The Consumer Financial Protection Bureau (CFPB) proposal would cap late fees at $8, down from the current average of around $30.

The watchdog says that even if someone makes a payment just a few hours after the deadline they may be hit with an exorbitant late fee that far exceeds the credit card company’s collection costs.

The proposed rule would also end automatic annual inflation adjustment and ban late fee amounts above 25% of the consumer’s required payment.

CFPB director Rohit Chopra says: "Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee.

“Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”

The plan now faces a comment period before going into effect next year.