Trade Associations Challenge the CFPB’s Final Rule re: Credit Card Late Fees

A group of trade associations filed a lawsuit in the Northern District of Texas two days after the CFPB announced its final rule concerning credit card late fees.  The lawsuit seeks to enjoin the CFPB from implementing its final rule, which would otherwise take effect 60 days after publication in the Federal Register.

Prior to the final rule, large card issuers were subject to a late fee safe harbor amount of $30, and a higher safe harbor amount for subsequent violations of $41.  Both amounts were also subject to annual inflation adjustments.  The final rule reduces the late fee safe harbor amount to $8, and it eliminates the higher safe harbor amount for subsequent violations.  Additionally, late fees are no longer subject to annual inflation adjustments.

The trade associations argue that the final rule violates the Credit Card Accountability Responsibility and Disclosure Act of 2009 because card issuers are authorized to collect penalty fees that are reasonable and proportional to late-fee violations.  They also argue that the final rule violates the Administrative Procedure Act because the CFPB impermissibly distinguishes between pre-charge-off collection costs and post-charge-off collection costs, when both are a result of late payments.  They also argue that the final rule violates TILA because the effective date should at least be six months from the date of promulgation considering the final rule’s new disclosure requirements.

Additionally, the trade associations argue that the final rule will cause irreparable harm to its members in the form of economic loss.  They identify the following six areas: 1) compliance costs; 2) risk of enforcement actions; 3) lost late-fee revenue; 4) increased collection costs; 5) servicing accounts with diminished economic value, which otherwise would not have been issued; and 6) loss of customer goodwill due to fluctuating late-fee  amounts.

WBK’s previous coverage of the CFPB’s rule concerning credit card late fees can be found here and here.