Federal Court Blocks Rule that Would Cap Credit Card Late Fees
Last updated May 13, 2024
A federal judge in Texas has blocked a new rule from the Consumer Financial Protection Bureau (CFPB) that would cap credit card late fees at $8. The ruling comes just days before the rule’s planned May 14 implementation date.
District Court Judge Mark Puttman issued a preliminary injunction without ruling on the merits of the issues raised by a group of business and banking interests that filed a lawsuit objecting to the new rule—although he did call them “compelling.” Rather, he based his decision on a U.S. Court of Appeals ruling that found the way the CFPB is funded was unconstitutional.
“Consequently,” the judge wrote in his decision, “any regulations promulgated under that regime are likely unconstitutional as well.”
The ruling is a win for plaintiffs that include the U.S. Chamber of Commerce, American Bankers Association, and Consumer Bankers Association.
The CFPB rule would have lowered most credit card late-payment fees to $8 (currently, the average fee is $32). It would have also limited future price hikes unless credit card companies could justify them. When it announced the late fee rule in March, the CFPB said it was based on industry-provided data that show the actual costs of a late payment are about $8 per transaction.
That cap would have saved American families about $10 billion in bank fees each year, according to the CFPB’s estimate—a big hit to the banking industry’s bottom line.
The U.S. Chamber of Commerce Ligation Center called the ruling “a major win for responsible consumers who pay their bills on time and businesses that want to provide available credit.”
The Consumer Bankers Association said it was “pleased” with the court’s decision to block what it called an “ill-advised rule” that would increase the cost of credit for the those who pay their credit card bills on time. The CBA vowed to continue legal action to have the rule “thrown out entirely.”
Consumer groups remain confident the CFPB will prevail in court.
“The bankers are ‘pleased’ that, at least for now, they will be able to keep raking in millions of dollars in late fees from families just struggling to get by,” said Lauren Saunders, associate director at the nonprofit National Consumer Law Center. “But we expect that ultimately the Consumer Financial Protection Bureau’s rule protecting people against hidden back-end junk fees will go into effect.”
“We will continue to defend this rule so that working families can stop paying excessive late fees that Congress banned more than a decade ago,” a CFPB spokesperson told Checkbook. “Consumers will shoulder $800 million in late fees every month that the rule is delayed—money that pads the profit margins of the largest credit card issuers.”
More from Checkbook:
Bankers Sue to Block New Rule That Curbs Credit Card Late Fees
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.