In a significant turn of events, a federal judge in Texas has halted the implementation of the Consumer Financial Protection Bureau‘s (CFPB) new rule, which aimed to cap credit card late fees at $8. This ruling marks a victory for business and banking groups that have been challenging aspects of the Biden administration’s crackdown on what is termed as “junk fees.”
U.S. District Judge Mark Pittman, based in Fort Worth, issued a preliminary injunction on Friday, effectively preventing the rule from taking effect as planned next week. The injunction was requested by various groups, including the U.S. Chamber of Commerce and the American Bankers Association.
Judge Pittman, who was appointed by former President Donald Trump, referred to a 2022 ruling by the New Orleans-based 5th U.S. Circuit Court of Appeals, which had declared the CFPB’s funding structure unconstitutional. He cited this precedent, stating that regulations formulated under such a structure are likely unconstitutional as well, thereby establishing a likelihood of success for the plaintiffs.
Despite the U.S. Supreme Court’s ongoing review of the 2022 ruling, Judge Pittman remains bound by it due to his court’s jurisdiction falling within the 5th Circuit’s purview.
Maria Monaghan, counsel to the U.S. Chamber of Commerce Litigation Center, hailed Pittman’s decision as a significant victory for both responsible consumers and businesses aiming to offer affordable credit. Conversely, a spokesperson for the CFPB reiterated the regulator’s commitment to defending the rule, highlighting the potential financial burden on consumers due to delayed implementation.
President Joe Biden’s administration has thrown its weight behind the CFPB’s rule, considering it a crucial measure to alleviate American families from what it perceives as burdensome credit card late fees. White House spokesperson Jeremy Edwards expressed disappointment with the ruling, emphasizing the rule’s potential to save billions in junk fees.
The CFPB’s rule aimed to counter what it termed as “excessive” fees charged by credit card issuers for late payments. Under the rule, card issuers with over 1 million open accounts would be restricted from charging credit card late fees exceeding $8, unless they could justify higher fees based on covering their costs.
According to the CFPB’s data, credit card issuers amassed over $14 billion in late fees in 2022 alone, with an average fee of $32. Business and banking groups initiated legal action against the rule in March, leading to a jurisdictional dispute over the case’s location between Texas and Washington, D.C.
The 5th Circuit panel, primarily composed of Trump appointees, ultimately overturned the decision to transfer the case to Washington, D.C., directing Judge Pittman to issue a ruling by May 10. Despite expressing reservations over the 5th Circuit’s rulings, Judge Pittman concluded that the legal process must be trusted to render a fair outcome.
