Texas judge blocks federal rule intended to reduce credit card late fees – JURIST
A federal judge in Texas vacated a Consumer Financial Protection Bureau (CFPB) regulation on Tuesday. The ruling by Judge Mark Pittman, a federal district court judge for the Northern District of Texas, removes many previous caps from credit card late fees. This comes amid a flurry of court decisions involving the CFPB, as the Trump administration aims to significantly reduce the agency’s scope.
Tuesday’s ruling comes in response to a lawsuit filed by the US Chamber of Commerce along with several other national banking and Texas-based consumer advocacy groups. The lawsuit challenges a March 2024 update to Regulation Z, a policy that determines the limits on credit card fees that can be charged to consumers pursuant to the Truth in Lending Act. At the core of the dispute is the concept of safe harbor credit card fees. A safe harbor credit card fee is a threshold set by the CFPB that allows card issuers to charge penalty fees without needing to prove that the fee is proportional to their incurred costs.
The vacated regulation sought to establish an $8 safe harbor fee limit. Previously, card issuers were allowed to charge a fee of up to $30 for an initial late payment and up to $41 for a subsequent late payment; the average late fee charged in 2022 was $32. Drafters of the vacated policy argue that credit card issuers are charging exorbitant late fees by exploiting a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CFPB estimates that American consumers will save more than $10 billion annually due to the proposed $8 safe harbor cap. The US Chamber of Commerce argues that a reduction to the safe harbor limit will remove incentives for consumers to manage their finances and penalize those who make timely payments.
Tuesday’s ruling notes that the $8 safe harbor limit violates the CARD Act, as it prevents card issuers from charging “…penalty fees reasonable and proportional to violations.” Judge Pittman vacated the new limit under the Administrative Procedures Act, which grants courts the power to set aside any agency action that is deemed to be unlawful.
