RSSA federal judge recently upheld the preliminary injunction against the Consumer Financial Protection Bureau’s proposed limit on credit card late fees to $8 per incident.
Northern District of Texas Judge Mark Pittman also rejected the CFPB’s request to transfer a lawsuit over the proposed rule to Washington, D.C. Pittman, who issued an injunction against the rule shortly before it was to take effect in May, said the fee limit violated both the Credit Card Accountability and Disclosure Act and the Truth in Lending Act.
In his Dec. 6 ruling, Pittman said banks are authorized to collect “reasonable and proportional” penalty fees to deter late payments. “Under the CARD Act, card issuers have the opportunity to charge penalty fees reasonable and proportional to violations, and narrowing the safe harbor to cost-based fees eliminates that opportunity,” he said.
“Congress assigned the CFPB as an umpire to call balls and strikes on the reasonableness and proportionality of penalty fees,” Pittman added. “However, by issuing the final rule — which prevents card issuers from actually imposing penalty fees — the CFPB has impermissibly assumed the role of commissioner and established a strike zone only large enough for pitches right down the middle.”
The rule would apply to credit card issuers with more than 1 million open accounts. The proposal would have lowered credit card late fees from their current cap of $30 for a first violation and $41 for subsequent violations within six billing cycles. It would have banned large credit card issuers from changing credit card late fees for inflation. According to the CFPB, the rule would save American families more than $10 billion in annual late fees.
The proposal was announced in March. Shortly after, the American Bankers Association, U.S. Chamber of Commerce, Consumer Bankers Association and three Texas-based Chambers of Commerce filed a lawsuit in the Northern District of Texas seeking the preliminary injunction.
