The Consumer Financial Protection Bureau implemented a regulation aimed at saving Americans billions of dollars in late fees on credit cards. However, the card industry, led by the U.S. Chamber of Commerce, sued the CFPB in federal court to prevent the rule from taking effect. A judge in the Northern District of Texas is expected to announce whether the court will grant a freeze on the regulation, which would limit late fees to $8 per incident, just days before it was set to take effect. This regulation is part of President Biden’s efforts to combat what he sees as junk fees, with the aim of saving American families an estimated $10 billion per year in fees.
Large card issuers have been steadily increasing late fees since 2010, resulting in users with low credit scores paying an average of $138 in late fees per card each year, according to CFPB Director Rohit Chopra. The card industry argues that the regulation would redistribute costs to those who pay their bills on time and ultimately harm the users it seeks to protect by making it easier for them to fall behind on payments. Issuers like Capital One and Synchrony have discussed plans to offset the revenue loss they would face by raising interest rates, implementing new fees, or changing their lending criteria to adapt to the new regulation.
Capital One’s CEO has stated that the implementation of the CFPB rule would impact the bank’s revenues for a “couple of years” as they take steps to increase revenue through other means. The Chamber of Commerce, representing trade associations like the American Bankers Association, filed the lawsuit in Texas, a venue seen as favorable for corporations. The industry is expected to prevail in its efforts to delay the rule through either the Northern District of Texas or the Fifth Circuit Court of Appeals. A preliminary injunction could halt the rule until a resolution is reached, potentially through a lengthy trial process.
It is anticipated that the Chamber of Commerce will succeed in delaying the implementation of the rule, either through the Northern District of Texas or the Fifth Circuit Court of Appeals. The rule may be blocked from taking effect before the set date, pending further litigation. The CFPB has declined to comment on the matter, and the Chamber of Commerce has not responded to requests for comment. The outcome of the legal proceedings will determine whether the regulation limiting late fees on credit cards to $8 per incident will be implemented or delayed further. This case represents a clash between consumer protection measures and the financial interests of the credit card industry, with potentially billions of dollars at stake for American households.
