Just days before it was slated to go into effect, a federal judge in Fort Worth, Texas, blocked the Biden administration’s rule limiting credit card late fees to $8. Although the rule was supposed to go into effect on May 14, the preliminary injunction has placed it on hold, likely until a Supreme Court ruling is reached.
U.S. District Judge Mark T. Pittman granted the preliminary injunction to a cadre of organizations, led by the U.S. Chamber of Commerce. The Chamber sued the Consumer Financial Protection Bureau after the late-fee rule was finalized in March.
This is far from the end of this fight. The decision wasn’t based on the specifics of the late fee rule but rather on a 2022 decision by the U.S. Court of Appeals for the Fifth Circuit that found that funding for the CFPB is unconstitutional. The case is awaiting a Supreme Court ruling, which is expected by the end of June.
Because of the pending case, Pittman did not specifically address the plaintiffs’ arguments, although he called them “compelling.” Legal experts have said that if the Supreme Court decides the CFPB’s funding is legitimate, the CFPB will likely seek to lift the preliminary injunction. Congress transferred authority for CARD Act rules, which set the current limits for late fees back in 2010, from the Federal Reserve to the CFPB.
The Texas court has become a popular venue for conservatives seeking a sympathetic ear. Despite Pittman’s attempt to transfer the case, citing the absence of banks affected by the rule in the Northern District of Texas, the U.S. Court of Appeals for the Fifth Circuit overturned that decision.
The Lay of the Land
For card issuers, the decision means that the CARD Act’s existing late fee rules will remain in place for now. This entails ensuring that any late fee is “reasonable and proportionate.” Under the current regulations, there’s a safe harbor provision, setting penalty fees at $30 initially, and increasing to $41 for subsequent violations within six cycles.
The new rule would have reduced that safe harbor late fee to $8 for large card Issuers, defined as those with one million or more open consumer credit card accounts. There would be no higher amount permitted for subsequent violations, and the $8 limit will not be adjusted for inflation, as had been the case with the existing limit.
