Texas Judge Denies CFPB Request to Move Credit Card Fee Lawsuit

A US federal judge in Texas has denied the CFPB's request to move a lawsuit challenging its credit card fee rule out of the state. The lawsuit, filed by trade groups, argues the CFPB's rule capping credit card late fees at $8 is unconstitutional and violates the Administrative Procedures Act.

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Hadeel Hashem
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Texas Judge Denies CFPB Request to Move Credit Card Fee Lawsuit

Texas Judge Denies CFPB Request to Move Credit Card Fee Lawsuit

A US federal judge in Texas has denied the Consumer Financial Protection Bureau's (CFPB) request to move a lawsuit challenging its credit card fee rule out of the state. The lawsuit, filed by several trade groups including the U.S. Chamber of Commerce, American Bankers Association, and Consumer Bankers Association, argues that the CFPB's rule capping credit card late fees at $8 is unconstitutional and violates the Administrative Procedures Act.

Why this matters: The outcome of this lawsuit could have significant implications for the financial well-being of millions of Americans who rely on credit cards, as it may influence the fees and interest rates they pay. Furthermore, the case may set a precedent for the limits of regulatory agencies' power to shape consumer financial markets.

The CFPB finalized the rule in March, reducing the maximum late fee from $30 for an initial late payment and $41 for subsequent offenses within six billing cycles. In response, Synchrony Financial, a major issuer of retail credit cards, plans to raise interest rates on some of its cards and add a $1.99 monthly fee for receiving paper statements. Synchrony's president and CEO Brian Doubles defended the changes, stating, "We're executing our plan. We said from the beginning that we weren't going to wait for the outcome on litigation just given the uncertainty."

Late fees account for a significant portion of Synchrony's revenues and earnings, making up about 16% of revenues and 40% of earnings, nearly double the average of the five largest card issuers. The company's T.J. Maxx credit card will see its annual percentage rate (APR) increase to 34.99% from 32.24%, while the penalty APR for customers 60 or more days late will rise to 39.99%, compared to 29.99% on most cards.

The litigation, led by the U.S. Chamber of Commerce and joined by numerous banks and financial industry associations, seeks to overturn the CFPB's late fee cap in the courts. The case was initially filed in a federal judicial district in Texas known to be friendly to industry groups and hostile to the Biden Administration. It was briefly transferred to Washington D.C. before being sent back to Texas.

The CFPB estimates that 45 million Americans pay late fees each year. While the agency aims to reduce the financial burden on consumers, some analysts argue that the current system with higher late fees but fewer additional charges may be better for many Americans. The average credit card rate currently stands at 20.66%. The late fee cap is set to take effect on May 14, but an emergency stay could delay its implementation pending the outcome of the legal challenge in Texas.

Key Takeaways

  • US federal judge in Texas denies CFPB's request to move lawsuit challenging credit card fee rule.
  • Lawsuit argues CFPB's $8 late fee cap is unconstitutional and violates Administrative Procedures Act.
  • Outcome may impact fees and interest rates for millions of Americans who rely on credit cards.
  • Synchrony Financial plans to raise interest rates and add fees in response to CFPB's rule.
  • Late fee cap set to take effect on May 14, but emergency stay could delay implementation.