The rule taking effect in two months is the subject of a U.S. Chamber of Commerce lawsuit against the CFPB’s authority to enact the rule.
03/18/2024 11:55 A.M.
4 minute read
The Consumer Financial Protection Bureau’s credit card late fee rule will take effect on May 14, 2024, although it is facing opposition in the courts and Congress.
The rule, which reduces credit card late fees from $32 to $8 and eliminates annual inflation adjustments, was finalized on March 5. Two days later, the U.S. Chamber of Commerce filed a lawsuit in the Northern District of Texas seeking a preliminary injunction to stop the rule, ACA International previously reported.
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.
The Chamber said in a news release on the lawsuit 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.”
The Chamber’s lawsuit is in the 5th Circuit, where the case on the constitutionality of the CFPB’s funding structure pending a decision from the U.S. Supreme Court originated.
Since the lawsuit was filed, Judge Reed C. O’Connor of the U.S. District Court for the Northern District of Texas recused himself from the case, Bloomberg Law reports. O’Connor did not provide a reason for leaving the case, according to the article.
Judge Mark T. Pittman will now oversee the case. Pittman is “equally conservative” to O’Connor, according to Bloomberg Law. He struck down the Biden administration’s student loan relief plan in 2022 at the same time as a series of other rulings against the federal government, and therefore may cause some challenges for the CFPB through the case.
In addition to the U.S. Chamber of Commerce, the Fort Worth Chamber of Commerce, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association and Texas Association of Business are plaintiffs in the case.
In response to the lawsuit, the CFPB filed a brief stating “that the Chamber of Commerce and American Bankers Association engaged in blatant forum shopping by filing its case in the federal court in Fort Worth, Texas even though no credit card issuer subject to the rule is located within the Northern District of Texas,” according to the Bloomberg Law report.
The plaintiffs filed their own brief in response, arguing that the Fort Worth Chamber has standing in the lawsuit “because many credit card issuers, large and small, have customers and branches within the Northern District of Texas and are members of the chamber.”
An earlier report from Bloomberg Law says at a minimum, the district court is likely to delay the CFPB’s credit card rule.
Members of Congress have weighed in on the CFPB’s monitoring of fees in the last year, and the final rule restored their ire or support about the issue.
Chairman of the House Financial Services Committee Patrick McHenry, R-N.C., issued a statement against the rule focused on its political motivation versus protecting consumers.
Senate Committee on Banking Housing and Urban Affairs Ranking Member U.S. Sen. Tim Scott, R-S.C., also spoke in opposition to the rule and said he would use the Congressional Review Act process to stop the rule.
House Financial Services Committee Ranking Member U.S. Rep. Maxine Waters, D-Calif., countered with support of the rule and the Biden administration’s overall actions against “junk fees.”
ACA’s Take
The bureau previously sought comments on credit card fees through an advance notice of proposed rulemaking, and ACA responded with an overview of the use of fees in the debt collection industry, ACA previously reported.
Congress also noted in a 2022 letter (PDF) that “the CFPB broadly groups all fees associated with consumer products and services as ‘junk fees’ and does not provide any legal definition of the term or any statutory authority to define such a term.”
ACA strongly agrees with this concern. Moreover, we are disappointed that it has been a trend for the CFPB to use pejorative terms when describing not only the debt collection industry, but also most participants in the financial services industry.
These issues and many more will be center stage at ACA’s Washington Insights Fly-In April 29-May 1. ACA invites members to be a part of discussing these issues during the event to collectively grow the impact of our voice in Washington.
Register by April 15 to meet with your elected officials during Hill visits as well as to hear from legislators and regulators who will speak to ACA as a group.
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