A federal judge in Texas this evening issued a preliminary injunction blocking the CFPB’s credit card late fee rule from taking effect on May 14 as scheduled. The ruling came in the case brought by ABA, the U.S. Chamber of Commerce and other plaintiffs. ABA President and CEO Rob Nichols welcomed the ruling, which he said “will spare banks from having to immediately comply with a rule that clearly exceeds the CFPB’s statutory authority and will lead to more late payments, lower credit scores, increased debt, reduced credit access and higher APRs for all consumers—including the vast majority of card holders who pay on time each month.”
In issuing the ruling, Judge Mark Pittman found that the plaintiffs had a substantial likelihood of success on the merits and that they faced a threat of irreparable harm from the CFPB’s rule based on the binding Fifth Circuit ruling in CFPB vs. Community Financial Services Association of America. The rule, which applies to credit card issuers with at least 1 million open accounts, reduced the safe harbor dollar amount for late fees to $8, eliminated a higher safe harbor dollar amount for late fees for subsequent violations of the same type and eliminated an annual inflation adjustment for the safe harbor amount.
CFPB vs. Community Financial Services Association of America is the ongoing case challenging the constitutionality of the bureau’s funding. The case is currently awaiting a Supreme Court ruling that could come any time before the end of June. Because of this precedent, Pittman did not address what he called ABA and the other plaintiffs’ “compelling” arguments under the Credit CARD Act, the Truth in Lending Act and the Administrative Procedure Act.
