One reason for late fees I’m not seeing in the comments is high demand inventory management. In small libraries, a popular title might have a long waitlist due to a smaller supply as a budgetary constraint. The late fees correspond with a limited borrowing timeframe so that the popular item gets utilized by more patrons. This seems fair to me, though I appreciate there is another consequence of late fees that others here consider advocating against.
You could try giving rewards/achievements to patrons that have a record of on-time return instead of punishing people (e.g. extended "okay" borrowing windows, small discount at the café etc).
