By The U.S. banking industry won a key victory in its effort to block the implementation of a Consumer Financial Protection Bureau rule that would’ve drastically limited the fees that credit card companies can charge for late payment.
A federal court on late Friday approved the industry’s last-minute legal effort to pause the implementation of a regulation that was announced in March and set to go into effect on Tuesday.
In his order, Judge Mark Pittman of the Northern District of Texas sided with plaintiffs including the U.S. Chamber of Commerce in their suit against the CFPB, saying they cleared hurdles in arguing for a preliminary injunction to freeze the rule.
The outcome preserves, at least for now, a key revenue stream for the U.S. card industry. The CFPB estimates that the rule would’ve saved American families $10 billion a year in fees paid by those who fall behind on their bills. It would’ve capped late fees that are typically $32 per incident to $8 each and limited the industry’s ability to hike the fees.
It is now unclear when, or if, the new regulation will go into effect.
“Consumers will shoulder $800 million in late fees every month that the rule is delayed — money that pads the profit margins of the largest credit card issuers,” a CFPB spokesman told CNBC on Friday.
The industry’s lawsuit is an effort to block a regulation “in order to continue making tens of billions of dollars in profits by charging borrowers late fees that far exceed their actual costs,” the spokesman said.
“We are disappointed that a court sided with House Republicans, big banks, and special interests to hit pause on a critical measure to save American families billions in junk fees,” White House spokesman Jeremy Edwards said in an email statement. “President Biden is siding with middle class families by taking on corporate rip-offs. That’s why he supports the Consumer Financial Protection Bureau’s rule to slash excessive credit card late fees.”
The CFPB has said the industry profits off borrowers with low credit scores by charging them ever higher late penalties over the past decade, while trade groups have argued that the fee caps are a misguided effort that redistributes costs to those who pay their bills on time.
The Consumer Bankers Association, which is one of the groups that sued the CFPB, said it was “pleased with the District Court’s decision to grant a preliminary injunction to stop the CFPB’s credit card late fee rule from going into effect next week.”
The CBA said it will continue to press its case in the courts on why the CFPB rule should be “thrown out entirely.”
