LATE FEE LITIGATION
U.S. Chamber of Commerce v. Consumer Financial Protection Bureau
Date: April 30, 2024
Issue: Whether the Consumer Financial Protection Bureau’s (CFPB) late fee final rule exceeds its statutory authority and violates the Administrative Procedure Act (APA).
Case Summary: In a unanimous decision (3-0), a Fifth Circuit panel vacated the district court’s effective denial of the preliminary injunction, remanded the case, and ordered Judge Pittman to rule on the motion for preliminary injunction by May 10.
As background, under the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), issuers may charge a “penalty fee” for a violation of a cardholder agreement, if the fee is “reasonable and proportional to such omission or violation.” In assessing whether a penalty fee is “reasonable and proportional,” the CFPB must consider issuer costs, cardholder deterrence, and cardholder conduct. In the final rule, the CFPB reduced the late fee safe harbor to a flat $8.
ABA and its co-plaintiffs sued the CFPB in the Northern District of Texas, arguing the final rule: violates the U.S. Constitution’s Appropriations Clause based on the Fifth Circuit’s binding precedent in Community Financial Services Association v. CFPB; violates the CARD Act; violates the Dodd-Frank Act; is arbitrary and capricious; and violates the Truth in Lending Act (TILA)’s effective-date provision. ABA also moved the court for a preliminary injunction, arguing it is likely to succeed on the merits, and that the final rule is causing irreparable harm to card issuers.
Venue dispute/transfer. On March 28, 2024, Judge Mark Pittman granted the CFPB’s motion to transfer the case to the District of Columbia. ABA filed an emergency motion for injunction pending appeal and administrative stay with the Fifth Circuit. By declining to rule on ABA’s motion for expedited consideration of the preliminary injunction motion and ordering discretionary briefing on the venue, ABA argued that Judge Pittman effectively denied the preliminary injunction motion.
Writ of mandamus. On March 30, ABA filed a writ of mandamus asking the Fifth Circuit to order Judge Pittman to retain jurisdiction because his transfer order was improper. In its petition, ABA argued Judge Pittman lacked jurisdiction to transfer the case after ABA appealed his effective denial of its preliminary injunction motion to the Fifth Circuit. In a 2-1 decision, a Fifth Circuit panel granted ABA’s petition and vacated Judge Pittman’s transfer order. In the opinion for the majority, Judge Don Willett concluded that Judge Pittman effectively denied the preliminary injunction and lacked the jurisdiction to transfer the case. By transferring the case while an appealable order was pending before the Fifth Circuit, Judge Willett explained the district court altered the status of the case as it rests before the Fifth Circuit. As a result, the Fifth Circuit ordered Judge Pittman to reopen the case. On April 8, 2024, Judge Pittman reopened the case and notified the D.C. federal court, which terminated the case on April 10, 2024.
Recusal. Consumer advocates urged Judge Willett to recuse himself from the litigation because he owns $2,000 of Citigroup stock in his son’s college fund. On April 9, the Fifth Circuit requested additional briefing on whether an ownership interest in a nonparty large credit card issuer would be substantially affected by the outcome of this litigation. In its brief, the CFPB argued owning any large card issuer stock should be automatically disqualifying for a judge. ABA contended an ownership interest in a nonparty will rarely (if ever) require recusal from regulatory litigation. The Committee on Codes of Conduct of the Judicial Conference of the United States unanimously decided Judge Willett’s recusal was not automatically required. The committee explained Judge Willett’s interest in the case is “analogous to a judge who owns bank stock and is assigned to preside over the trial of a defendant charged with robbing that very bank.” In this scenario, a bank would have an interest in restitution, but the judge would not have an interest in the subject matter of the trial.
CFPB’s petition for rehearing. On April 18, the CFPB filed a petition for rehearing (not en banc/full panel), urging a three-judge panel to reverse its decision granting ABA’s writ of mandamus. CFPB argued the panel’s ruling that Judge Pittman effectively denied ABA’s preliminary injunction motion rested on flawed factual premises. In response, ABA argued the panel properly concluded there was a legitimate basis for urgency given the May 14 compliance deadline. ABA noted the district court’s decision to order briefing on venue and transfer, its refusal to expedite a decision on the preliminary injunction motion, and its subsequent decision to transfer the case with no acknowledgment of the harms ABA’s members were facing justified the grant of mandamus.
Preliminary injunction. The Fifth Circuit ordered an expedited briefing schedule for ABA’s appeal from the effective denial of its motion for a preliminary injunction. On April 26, ABA filed its opening brief, arguing it is likely to succeed on the merits of its claims. ABA contended the CFPB promulgated the final rule with funds drawn in violations of the Appropriations Clause. ABA also claimed the final rule violated the CARD Act by misconstruing “a penalty fee” for the violation of the cardholder agreement, and the final rule violates TILA’s timing requirements. Next, ABA argued its members will continue to experience irreparable harm absent an injunction from the Fifth Circuit. ABA claimed its members will suffer six types of irreparable harm: compliance costs; lost revenue; enforcement and private actions; collection costs; changed economics for certain accounts; and loss of customer goodwill.
However, on April 30, a Fifth Circuit panel vacated the effective denial of the preliminary injunction motion. By transferring the case to Washington, D.C., Judge Pittman did not decide whether a preliminary injunction was warranted. For this reason, the panel remanded the case to Judge Pittman to make particularized findings on the preliminary injunction factors: likelihood of success on the merits, irreparable harm, the balance of equities, and whether an injunction is in the public interest. The panel ordered Judge Pittman to rule on the preliminary injunction motion by May 10. The panel also declared it retains jurisdiction over the appeal.
Bottom Line: In the April 30 order, the Fifth Circuit did not rule on ABA’s stay pending appeal or CFPB’s petition for mandamus rehearing.
Documents: 4/30 Order, Mandamus Order, Letter
