LATE FEE LITIGATION
U.S. Chamber of Commerce v. CFPB
Date: March 30, 2024
Issue: Whether the Consumer Financial Protection Bureau (CFPB)’s Late Fee final rule exceeds its statutory authority and violates the Administrative Procedure Act (APA).
Case Summary: The American Bankers Association, U.S. Chamber of Commerce, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, Consumer Bankers Association and Texas Association of Business sued CFPB in Fort Worth federal court (Northern District of Texas) challenging its late fee final rule.
Under the Credit Card Accountability Responsibility and Disclosure Act, or 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,” CFPB must consider issuer costs, cardholder deterrence and cardholder conduct.
In the final rule, CFPB reduced the late fee safe harbor to a flat $8. Previously, the late fee safe harbor was $30 for violations and $41 for repeat violations. The final rule also eliminates the automatic annual inflation adjustments for issuers under the new $8 safe harbor. The $8 safe harbor applies to issuers with one million or more open accounts (large card issuers). Issuers with less than one million open accounts (small card issuers) may charge $32 for a first late payment and $43 for repeat violations within six months. CFPB claimed $8 is enough to cover pre-charge-off collection costs for large card issuers on average. The final rule also clarifies post-charge-off collection costs must be excluded from the calculation for large and small card issuers who collect a penalty fee using a cost analysis, rather than the safe harbor. The final rule is effective on May 14, 2024.
Complaint. In its complaint, ABA made five main arguments:
- 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, and thus must be vacated;
- The final rule violates the CARD Act because it does not allow issuers to charge fees that sufficiently account for deterrence or consumer conduct, including repeat violations;
- The final rule violates the Dodd-Frank Act because CFPB did not adequately consider the likely costs consumers will face because of the final rule , including reduced access to credit;
- The final rule is arbitrary and capricious under the APA because CFPB used inappropriate, incomplete, and non-public data to estimate card issuers’ costs, while also failing to make this data available for public comment; and
- The final rule violates the Truth in Lending Act (TILA)’s effective-date provision, which provides new consumer-credit disclosures must have an October 1 effective date.
Preliminary Injunction. ABA also moved the court for a preliminary injunction, arguing it is likely to succeed on the merits, and the final rule is causing irreparable harm to card issuers, including: compliance costs, risk of enforcement actions, lost late-fee revenue, increased late-payment costs, changed economics of accounts that would not have been opened under a $8 safe harbor, and loss of customer goodwill. In its opposition brief, CFPB argued ABA is unlikely to success on the merits because the court should dismiss or transfer the complaint for improper venue under 28 U.S.C. § 1406. According to CFPB, the only plaintiff residing in the Northern District of Texas is the Fort Worth Chamber, and the Fort Worth Chamber identifies one member—Synchrony Bank of Draper, Utah—as being harmed by the final rule. CFPB also argued the CARD Act only requires it to “consider” cardholder conduct and deterrence in setting a late fee, rather than directly tying the late fee amount to those factors. In reply, ABA argued venue is proper in the Northern District of Texas: Each plaintiff has standing because the Fort Worth Chamber has standing, and transactional venue is proper because plaintiffs’ members have cardholder customers within the district.
Motion to Transfer. On March 18, 2024, Judge Mark Pittman entered an order questioning whether the Fort Worth Division of the Northern District of Texas is the correct venue. In the order, Judge Pittman invited CFPB to move to transfer. In response, ABA moved for expedited consideration of preliminary injunction before considering the discretionary transfer. But Judge Pittman denied ABA’s motion for expedited relief on March 20, 2024. On the same day, CFPB moved to transfer the case to the U.S. District Court for the District of Columbia, arguing venue in the D.C. federal district court is proper because the central event giving rise to the plaintiffs’ claim (the issuance of the final rule) occurred in D.C. and three of the plaintiff associations “call D.C. home.” Opposing the motion, ABA argued neither the private- nor public-interest factors favor transfer to the D.C. federal district court. According to ABA, the only public-interest factor that might support transfer is court congestion. But Fifth Circuit precedent states a transfer under Section 1404 cannot be granted only because of court congestion. On March 28, 2024, Judge Pittman granted CFPB’s motion to transfer the case to the District of Columbia.
Notice of Appeal. On March 25, 2024, 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 venue, ABA argued Judge Pittman effectively denied the preliminary injunction motion. According to ABA, because of the May 14, 2024 effective date, its members must act immediately to comply with the final rule and notify current cardholders of any changes to the cardholder agreements. The Fifth Circuit docketed ABA’s emergency motion the next day.
On March 29, 2024, the Fifth Circuit ordered an administrative stay until 10 p.m. on March 30, 2024. On March 30, ABA filed a Writ of Mandamus asking the Fifth Circuit to order Judge Pittman to retain jurisdiction. The petition argued Judge Pittman did not have jurisdiction to transfer the case while the Fifth Circuit docketed ABA’s emergency appeal. On the same day, the Fifth Circuit motions panel extended the administrative stay until April 2, 2024. The motions panel also referred our pending disputes with Judge Pittman to a Fifth Circuit Oral Arguments Panel.
Bottom Line: The new panel may schedule expedited briefing, and possibly oral arguments, as early as April 2, 2024, which is the next scheduled day for oral argument in the Fifth Circuit.
