Federal judge blocks White House plan to curb credit card late fees

A federal judge in Texas has blocked a new government rule that would slash credit card late-payment charges, a centerpiece of the Biden administration's efforts to clamp down on "junk" fees.

Judge Mark Pittman of the U.S. District Court for the Northern District on Friday granted an injunction sought by the banking industry and other business interests to freeze the restrictions, which were scheduled to take effect on May 14. In his ruling, Pittman cited a 2022 decision by the U.S. Court of Appeals for the Fifth Circuit that found that funding for the Consumer Financial Protection Bureau (CFPB), the federal agency set to enforce the credit card rule, is unconstitutional.

The regulations, adopted by CFPB in March, seek to cap late fees for credit card payments at $8, compared with current late fees of $30 or more. Although a bane for consumers, the fees generate about $9 billion a year for card issuers, according to the agency.

After the CFPB on March 5 announced the ban on what it called "excessive" credit card late fees, the ABA and U.S. Chamber of Commerce filed a legal challenge.

The American Bankers Association (ABA), an industry trade group, applauded Pittman's decision.

"This injunction will spare banks from having to immediately comply with a rule that clearly exceeds the CFPB's statutory authority and will lead to more late payments, lower credit scores, increased debt, reduced credit access and higher APRs for all consumers — including the vast majority of card holders who pay on time each month," ABA CEO Rob Nichols said in a statement.

Consumer groups blasted the decision, saying it will hurt credit card users across the U.S.

"In their latest in a stack of lawsuits designed to pad record corporate profits at the expense of everyone else, the U.S. Chamber got its way for now, ensuring families get price-gouged a little longer with credit card late fees as high as $41," Liz Zelnick of Accountable.US, a nonpartisan advocacy group. "The U.S. Chamber and the big banks they represent have corrupted our judicial system by venue shopping in courtrooms of least resistance, going out of their way to avoid having their lawsuit heard by a fair and neutral federal judge."

According to consumer advocates that support the CFPB's late-fee rule, card issuers hit customers with $14 billion in late-payment charges in 2019, accounting for well over half their fee revenue that year. Financial industry critics say such late fees target low- and moderate-income consumers, in particular people of color.

"By capping late fees at no more than $8, and eliminating automatic further fee increases tied to inflation, the rule addresses the predatory practices that have allowed credit card companies to take billions of dollars from hard-working Americans through back-end fees," a coalition of 90 national and state advocacy groups said in an April 24 letter to lawmakers.

Despite Pittman's stay on Friday, analysts said the legal fight is likely to continue, with the case possibly heading to the Supreme Court.

"We believe this opens the door for the CFPB to seek to lift the preliminary injunction if the Supreme Court rules in the coming weeks that Congress properly funded the agency," Jaret Seiberg of TD Cowen Washington Research Group said in a report following the decision. "It is why we believe this is not the end of the fighting over whether the fee cut will take effect before full consideration of the merits of the lawsuit."

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