Undergraduate dissertation · University of Bath × ideas42 · 2024–25
“Too Little, Too Late:
How financial vulnerability shapes credit card late fee payment behaviour”
Summary
I wanted my dissertation to provide real-world value, so I approached ideas42 and offered their Financial Health team a dissertation's worth of research on a question they wanted answered. As sole researcher, I used COM-B to explain why financially vulnerable households keep paying credit card late fees, and what issuers and regulators could do instead. I presented the findings to the team and led the Q&A, and the work went on to inform a wider ideas42 project funded by JP Morgan Chase.
The question
Card issuers defend late fees on two grounds: they help deter missed payments, and they cover administrative costs when payments are missed. Both arguments assume a consumer with the time, money and headspace to pay on time.
In practice, Americans pay around $14 billion a year in credit card late fees, roughly 17 times what missed payments cost issuers. Financially vulnerable households pay about $220 a year in late fees, compared with $11 for financially healthy households.
The households paying the most in fees are the ones least likely to fit that picture. So I asked:
- How does living with financial vulnerability affect decisions about paying a credit card on time?
- Do late fees actually encourage on-time payment in financially vulnerable households?
- What could issuers do instead?
Why it mattered
In 2024 the US Consumer Financial Protection Bureau set an $8 cap on most credit card late fees, as part of a wider push against "junk fees". The rule was blocked in court before it took effect, and in April 2025 a federal judge vacated it with the Bureau's agreement.
Opponents warned that a cap would weaken the deterrent, encourage overborrowing and push up interest rates for everyone. Supporters said the fees were excessive and fell hardest on people with the least. Both sides were making claims about behaviour, yet there was very little direct evidence on how late fees change it. That gap is what this dissertation aimed to fill.
How I approached it
I approached ideas42 myself and offered their Financial Health team a dissertation's worth of research on a question they wanted answered. We agreed the focus together.
To structure the analysis I used COM-B, which explains behaviour through Capability, Opportunity and Motivation. It suited the topic for three reasons. It treats missed payments as the product of constraints, not just choices. It covers mental, practical and emotional factors in one model. And it connects to the Behaviour Change Wheel, which turns a diagnosis into concrete interventions.
What I found
Capability
- Scarcity narrows attention to whatever is most urgent: rent, food, the electricity bill. A looming credit card payment easily drops out of view.
- Financial stress takes up mental bandwidth. Its effect on memory and self-control is comparable to going a night without sleep.
Opportunity
- On a tight income, paying the card can mean not paying for food, transport or medicine. The fee becomes the price of getting through the month.
- Savings buffers, cheap credit and automatic payments all make on-time payment easier, but all are difficult to access on a low or irregular income.
- Automation can backfire. A failed direct debit on a fluctuating balance can trigger another charge.
Motivation
- When debt feels permanent, one more fee makes little difference.
- Many people juggle bills on purpose and see fees as a cost of doing so.
- Money worries drive avoidance, like leaving statements unopened. A fee can deepen that disengagement instead of prompting action.
Late fees work best on the people who were never likely to pay late.
What I recommended
The case for late fees rests on a "rational consumer" who rarely exists. My recommendations move from penalising missed payments to making on-time payment easier. They focus on enablement rather than education: the barriers I found were limited attention, financial stress and a lack of options, not a lack of knowledge, so telling people more about fees would change little.
For card issuers
- Clearer reminders, sent when they are most useful
- Payment options that flex with variable income
- Safer automation that doesn't charge people for a failed payment
- Statements and processes that ask less of people's attention
For policymakers
- Check fee levels against what a missed payment actually costs
- Limit how much issuers can rely on regressive fee revenue
- Require supportive alternatives to penalties
- Judge penalties by who ends up paying them
What happened next
I presented the findings to ideas42's Financial Health team and took questions on the behavioural mechanisms behind them. The analysis then fed into a wider ideas42 research project funded by JP Morgan Chase.
"A clearly structured and well organised dissertation."
Neil Howard, dissertation supervisor, University of Bath