The banking industry has recently received a temporary reprieve from a regulation proposed by the Consumer Financial Protection Bureau (CFPB) that threatened to significantly reduce late fee revenues. The stay was granted by Judge Mark T. Pittman of the US District Court for the Northern District of Texas, who issued a preliminary injunction.
The paused rule aimed at placing a cap on credit card late fees, which are typically a considerable source of revenue for card issuers such as Capital One Financial Corp., JPMorgan Chase & Co., and Bank of America Corp. This regulation, originally set to come into effect on May 14, could potentially have led to a significant decrease in fee profits for these major banks.
In response to the legal action taken by the credit card lobby, a CFPB representative iterated the agency’s commitment to defending the rule. The CFPB argues the rule would save families around $10 billion annually, limiting the profits made by lenders out of disproportionately high late fees.
Despite the injunction, the CFPB’s battle is not over. The Supreme Court is expected to rule on the question of the agency’s funding, which is related to the case CFPB v. Community Financial Services Association, potentially as soon as next week.
While Judge Pittman refrained from addressing the banks’ claims that the $8 late fee cap violated federal laws such as the Administrative Procedure Act and the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act, he acknowledged that the plaintiffs presented “compelling arguments” against the rule.
At the heart of the rule, finalized by CFPB on March 5, was an attempt to restrict banks and card issuers from charging more than an $8 late fee. Under the current system, these issuers can charge an average late fee of $30 for the first missed payment and $41 for subsequent missed payments over the next six months.
In response to the ruling, Lindsey Johnson, the president and CEO of the Consumer Bankers Association stated her concerns about the impact on millions of American consumers who frequently delay their credit card bill payments. According to her, this outcome raises questions about the CFPB’s adherence to the Administrative Procedure Act during its rule making process.
Find the original report on this development here.