Federal judge issues injunction against late fee rule

A federal judge last week issued a preliminary injunction against the Consumer Financial Protection Bureau’s proposal to cap most credit card late fees at $8. 

The May 10 ruling from Northern District of Texas Judge Mark Pittman came four days before the rule was to take effect. He said the injunction is warranted because of the 2022 ruling from the District Court for the Western District of Texas that the CFPB’s funding structure is unconstitutional as it draws funding from the Federal Reserve instead of Congress. The Supreme Court has since taken up the funding case, and is expected to issue a ruling next month.  

The American Bankers Association, U.S. Chamber of Commerce, Consumer Bankers Association and three Texas-based Chambers of Commerce filed the federal lawsuit against the late fee rule earlier this year in the Northern District of Texas, alleging the CFPB exceeded its statutory authority. 

In March, the CFPB requested the lawsuit be transferred to Washington, D.C., challenging whether the Northern District of Texas had jurisdiction over the case. Though Pittman ruled the case could be transferred to Washington, D.C., the Fifth Circuit Court of Appeals later found Pittman lacked jurisdiction to transfer the case while it was pending in Texas.  

The late fee rule applies to credit card issuers with more than 1 million open accounts. 

Limiting overdraft fees will reduce fees that currently cost American families more than $14 billion annually and save them more than $10 billion in annual late fees, according to the CFPB.

The bureau also ended automatic inflation adjustments unless issuers proved doing so is necessary to collect on costs incurred by late fees, after finding many issuers had been increasing their late fees without providing evidence of increased costs. Credit card companies would still be allowed to reduce credit lines, raise interest rates and take other actions to prevent late fees.

ABA President and CEO Rob Nichols said the ruling “will spare banks from having to immediately comply with a rule that clearly exceeds the CFPB’s statutory authority and will lead to more late payments, lower credit scores, increased debt, reduced credit access and higher APRs for all consumers — including the vast majority of cardholders who pay on time each month.” 

 Consumer Bankers Association President and CEO Lindsey Johnson said it is “concerning the CFPB did not follow the Administrative Procedure Act with this rulemaking, which will harm millions of American consumers’ long-term financial health who frequently pay their credit card bills late. Moreover, this rule would increase the cost of credit for the vast majority of Americans who do pay their credit card bills on time.”