RSSThe New Orleans-based U.S. Court of Appeals for the Fifth District recently disallowed the relocation of a lawsuit challenging the Consumer Financial Protection Bureau’s late fee rule to Washington, D.C.
The June 18 ruling from the three-judge panel came after the CFPB had filed to transfer the case from the Northern District of Texas on May 28. District Court Judge Mark Pittman granted the request, finding the case should be heard in Washington, D.C., because it included challenges to local government actions and that Fort Worth residents “had no particular interest in adjudicating the case in comparison to any other city in the country.” The Fifth Circuit Court had placed Pittman’s transfer order on hold until June 18.
The Court of Appeals rejected Pittman’s assertion, finding the late fee rule has a nationwide impact. “The district court clearly abused its discretion by determining that D.C. residents had a localized interest in this case just because the Final Rule was promulgated there,” wrote Fifth Circuit Court of Appeals Judge Don Willett. “This is not a ‘localized’ case; the events surrounding the announcement of the Final Rule are not the kind of events that give rise to local interests.”
The CFPB has been trying to move the case from the Fort Worth-based Northern District of Texas for months as the jurisdiction is popular for applicants challenging regulations from the Biden administration. In April, Willett and fellow Fifth Circuit Court of Appeals Judge Andrew Oldham ruled Pittman lacked jurisdiction the first time he authorized transferring the case to Washington while it was still pending in Texas. Judge Stephen Higginson dissented.
The American Bankers Association, U.S. Chamber of Commerce, Consumer Bankers Association and three Texas-based Chambers of Commerce filed the federal lawsuit in March 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 late fee rule 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.
Pittman ordered an injunction against the late fee rule on May 10, four days before it was to take effect. He cited the 2022 ruling from the District Court for the Western District of Texas that the CFPB’s funding structure is unconstitutional as it draws funding from the Federal Reserve instead of Congress. However, the Supreme Court ruled last month that the CFPB’s funding structure is constitutional.
