Judge Blocks Credit Card Late Fee Rule From Taking Effect

May 13, 2024 11:59 pm
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A federal judge in Texas Friday issued a preliminary injunction against the Consumer Financial Protection Bureau’s credit card late fee rule, citing the constitutional challenge to the bureau’s funding structure as a reason for preventing the rule from taking effect.

Bloomberg News

WASHINGTON — A federal judge granted an injunction pausing the Consumer Financial Protection Bureau’s credit card late fee rule, a major setback for the bureau as it tries to bring one of President Joe Biden’s major bank policy priorities into reality. 

Judge Mark Pittman of the U.S. District Court for the Northern District Of Texas issued a preliminary injunction Friday evening pausing the credit card late fee rule, just ahead of its implementation deadline May 14. 

The court determined that since the 5th Circuit ruled previously that the CFPB’s funding structure — whereby the agency is funded through the Federal Reserve rather than through congressional appropriations — is unconstitutional, the rule’s implementation should be halted. 

“Consequently, any regulations promulgated under that regime are likely unconstitutional as well,” Pittman wrote. 

The Supreme Court is expected to rule on the constitutionality of the bureau’s independent funding structure before the end of the current term in mid-June. 

Biden has made the fight against so-called “junk fees” a rallying point in his campaign, mentioning the CFPB’s rulemaking, which would cap credit card fees at $8, during his State of the Union address. He stood alongside CFPB Director Rohit Chopra as he announced the rule, and the issue is tied up in the Biden administration’s effort against a variety of fees that consumers experience, including those related to airlines and ticket vendors. 

The injunction was sought by the U.S. Chamber of Commerce and other groups including the American Bankers Association and the Consumer Bankers Association. 

“This ruling is a major win for responsible consumers who pay their credit card bills on time and businesses that want to provide affordable credit, the U.S. Chamber of Commerce Litigation Center Counsel Maria Monaghan said in a statement. “The CFPB’s attempted micromanagement would have raised costs for most credit card users and made it harder for businesses to meet consumers’ needs. The U.S. Chamber will continue to hold the CFPB accountable in court.” 

The judge did not, however, address whether or not how the CFPB rolled out, designed or implemented the rule violated the Administrative Procedure Act, instead citing the pending case on the constitutionality of the bureau’s funding. 

President and CEO of the Consumer Bankers Association Lindsey Johnson said in a statement that courts need to address what she considers the process issues behind the rule. 

“It’s concerning the CFPB did not follow the Administrative Procedure Act with this rulemaking, which will harm millions of American consumers’ long-term financial health who frequently pay their credit card bills late,” she said in a Friday statement.

Should the Supreme Court side with the CFPB, the merits of the Administrative Procedure Act complaints would still need to be decided by the District Court in Texas. 

The Chamber and the banking groups sued in March to block the rule, shortly after Chopra finalized it. The case has been delayed by a back-and-forth on whether the case should be heard in Texas, where business groups have found a friendly court to sue Biden administration rules, or in Washington D.C. 

The 5th Circuit in D.C., in April, sent the case back to Texas, finding that Pittman didn’t have the authority to send it elsewhere. 

“Once a party properly appeals something a district court has done — here, the effective denial of a preliminary injunction — the district court has zero jurisdiction to do anything that alters the case’s status,” the judge wrote. 

Pittman, in Friday’s injunction, took issue with the 5th Circuit’s handling of the case. 

“While the Court has the utmost deference for its colleagues on the appellate court, it respectfully notes that this seems to be a usurpation of the Court’s docket-management authority, especially considering precedents in the 5th Circuit’s order,” Pittman said. 

Pittman said that the court in D.C. could have held a preliminary injunction hearing instead of his Texas court. 

“The Court possessed and still possesses full faith in the District Court for the District Court of Columbia to make a just and fair ruling on Plaintiffs’ motion,” he said. “If parties cannot have faith that the legal system operates with integrity and full credence in the law, then the system is already broken. We must trust the system.” 

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