Court keeps CFPB late fee lawsuit in Texas

An appellate court disallowed the relocation of a lawsuit challenging the Consumer Financial Protection Bureau’s late fee rule to Washington, D.C. 

An appellate court disallowed the relocation of a lawsuit challenging the Consumer Financial Protection Bureau’s late fee rule to Washington, D.C. 

The American Bankers Association, U.S. Chamber of Commerce, Consumer Bankers Association and three Texas-based Chambers of Commerce filed the federal lawsuit last month in the Northern District of Texas alleging the CFPB exceeded its statutory authority in capping most credit card late fees at $8 in most cases. 

The CFPB requested the lawsuit be transferred to Washington, D.C., challenging whether the Northern District of Texas had jurisdiction over the case. In a 2-1 ruling, Fifth Circuit Court of Appeals Judges Don Willett and Andrew Oldham ruled Northern District of Texas Judge Mark Pittman lacked jurisdiction to transfer the case to Washington, D.C., while it was pending in Texas. Judge Stephen Higginson dissented. 

“Once a party properly appeals something a district court has done — here, the effective denial of a preliminary injunction — the district court has zero jurisdiction to do anything that alters the case’s status,” Willett and Oldham wrote in the April 5 opinion. “Importantly, we are not announcing today a broad rule regarding inter-circuit transfers. Indeed, we do not even reach the question of where this case rightly belongs. Our decision today is exceedingly narrow and procedural, focused not on the correctness of the district court’s transfer order but rather on whether the court had jurisdiction to enter it. On these facts, it did not.” 

Higginson called the court’s decision to transfer the case to Washington, D.C. “fact-based and sound,” because the CFPB and most other plaintiffs in the case are based in the nation’s capital. Higginson said the petitioners’ request was concerning for its possible impact on attempts to prevent forum shopping. “The new proposition of law created by the majority is incompatible with district court discretion over docket management and prudent policing of forum shopping,” he added. 

The late fee applies to credit card issuers with more than 1 million open accounts. Limiting overdraft fees will reduce fees that currently cost American families more than $14 billion annually and save them more than $10 billion in annual late fees, according to the CFPB. 

The bureau ended automatic inflation adjustments unless issuers proved doing so is necessary to collect on costs incurred by late fees, after finding many issuers had been increasing their late fees without providing evidence of increased costs. Credit card companies will still be allowed to reduce credit lines, raise interest rates and take other actions to prevent late fees. 

The CFPB sees the late fees as adding onto “other punitive measures credit card companies impose on consumers who miss payments, including extra interest charges, loss of their grace period, negative credit reporting, reductions in their credit limit, and a higher interest rate on future purchases.

Fredrikson & Byron Law