The lawsuit seeking to stop the rule also alleges the CFPB used unrelated data as the basis for the rule and it is supported by funds used in violation of the Appropriations Clause.
03/08/2024 2:15 P.M.
3.5 minute read
Days after the Consumer Financial Protection Bureau finalized its rule on credit card late fees, the U.S. Chamber of Commerce filed a lawsuit (PDF) in the Northern District of Texas seeking a preliminary injunction to stop the rule.
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 bureau, which started its push for regulating fees in 2022, noted in a news release that it reviewed market data related to the Credit Card Accountability Responsibility and Disclosure Act of 2009 and is acting to close a 2010 “loophole.”
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.”
Among other arguments, the U.S. Chamber and co-plaintiffs, the Fort Worth Chamber of Commerce, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association and Texas Association of Business, filed the lawsuit against the CFPB for:
- “Violating the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 by preventing issuers from collecting reasonable and proportional late fees when cardholders don’t pay their bills on time.
- Violating the Administrative Procedure Act (APA) by promulgating a final rule that is arbitrary and capricious, relying on secret data collected from only the largest banks for a different purpose and by a different agency.
- Issuing the rulemaking with funds drawn in violation of the U.S. Constitution’s Appropriations Clause.
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.
Opponents of the credit card rule have said it would increase costs for all credit card users, which the Chamber argued in its lawsuit as well.
“The agency’s own analysis has found that by limiting late fees, associated costs will be passed onto all credit card users, even those who have never made a late payment,” the Chamber said in the news release. “The CFPB is acting outside its authority and the Chamber’s lawsuit seeks to protect American cardholders who pay their bills on time and enjoy the numerous benefits of diverse credit card offerings from America’s financial institutions.”
The rule has drawn criticism from some members of Congress, including chair of the House Financial Services Committee Patrick McHenry, R-N.C.
“The Biden [a]dministration continues to weaponize financial regulators to play politics in an election year,” McHenry said in a statement following the release of the final rule. “Just days before the State of the Union, it is clear that this [a]dministration plans to take a ‘victory lap’ at the expense of American consumers. This calls into question the composition and motivation of this rulemaking. The final rule suffers from the same fatal flaws as the proposal. The CFPB should get back to protecting consumers instead of blindly taking marching orders from the President’s political team. It’s time for the Biden [a]dministration to focus on lowering costs for all Americans and stop using independent regulators to play political games.”
A House Financial Services subcommittee explored recent actions from federal regulatory agencies on fees in a March 7 hearing. The subcommittee said the actions, including the CFPB’s final rule on credit card late fees and regulatory enforcement, “restrict access to financial services for consumers,” ACA International previously reported.
According to a report from PYMNTS, a CFPB spokesperson said in response to the Chamber’s lawsuit, “The final rule closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream, charging consumers more than five times the companies’ associated costs. The CFPB will defend this rule, which will rein in these excessive charges and put $10 billion back in consumers’ pockets.”
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