The U.S. Chamber of Commerce and other business groups are challenging the rule to lower credit card fees.
05/06/2024 2:30 P.M.
2.5 minute read
A ruling in a case that could overturn the Consumer Financial Protection Bureau’s rule on credit card late fees is due this week.
The rule, which reduces credit card late fees from $32 to $8 and eliminates annual inflation adjustments, was finalized on March 5 and will take effect on May 14.
It almost immediately faced a legal challenge from the U.S. Chamber of Commerce after being finalized.
The Chamber said in a news release that “in promulgating its rule to limit credit card late fees, the CFPB not only exceeded its statutory authority but did so by relying on the use of secret data collected for an unrelated purpose,” ACA International previously reported.
Since the Chamber filed suit, the case faced its own share of challenges, including its original location in the Northern District of Texas court.
Judge Mark Pittman in the Northern District of Texas approved a venue change to the D.C. Circuit Court requested by the CFPB because not enough banks impacted by the CFPB are in the Texas district, ACA previously reported.
The CFPB had requested the transfer on allegations the plaintiffs were “judge shopping” for judges who would favor their challenge of the government rule, according to Reuters.
But, on appeal the New Orleans-based 5th Circuit Court of Appeals found Pittman erred in transferring the case to Washington, D.C.
That brings us to late last week, when the same appeals court denied a request from the CFPB to reconsider that the case shouldn’t have been transferred to Washington, D.C., Reuters reports.
The plaintiffs from the Chamber and other business groups requested a preliminary injunction to stop the rule from taking effect by the May 14 date set by the CFPB.
The judge’s decision on that injunction is due by May 10.
Specifically, the CFPB’s final rule lowers the threshold for a late payment fee to $8 and ends automatic inflation adjustments for issuers that have 1 million or more open accounts. It allows larger card issuers to charge fees above the threshold so long as they can prove the higher fee is necessary to cover their actual collection costs, ACA previously reported.
Republican members of the Senate Committee on Banking, Housing and Urban Affairs have also introduced a resolution to overturn the rule. There is a similar resolution in the House, which ACA will report on more later.
ACA’s Take
The most concerning moral hazard presented by the CFPB’s rule has yet to be mitigated. In addition to the consequences articulated by the Senate Banking Committee members, the problem is there has been no research or data to determine what the cost versus benefit will be when credit card holders do not make their minimum payment on time.
The “message behind the message” will cause acute consequences for borrowers who pay late. Creditors who cannot recoup costs will be forced to consider limiting products offerings, constricting credit or charging more for credit. To date, no mitigation efforts—such as increased education tactics—have been announced by the CFPB.
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