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A Consumer Financial Protection Bureau regulation that promised to save Americans billions of dollars in late fees on credit cards is facing a last-ditch effort to avoid implementation.
Led by the U.S. Chamber of Commerce, the card industry in March sued the CFPB in federal court to block the new rule from taking effect.
The effort, which has been circulating between venues in Texas and Washington, D.C., for weeks, is about to reach a milestone: A judge in the Northern District of Texas is expected to announce by Friday evening whether the court will grant the industry's request for a freeze.
That could derail the regulation, which would cut what most banks can charge in late fees to $8 per incident, just days before it takes effect on Tuesday.
“We should get some clarity soon on whether the rule will be allowed to go into effect,” said Tobin Marcus, senior policy analyst at Wolff Research.
Credit card regulation is part of President Joe Biden's broader election-year fight against what he sees as unwanted fees.
Major card issuers have been steadily raising the cost of late fees since 2010, taking advantage of users with low credit scores who collect fees of $138 per year on average, according to CFPB Director Rohit Chopra.
New fees and higher prices
Predictably, the industry has mounted a campaign to derail the regulation, viewing it as a misguided effort that redistributes costs to those who pay their bills on time, and ultimately harms those it claims to benefit by making users more likely to fall behind.
Up to $10 billion in fees per year The CFPB estimates the rule will save American families by reducing late penalties to $8 from the typical $32 per incident.
Card issuers including Capital One And Synchronization We've already talked about the efforts to offset the revenue they would face if the rule goes into effect. They can do this by raising interest rates, adding new fees for things like paper statements, or changing who they choose to lend to.
Capital One CEO Richard Fairbank said last month that if implemented, the CFPB rule would impact his bank's revenue for “a few years” as the company takes “mitigating measures” to boost revenue elsewhere.
“Some of these mitigation measures have already been implemented and are underway,” Fairbank told analysts during the company's first-quarter earnings call. “We plan to take additional action once we know more about where the lawsuit will be settled.”
Next trial?
Like some other observers, Marcus of Wolfe Research believes the Chamber of Commerce is likely to prevail in its effort to delay the rule, either through the Northern District of Texas or through the Fifth Circuit Court of Appeals. If granted, a preliminary injunction could halt the rule until the dispute is settled, perhaps through a lengthy trial.
The industry group, which includes Washington, D.C.-based trade associations such as the American Bankers Association and the Consumer Bankers Association, filed suit in Texas because it is widely viewed as a friendlier place for businesses, Marcus said.
“I would be very surprised if (Texas Judge Mark T.) Pittman denied this injunction on the merits,” he said. “One way or another, I think it will be blocked before the rule goes into effect.”
The CFPB declined to comment, and the Chamber of Commerce did not immediately respond to a request for comment.
