my regular payment the following month, they are now stating I am delinquent and have turned me over to collections. I need to know if it is even legal for them to refer my acct to collections over a late fee...???

[Bob from Debt Help Review]

I can understand instituting reasonable late fees as a deterrent for tardy payments. But CC companies try to manipulate this by staggering the payment due dates, in hopes that you won't pay attention and pay each month on the same date. Then pay late one month because you were paying out of habit. THAT part is unethical.

[Mike]

I have made a payment online for my Best Buy card on the due day. I was on vacation and came back right on time. The payment posted a day later and I got charged a 39.00 late fee. I called and got a person with accent on the phone. I asked for a refund on the late fee and it quicky turned into negociation. First he was willing to refund 30% of it. Then after a few minutes I got him to refund 50% of it. After that he tried to push me some extra programs for extra money. I was disapointed with Best Buy and I have paid the account off right that day from a home equity line of credit. I will never use their credit card services again. I left the account open as I'm worried it will negatively impact my credit report if I close it.

[susaan a keir]

we have been turned into a nation of indentured servents, and we need to wake up and put a stop to this as ap.