Texas federal judge suspends CFPB's $8 credit card late fee cap

After months of legal wrangling, banks and other credit card issuers have won a temporary reprieve from Consumer Financial Protection Bureau rules that would have slashed their late fee revenue by billions of dollars.

Judge Mark T. Pittman of the U.S. District Court for the Northern District of Texas issued a preliminary injunction on Friday suspending credit card late fee rules after the U.S. Court of Appeals for the Fifth Circuit ruled that the CFPB’s independent funding is unconstitutional. The regulation was originally scheduled to take effect on May 14.

The Supreme Court will rule CFPB v. Community Financial Services AssociationThe agency's funding issues could be addressed as soon as next week.

That goal comes despite widespread expectations that the credit card late fee rule will be suspended after the U.S. Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association and three local industry groups in Texas filed a lawsuit in March to block the rule. The road is tortuous.

Pittman took over the case after the first judge overseeing the case recused himself because of his stock holdings in a bank subject to the rule. Pittman, a Trump appointee, moved the case to the U.S. District Court for the District of Columbia in March after discovering that there were no banks in the Northern District of Texas subject to the rule.

The U.S. Court of Appeals for the Fifth Circuit overturned the transfer and ordered Pittman to rule on the industrial plaintiffs' request for a preliminary injunction to stay the late fee changes. The Fifth Circuit is still considering the industry group’s appeal of Pittman’s denial of its request for expedited consideration of his request for a preliminary injunction, as well as the CFPB’s appeal of the appeals court’s reversal of the transfer order.

Various legal challenges come as the Fifth Circuit and the Northern District of Texas become embroiled in a battle over judge selection for corporate plaintiffs seeking to overturn Biden administration regulations.

Late fee changes

Rules finalized by the CFPB on March 5 will prohibit credit card issuers with more than 1 million open accounts from charging late fees in excess of $8. Currently, banks and other card issuers charge an average late fee of $30 on the first late payment and $41 on each subsequent late payment within six months.

The CFPB said the rule would reduce banks' late fee revenue by about $10 billion annually and save 45 million U.S. consumers an average of $220 per year.

Banks argue that caps on late fees would force them to raise interest rates and other fees to make up for lost revenue. Synchrony Financial, which was a member of the Fort Worth Chamber of Commerce before the lawsuit, said on an April 24 earnings call that it planned to “adjust” rates and fees to make up for lost late fee revenue under the rule.

The CFPB should not have enacted the rule because its funding is unconstitutional, the complaint said, echoing a 2022 ruling by the Fifth Circuit that is currently before the high court. Trade groups also say the rule itself is riddled with procedural flaws and shoddy economic research.

President Joe Biden has made cracking down on so-called trash fees a key part of his reelection campaign, citing the CFPB's rules in his March 7 State of the Union address.

The suspension of the credit card late fee rule marks the second time a Texas federal judge has suspended the effective date of a new CFPB rule ahead of a Supreme Court ruling. U.S. District Judge Randy Crane of the Southern District of Texas suspended the agency's small business demographic data collection rules in October.

Paul Hastings represents the U.S. Chamber of Commerce and other industry plaintiffs.

The case is U.S. Chamber of Commerce v. CFPB, Texas North Dakota, No. 4:24-cv-00213, 5/10/24.

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