At the request of both sides of the lawsuit, a federal judge has voided the CFPB’s credit card late fee rule.
“The parties agree that, in the Late Fee Rule, the Bureau violated the CARD Act by failing to allow card issuers to ‘charge penalty fees reasonable and proportional to violations,’” Judge Mark T. Pittman of the U.S. District Court for the Northern District of Texas wrote.
He continued, “The parties request that the Court enter a final judgment vacating the Late Fee Rule, for ‘”prevent[ing] card issuers from actually imposing penalty fees.’”
Pittman then vacated the rule.
The final rule was issued on March 5, 2024, during the Biden Administration. It reduced the late fee safe harbor amount for larger issuers to a proposed $8 amount and eliminated automatic annual inflation adjustments for issuers subject to the reduced safe harbor amount.
The reduced safe harbor late fee only applied to credit card issuers with 1 million or more open accounts (“larger issuers”), who, according to the CFPB, constituted the issuers with 95% of total outstanding credit card balances. The final rule also adjusted the higher, pre-existing safe harbor late fee amounts that issuers below the 1 million account threshold (“smaller issuers”) could charge for a first violation from $30 to $32 and for subsequent violations during the next six billing cycles from $41 to $43.
Two days after the rule was issued, the Chamber of Commerce of the United States of America, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association, and Texas Association of Business filed suit challenging the rule. They argued that in issuing the rule, the CFPB had ignored the fact that under federal law, card issuers could charge a penalty fee.
The Trump Administration has been attempting to roll back many rules issued by the Biden Administration. That includes settling the credit card late fee rule litigation by agreeing to have the rule declared void..
The plaintiffs were pleased with the CFPB’s action.
“If the CFPB’s rule had gone into effect, it would have resulted in more late payments, lower credit scores, higher interest rates and reduced credit access for those who need it most,” they said, in a joint statement.
We will be following up with a more detailed analysis of the ruling.