A federal judge in Texas has blocked a new government rule that aimed to reduce credit card late-payment charges, a move that was part of the Biden administration’s efforts to eliminate “junk” fees. The U.S. District Court for the Northern District of Texas granted an injunction requested by the banking industry and other business interests to halt the implementation of the rule, which was set to take effect on May 14. The judge referenced a 2022 ruling by the U.S. Court of Appeals for the Fifth Circuit that deemed the funding for the Consumer Financial Protection Bureau (CFPB), the agency responsible for enforcing the rule, as unconstitutional.
The regulations, which were approved by the CFPB in March, aimed to limit late fees for credit card payments to $8, significantly lower than the current late fees of $30 or more. Despite being a burden for consumers, these fees generate around $9 billion annually for card issuers, according to the agency. Following the announcement of the ban on “excessive” credit card late fees by the CFPB on March 5, the American Bankers Association (ABA) and U.S. Chamber of Commerce filed a legal challenge.
The ABA, representing the banking industry, welcomed the judge’s decision to block the rule, stating that it would prevent banks from being forced to comply with a regulation that exceeds the CFPB’s authority. They argued that the rule would lead to more late payments, lower credit scores, increased debt, reduced credit access, and higher APRs for consumers. On the other hand, consumer groups criticized the decision, claiming that it would harm credit card users nationwide, allowing for high late fees to continue.
Consumer advocates supporting the CFPB’s late-fee rule highlighted that credit card issuers charged customers $14 billion in late-payment fees in 2019, representing over half of their fee revenue that year. Critics of the financial industry argue that these late fees disproportionately affect low- and moderate-income consumers, particularly people of color. Despite the temporary stay granted by Judge Pittman, analysts predict that the legal battle over late fees will persist, potentially reaching the Supreme Court for a final decision.
Experts believe that the ongoing legal dispute could lead to the CFPB seeking to lift the preliminary injunction if the Supreme Court rules that Congress adequately funded the agency. This suggests that the fight over the fee reduction may not be over, with the possibility of further legal proceedings to determine the fate of credit card late fees. The outcome of this case could have significant implications for consumers, banks, and the financial industry as a whole.
