Charging a late fee on cc

If I have no outstanding balance but an annual fee is charged to my card that I forget to pay for the billing cycle, can a late fee be charged for the unpaid annual fee?

I was told by a colleague that a bank cannot charge a late fee on another fee type, but I can't find anything in Reg Z that supports this. Anyone have a citation?

Look at your card agreement.

Pyramiding Late Fees

Pyramiding late fees refers to a creditor's practice of imposing a late fee when a consumer sends a timely payment in an amount sufficient to cover the regularly scheduled payment but insufficient to cover a prior unpaid late or delinquency fee. If the creditor allocates payments first to late fees, the consumer's payment only partially covers the currently scheduled payment, resulting in a new late fee. If the consumer continues to pay only the scheduled payment, late fees will continually be assessed (hence, the phrase pyramiding of late fees). Section 226.36(c)(1)(ii) requires that if a consumer sends a timely payment sufficient to cover the currently scheduled payment, the creditor cannot assess late fees.

Most financial institutions are familiar with this rule because pyramiding late fees is already prohibited by the credit practices rule issued by the Federal Trade Commission (FTC) and the federal banking agencies under the FTC Act.11 During the rulemaking, commenters questioned the need for this rule in light of these existing regulations. But the Board explained in the final rule that by “bringing the fee pyramiding rule under TILA Section 129(l)(2), state attorneys general would be able to enforce the rule through TILA, where currently they may be limited to enforcing the rule solely through state statutes (which statutes may not be uniform).”12

Ask your colleague for a citation to support his or her theory.

Late charges would also be a State law issue which would limit amounts and when you can charge them.

Hey no fair OP, you can't use BOL as a resource to gather arguments to use against your compliance officer. /s

OP here: Not trying to build case against CO. Trying to support whether this is or is not permissible within Reg Z.

I don't believe this is a pyramiding of late fees. Card has no balance, but then an annual fee is charged to the card. Borrower misses payment (likely they forgot, since no charged balance). So technically they missed the minimum payment due and we are now looking to charge a late fee. However, the late fee is stemming from an annual fee that was charged on the card.

We aren't looking to double dip on late fees and we don't do so currently. We just want to ensure that missing a minimum payment can trigger a late fee when the only "charge" on the card is an annual fee. We are trying to ensure we have our system set up correctly and are not making rules up or ignoring rules already in place.

I can find nothing in Reg Z that says this is not permissible (again, not pyramiding late fees).

Yeah it won't be found in Reg Z. You are looking at state law and your card agreement. I know fee on fee is something that is frowned on and can get the UDAP wheels turning so you do want to be clear about how things are going to work in your agreement. Beyond that, its a matter of how you want to treat your customers.

Couldn't the argument be made that an annual fee is just that, a fee. Not a charge. So can you charge a fee on top of a fee?

What you are describing is why I noted that it is important that the agreement be clear about this type of situation. Is the annual fee advanced? How is the late fee assessment described? How is the minimum payment due described? etc.

There isn't a clear cut prohibition in Reg Z but a lender could very easily place a restriction on itself by the way the contract is worded.