Dive Brief:

• A federal court agreed to halt proceedings in a lawsuit against the Consumer Financial Protection Agency for 30 days after agency lawyers said they’re optimistic of reaching an agreement with plaintiffs over the CFPB’s late fee cap rule. Plaintiffs include the U.S. Chamber of Commerce and the Consumer Bankers Association.
• U.S. District Court Judge Mark Pittman in Fort Worth, Texas issued the stay March 13 in response to the CFPB’s request a day earlier, noting the bureau’s acting director, Russell Vought, had joined only on Feb. 7. The CFPB said it’s “reviewing and considering its positions on various agency actions,” including the rule capping credit card late fees at $8, which the agency adopted in March 2024.
• “The Trump Administration’s CFPB has been contemplating ways to roll back rules and policies that were implemented during the tenure of former Director Rohit Chopra, who favored a strict regulatory regime,” Ballard Spahr attorneys wrote Monday on the firm’s Consumer Finance Monitor blog.

Dive Insight:

The U.S. Chamber of Commerce, three Texas business groups, and two large bank associations sued in March 2024 to block the late fee rule. Two months later, Pittman issued a preliminary injunction to prevent the rule from taking effect, arguing that the CFPB had exceeded its statutory authority.

The plaintiffs filed a motion for summary judgment last month, asking Pittman to vacate the rule, declare it unlawful and impose a permanent injunction.

Since the change in administrations in Washington, the parties have begun discussing ways to resolve the litigation and will present Pittman a status report in April, if they have not reached a resolution by then, Mark Paoletta, the CFPB’s chief legal officer, and Deputy General Counsel Steven Bressler said in the filing.

“Based on those conversations, the Bureau is optimistic that an agreement can be reached within 30 days, but the parties require additional time to see if an agreed resolution is feasible,” the bureau said.

The CFPB’s late-fee rule on credit cards was part of the Biden administration’s regulatory campaign against “junk fees” that bedevil consumers, including efforts to combat airline seating fees for families, how hotels display their charges, and live concert fees.

Late fees represent an important income source for large card issuers, the CFPB said last year. A lender’s average late fee increased steadily between 2010 and 2022, from $23 to $32, yielding issuers around $14.5 billion for 2022, the agency said. The $8 cap would effectively cut by more than two-thirds the fee that can be imposed on credit card users who pay their credit card bills late, typically on a monthly basis.

The CFPB implemented the late fee cap under the 2009 Credit Card Accountability Responsibility and Disclosure Act, which prohibited credit card issuers from charging “excessive penalty fees,” along with “clearer disclosures and consumer protections,” according to the bureau.

In their motion, filed Feb. 20, the banks and chambers of commerce argued that Congress “consciously chose to characterize these late fees as ‘penalty fees’” within the 2009 law, which amended the Truth in Lending Act. Lawmakers also rejected a proposal to limit late fees to only the costs card issuers incurred from customers’ late payments, according to their motion. A lender’s cost was one of only several factors that was meant to be used in assessing a late fee, the plaintiffs argue. 

Congress agreed that late fees are meant to impose a penalty on a consumer failing to meet a payment obligation, and to act as a deterrent, according to the motion.

The $8 cap “would significantly increase the incidence of late payments,” the plaintiffs argue, citing “strong empirical evidence.” That limit will also lead to higher interest rates and lower access to credit for many people, the plaintiffs said.

“Even assuming that late-paying cardholders would see a net benefit, redistributing the costs of their late payments to a broader group of cardholders — while simultaneously increasing those costs by increasing the frequency of late payments — does not ultimately benefit the public at large,” the plaintiffs said. “It merely redistributes money from one group to another while increasing inefficiency and volatility in the credit card market.”

The banks and chambers also argue in their motion that the CFPB’s rule is arbitrary and capricious and violates the Administrative Procedure Act, and that the bureau’s structure “is a veritable issue-spotter of constitutional law violations.”