Dive Brief:

• The Consumer Financial Protection Bureau said in a statement Sunday that it will keep up its effort to “defend” its new rule capping credit card late fee charges at $8 despite a federal court decision late Friday essentially striking down the new rule, at least for now.
• The U.S. District Court for Northern Texas granted a preliminary injunction stopping implementation of the rule before its Tuesday effective date, and stayed the rule on grounds that the Fifth Circuit Court of Appeals has previously found the CFPB’s funding structure to be unconstitutional.
• “We will continue to defend this rule so that working families can stop paying excessive late fees that Congress banned more than a decade ago,” the CFPB said in its statement. A spokesperson for the agency declined to say what the agency’s next move in the case will be.

Dive Insight:

The CFPB finalized the new rule capping credit card late fees in March, effectively cutting 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 average late fee currently is about $32, the agency said in issuing the rule.

Lowering the allowable amount that credit card issuers can impose as a late fee is part of the Biden administration’s campaign against “junk fees.” The CFPB has contended the rule will provide significant savings for U.S. households.

“The credit card lobby’s lawsuit is an attempt to derail a rule that will save families $10 billion each year in order to continue making tens of billions of dollars in profits by charging borrowers late fees that far exceed their actual costs,” the agency said in its Sunday statement. “Consumers will shoulder $800 million in late fees every month that the rule is delayed — money that pads the profit margins of the largest credit card issuers.”

Days after the agency finalized the rule in March, the U.S. Chamber of Commerce and other like-minded organizations sued the agency to block implementation, saying the CFPB had exceeded its authority and was trying to force cardholders who pay their bills on time to subsidize those who don’t. The chamber reiterated that perspective in commenting on the latest court decision.

“This ruling is a major win for responsible consumers who pay their credit card bills on time and businesses that want to provide affordable credit,” the chamber said in a Friday statement posted on its website. “The CFPB’s attempted micromanagement would have raised costs for most credit card users and made it harder for businesses to meet consumers’ needs. The U.S. Chamber will continue to hold the CFPB accountable in court." 

The agency and chamber’s battle is likely not over. The U.S. Supreme Court is weighing whether the CFPB’s funding structure is unconstitutional, with a decision in the case expected soon. During arguments before the high court in that case last October, the justices’ comments showed they may overturn the Fifth Circuit’s earlier ruling that found the CFPB’s funding structure unconstitutional. If that occurs, then the agency would be able to continue its battle to defend the rule in district court.

“If the Supreme Court reverses the Fifth Circuit, which seems likely given the tone during oral arguments, this case would very much be revived,” Ballard Spahr attorney Joseph Schuster said by email. “It is possible that the injunction would remain in place, but there would need to be a review of the merits of the plaintiff’s remaining arguments — primarily a review of the arguments under the Administrative Procedures Act.”

A decision in the Supreme Court case, which poses an “existential challenge” to the CFPB, is expected by the end of next month, according to a post by Ballard Spahr attorneys. That case against the agency was brought by the Community Financial Services Association of America and others.

The U.S. District Court in Texas, for the most part, didn’t consider the plaintiffs’ arguments beyond the constitutionality of the CFPB’s action. However, it noted in passing that the plaintiffs did make “compelling arguments” under the APA, the Truth in Lending Act, and the Credit Card Accountability Responsibility and Disclosure Act, also known as the Card Act. 

"The CFPB will file a motion to lift the injunction," predicted Troutman Pepper lawyer Keith Barnett. "And it will win that motion," he said in an email commenting on the latest development in the case.

Nonetheless, the plaintiffs' court win is tempered by the weeks-long wait for a ruling. In a prior filing with the district court, the plaintiffs asked for a decision by March 26 so card issuers could properly prepare for sending notices of the rule change to millions of card users. Given the additional weeks of waiting, issuers likely incurred some cost for preparations.

"It's a win for issuers, at least temporarily, but the pause is less beneficial than it might have been — because they couldn't really avoid the effort and expense required to get ready to comply by May 14th," said Freshfields attorney David Sewell. "Had the injunction been issued earlier, some of that could have been avoided."