A federal judge yesterday granted a joint motion and vacated a Consumer Financial Protection Bureau rule capping credit card late fees. Judge Mark Pittman, appointed by President Trump, sided with the banking groups and the CFPB itself, both of which argued the rule violated the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009.
The order tossing the rule marks the culmination of a year-long battle against the Biden-era regulation. The rule, which would have capped late fees at $8 — significantly lower than the current $41 — was aimed at reducing the financial burden on consumers. The proposal would saved consumers as much as $9 billion per year, according to CFPB estimates. Consumers were charged $12 billion in late fees in 2020, according to a report issued by the CFPB. Most issuers use the maximum allowable fee set by the Federal Reserve Board — $30 for the first late payment and then $41 for each subsequent late payment within six billing cycles.
However, banking groups such as the American Bankers Association, the Consumer Bankers Association, and the Chamber of Commerce argued the rule would limit the ability of credit card issuers to charge fees that were “reasonable and proportional to violations.” These groups contended that the rule would have caused more harm than good, potentially leading to more late payments, lower credit scores, higher interest rates, and reduced access to credit for consumers who rely on it.
The issue at hand is the CARD Act’s stipulation that late fees be “reasonable and proportional” to violations. While the rule proposed by the CFPB aimed to provide consumer protection by capping late fees, it also came with significant consequences, including potential revenue losses for credit card issuers. The banking groups estimated that the new rule could cost them billions of dollars in lost revenue, which has been a key point of contention throughout the legal proceedings.
This ruling is part of a larger trend of regulatory uncertainty surrounding the CFPB, especially as it faces mounting pressure from various political and industry groups. President Trump’s administration had already begun dismantling the agency earlier this year, and while a federal appeals court blocked efforts to eliminate the CFPB entirely, this latest ruling further highlights the contentious relationship between the CFPB and the financial services industry.
