Banking Groups Sue CFPB Over Credit Card Penalty Fee Final Rule

The Chamber of Commerce, the American Bankers Association (ABA), the Consumer Bankers Association (CBA) and two Texas business groups ("plaintiffs") challenged the CFPB on the recently adopted final rule restricting credit card penalty fees. (See previous coverage.)

Before the U.S. District Court for the Northern District of Texas, the plaintiffs alleged that the final rule has various procedural and substantive legal flaws that require it to be set aside. The plaintiffs contend that the rule is also invalid because the CFPB is itself unconstitutionally funded (an issue which the U.S. Supreme Court will decide on this term).

Among plaintiff's arguments:

• The rule strays from Congressional standards set out in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and the Dodd-Frank Act by (i) determining late fees based on a fraction of issuer costs; (ii) inadequately considering consumer conduct, including with respect to repeat violations; and (iii) overlooking deterrence and the potential reduction of access by consumers to consumer financial products or services.

• The agency's use of inappropriate data, flawed analysis and insufficient justification behind the rule violates procedural requirements, including those of the Administrative Procedure Act (APA). For example, the plaintiffs assert that the CFPB failed to provide a satisfactory explanation for why the same statutory limitation—that late fees should be "reasonable and proportional" to the omission or violation of the credit card agreement—would vary by the number of accounts opened by the issuer and why adjustments for inflation should apply to the safe harbor amounts for smaller issuers but not for larger ones. In addition, the plaintiffs state that the CFPB failed to make data available for public scrutiny and comment.

• The rule’s effective date, set for October 1, 2024, does not comply with the Truth in Lending Act’s effective date requirements, rendering it unlawful under the APA.

While the plaintiffs are seeking to prevent the CFPB from ever implementing the rule, they also asked for a preliminary order to block the rule while their litigation proceeds. (See Plaintiff's Motion for Preliminary Injunction.)

ABA President and CEO Rob Nichols stated: "The CFPB’s action to cap credit card late fees below banks’ actual costs exceeds its authority and would result in more late payments, increased debt, reduced credit access and higher APRs for all consumers — including the vast majority of card holders who pay on time each month."

Lindsay Johnson, president and CEO of the CBA, stated: "Unfortunately, the CFPB leaves us little choice but to challenge its rulemaking. The CFPB once again failed to follow the requirements under the Administrative Procedure Act and has not properly considered the costs to businesses or consumers."