CFPB Loses Motion to Reinstate Cap on Credit Card Late Fees

The U.S. District Court for the Northern District of Texas denied the CFPB’s motion to dissolve a preliminary injunction on the CFPB’s Credit Card Late Fee Rule.

The CFPB’s Rule, issued in March 2024, would effectively cap credit payment late fees charged by card issuers at the lesser of $8 or 25% of the consumer’s missed minimum payment.  A group of trade associations sued over the Rule and the court previously granted a motion for a preliminary injunction against the Rule.

After the basis for the original preliminary injunction became untenable due to a new Supreme Court decision, the CFPB asked the court to dissolve the preliminary injunction.  In turn, the trade association plaintiffs asked the court to keep the injunction in place under another theory that the Rule violated the Credit Card Accountability and Disclosure Act (CARD Act).

The CARD Act permits card issuers to impose penalty fees as long as they are “reasonable and proportional to” a card members violation of their credit card agreement (such as by making a late payment).  The CFPB is also authorized to determine a “safe harbor” fee amount which is presumptively reasonable and proportional.  In setting this safe harbor fee amount, the CFPB is supposed to consider: (1) the cost incurred by the creditor due to the cardholder’s act or omission; (2) the deterrence of the act or omission by the cardholder; (3) the conduct of the cardholder; and (4) such other factors as the CFPB may deem necessary or appropriate.

The Court’s analysis of whether the Rule violated the CARD Act was two-fold.  The Court first accepted that the CARD Act does allow the imposition of penalty fees.  Second, while Congress vested the CFPB with the job of determining what are presumptively reasonable and proportional fees, this analysis must be guided by four specified factors in the statute.  The Court found that the Rule was solely based on the cost incurred by creditors for missed payments and ignored the fact that—as a penalty fee—these fees could also be designed to deter consumers from missing payments.  Since the CFPB failed to account for the card issuers’ right to include a deterrent component in the late fees, the Rule was an impermissible exercise of the CFPB’s authority.  Accordingly, the preliminary injunction blocking the Rule would stay in place.