Biden wants to cap credit card late fees at $8. Guess who’s suing to stop him?

The trade groups are seeking a preliminary injunction to block the rule, which would otherwise would go into effect in a few months. They went venue shopping, filing the lawsuit in federal court in Fort Worth, Texas, where the two district judges are Reed O’Connor, a George W. Bush appointee, and Mark T. Pittman, a Donald Trump appointee.

O’Connor, whom Vox said is “known for rubber stamping nearly any legal outcome requested by Republicans,” struck down the entire Affordable Care Act as unconstitutional in response to a lawsuit by a Texas-led coalition of 20 states. That was too much even for the Supreme Court, which threw out the lawsuit in 2021.

In 2022, Pittman struck down Biden’s popular student loan forgiveness program, effectively blocking its implementation. That ruling was ultimately upheld by the Supreme Court in a 6-3 decision in 2023.

By filing the lawsuit in the Northern District of Texas, the bankers are guaranteed that any appeal would be heard by the U.S. Court of Appeals for the Fifth Circuit. Democracy Docket considers it “the most conservative federal appeals court in the country.”

In a lawsuit brought by payday lenders, the Fifth Circuit ruled in 2022 that the CFPB’s funding is unconstitutional because the agency gets its money from the Federal Reserve rather than a congressional appropriation. The Supreme Court heard oral arguments in the case in October and a decision is pending.

Liz Zelnick, a program director at Accountable.US, a progressive research group, told The New York Times that the trade groups “intentionally chose a conservative-leaning, industry-friendly court in the hopes of derailing any kind of regulation that would cut into their bottom line.”

The CFPB’s ruling to cap credit card late fees at $8 is clearly popular. In its statement announcing the ruling, the CFPB estimated that “American consumers will save more than $10 billion in late fees annually once the rule goes into effect,” resulting in “an average savings of $220 per year for the more than 45 million people who are charged late fees.”    

CFPB Director Rohit Chopra in a statement announcing the ruling said:

For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers. Todays’ rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers to boost their own bottom lines.

The CFPB’s rule applies to the largest credit card issuers, those with more than 1 million open accounts, which account for more than 95% of total outstanding credit card balances. It does not affect credit car issuers’ ability to hike interest rates or reduce credit lines in order to deter late payments. The CFPB said the “the rule would increase the desire for credit card companies to facilitate on-time payment, since it would lower incentives to build a business model on late fees.”

The new rule was endorsed by Ed Mierzwinski, a senior director of the non-profit consumer group, PIRG, in an opinion piece for CNN:

It’s not fair for companies to take advantage of consumers who have no options to fight back. In our increasingly cashless modern lives, credit cards are necessary. Sometimes people know their payments are late, but sometimes, given the variable reliability of US mail and various banking apps and websites, the payments of even those with the best intentions can trigger an automatic late fee. Then, unlike with “junk fees” added onto hotel bills or concert tickets, consumers can’t stop the transaction or choose another bank at that moment to avoid the fee.

And this sentiment was reflected in comments like this one on X, formerly Twitter:

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And the AARP certainly seemed supportive:

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Democratic Sen. Elizabeth Warren of Massachusetts, who was instrumental in creating the CPFB, welcomed the agency’s ruling in a post on X:

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But the banking industry does not want consumers to have nice things that might reduce their profit line as the Biden administration tries to introduce measures to help families hurting from the high cost of living. In January, the CFPB proposed a rule that would curb excessive overdraft fees.

The New York Times wrote that the trade groups’ federal lawsuit argues that the CFPB violated laws about agency rule-making and exceeded its statutory authority.

The newspaper quoted from the filing and a response from a CFPB spokesperson:

“Late fees encourage timely payments, which in turn help card issuers both to manage credit risk and to lower costs, allowing them to offer more competitive terms and features,” the trade groups wrote in their complaint.

A spokeswoman for the consumer bureau said the rule “closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream.” 

[…]

The spokeswoman added that the agency would fight the lawsuit.

Rob Nichols, chief executive of the American Bankers Association, issued a statement:

Once again, we have reluctantly been forced to sue a federal regulator because the CFPB has ignored industry and other stakeholder comments demonstrating that this rule exceeds the bureau’s statutory authority and will hurt rather than help consumers. This rule is about politics not policy, and we look forward to the court’s review.”

But CNN wrote on Tuesday:

Sam Gilford, a CFPB spokesperson, told CNN that when the rule was first proposed last year the agency received thousands of “overwhelmingly” positive comments from the public. “Today’s rule closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream,” Gilford said.

Of course, the cap on credit card late fees and other moves to eliminate junk fees all depend on the outcome of the November election. Donald Trump really doesn’t care, does he?

RELATED STORY: Biden unveils plan to slash bank overdraft fees, calling them ‘exploitation’

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