Are Credit Card Late Fees Unconstitutional?

03 Sep Are Credit Card Late Fees Unconstitutional?

We’ve all gotten hit with those late fees from the credit card companies. Pay a credit card bill just a few days late and you’ll see those onerous charges – anywhere from $29 to $39 – on your account.

Unfair, yes. But are they constitutional?

Seana Shiffrin of UCLA discusses addresses this question in her article Are Credit Card Late Fees Unconstitutional? 15 William & Mary Bill of Rights Journal 1 (2006). She uses the case of State Farm Mutual Automobile Insurance Co. v. Campbell, which 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. The constitutional standards articulated in State Farm, Shiffrin states, 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. Aren’t these fees just like punitive damages, Shiffrin wonders? And if so, wouldn’t it pose a constitutional question as to their legal enforcement?

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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