NEWS: A federal judge has voided a CFPB rule that would have capped credit card late fees at $8 for card issuers with at least 1 million open accounts.
The judge’s order was based on an agreement reached by the CFPB and the U.S. Chamber of Congress, which had joined several other groups in suing the CFPB over the rule’s legality in federal court.
“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. “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 CFPB finalized the rule in March 2024. As The League explained in this Compliance Courier, the rule would have allowed covered card issuers to charge a fee higher than $8 only if they could prove the higher fee was necessary to cover their actual collection costs. The rule would have eliminated automatic annual inflation adjustments for card issuers subject to this lower safe harbor amount.
For smaller card issuers (with fewer than 1 million open credit card accounts), the rule would have preserved a safe harbor threshold amount for late fees but raised it to $32 for the initial violation and $43 for each subsequent violation of the same type during the same cycle or in one of the next six billing cycles.
The League submitted a comment letter when the rule was first proposed in 2023, telling the CFPB that “this kind of one-size-fits-all regulatory price-fixing is unfair to credit unions and will harm consumers across the United States.” We said that the CFPB should recognize that slashing allowable late fees would likely have serious consequences for U.S. consumers, including increases in other fees, tighter credit standards, and less access to credit card products.