The CFPB’s Credit Card Late Fee Rule Appears Doomed

On December 6, 2024, the United States District Court for the Northern District of Texas denied a motion by the Consumer Financial Protection Bureau (CFPB) to dissolve a preliminary injunction that had enjoined its Credit Card Late Fee Final Rule, finding that the various challengers to the rule were likely to succeed on the merits of their challenges.

Legal Challenges to the CFPB’s Rule

As previously discussed, the CFPB issued a final rule in March 2024, which, among other things, capped credit card late fees charged by “large card issuers” to $8.00. A group of trade associations on behalf of the credit card industry quickly sued to enjoin the rule, and the District Court in Texas granted their request for injunctive relief, on the basis that binding precedent from the Fifth Circuit Court of Appeals found that the CFPB was unconstitutionally funded.

After the Supreme Court reversed the Fifth Circuit in Community Financial Services, the CFPB requested that the district court dissolve the injunction. The trade associations opposed, this time focusing on the merits of the Credit Card Late Fee Rule.

The trade associations argued, among other things, that the final rule violated the Credit Card Accountability and Disclosure Act (the CARD Act), which, according to the trade associations, allowed card issuers to impose “penalty fees” provided they are “reasonable and proportional to such omission or violation.” The district court agreed and refused to lift the injunction.

The Court’s Analysis

In its ruling, the court noted: “[a] plain language reading reveals that the Final Rule violates the CFPB’s statutory authority under the CARD Act. To begin, the CARD Act explicitly allows card issuers to impose ‘penalty fee[s].’ The Final Rule, however, lowered the safe harbor to $8 for card issuers because it would ‘cover pre-charge-off collection costs for Large Card Issuers on average. And the CFPB’s Motion and other filings admit as much. But fees to cover ‘costs’ and fees that constitute ‘penalties’ are not the same thing.”

However, “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.”

The court concluded: “The CARD Act does two things: (1) enables card issuers to impose penalty fees, and (2) tasks the CFPB with establishing standards for those fees. Congress assigned the CFPB as an umpire to call balls and strikes on the reasonableness and proportionality of penalty fees. 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.”

What It Means

While the district court’s decision relates solely to the dissolution of the preliminary injunction, it is a telltale sign that the CFPB is destined to lose on the merits as well, since the court believes the Final Rule exceeded the Bureau’s statutory authority. It also remains to be seen whether the Bureau decides to continue to defend the Final Rule under the incoming Trump Administration.