A federal rule aimed at capping credit card late fees has been nullified by a Texas judge, following a consensus between the Trump administration and major banking groups that the rule was illegal. U.S. District Judge Mark Pittman in Fort Worth made the ruling after the Consumer Financial Protection Bureau (CFPB) and a coalition of industry groups, who had filed a lawsuit against the rule last year, agreed to dismiss it. The litigating parties included the American Bankers Association, the Consumer Bankers Association, and the U.S. Chamber of Commerce.
The contested regulation, proposed during President Joe Biden’s administration, was claimed to contravene the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, a law designed to shield consumers from unfair credit card company practices. The industry groups argued that the rule didn’t permit credit card issuers to levy fees that adequately reflect deterrence or consumer behavior, particularly for repeat violations.
Attorneys for the CFPB and the banking groups jointly stated that the Late Fee Rule violated the CARD Act, failing to allow card issuers to impose penalty fees that were reasonable and proportional to the violations incurred. The banking sector had been vigorously opposing the late fee cap, concerned about the loss of significant revenue, estimated by the CFPB to be around $14 billion annually in late fees.
The banking groups issued a statement calling the decision a triumph for consumers and rational policy. They argued that implementing the CFPB’s rule would have led to more late payments, degrading credit scores, elevated interest rates, and diminished credit access for those in need, while also penalizing timely bill payers by removing crucial incentives to manage finances responsibly.
Legal prospects for the banking groups appeared strong, as Judge Pittman had previously indicated in December that they would likely succeed, given the rule’s apparent conflict with the CARD Act’s provisions on penalty fees. The CFPB has faced instability since the Trump administration initiated actions to dismantle the agency, including mass firings and halting enforcement actions against companies like Capital One and Rocket Homes. A federal judge recently issued a preliminary injunction to temporarily halt the agency’s dismantlement. The CFPB was established after the 2008 financial crisis to protect consumers from unfair, deceptive, or abusive practices by financial institutions.
The Bottom Line
The nullification of the rule to cap credit card late fees could have significant implications for consumers and the financial industry. For consumers, particularly those who struggle with timely payments, this decision may translate into continued high costs associated with late fees, potentially impacting credit scores and future borrowing costs. While the banking industry views the decision as a protection for consumers by maintaining financial incentives, individuals may see little relief from the financial burdens associated with late fees.
For the financial sector, the ruling solidifies the ability to continue generating substantial revenue from late fees, an aspect critical to their business model. However, this decision could also elicit further scrutiny from consumer advocates and regulatory bodies, possibly leading to renewed calls for consumer protection reforms in the industry. The ongoing debate underscores the challenge of balancing consumer protection with industry profitability and regulatory compliance.
