Late Fee Litigation
U.S. Chamber of Commerce v. CFPB
Date: Aug. 12, 2024
Issue: CFPB’s attempt to dissolve the preliminary injunction in ABA’s lawsuit challenging CFPB’s late fee final rule.
Case Summary: The American Bankers Association filed briefs opposing CFPB’s motion to dissolve the preliminary injunction and its motion to dismiss or transfer the lawsuit challenging the CFPB’s late fee final rule.
As background, under the CARD Act, issuers may charge a “penalty fee” for violating 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 $8.
ABA sued CFPB arguing the final rule violates the U.S. Constitution’s Appropriations Clause, the CARD Act, the Dodd-Frank Act, and the Truth in Lending Act’s effective-date provision. ABA also argued the final rule is arbitrary and capricious under the APA. In addition, ABA moved the court for a preliminary injunction.
On May 10, Judge Pittman granted ABA’s motion for a preliminary injunction and stayed the late fee final rule. Judge Pittman based his decision solely on ABA’s constitutional claim tied to the Fifth Circuit’s ruling in Community Financial Services Association (CFSA) v. CFPB, which ruled the Bureau was unconstitutionally funded under the Appropriations Clause. On May 16, 2024, the U.S. Supreme Court reversed the Fifth Circuit’s CFSA decision, ruling the Bureau’s funding mechanism does not violate the Appropriations Clause.
Opposition to Motion to Dissolve Preliminary Injunction. On July 8, 2024, CFPB filed a motion to dissolve the preliminary injunction and lift the stay of the late fee final rule, arguing the Supreme Court’s decision in CFSA undermines the justification for the preliminary injunction. CFPB also argued ABA did not establish a likelihood of success on the merits or any other claim raised in the preliminary injunction motion, and for this reason, the court should dissolve the preliminary injunction.
In response, on August 8, 2024, ABA reiterated the final rule violates the Card Act by misconstruing its mandate that issuers may charge a “penalty fee” for the violation of the “cardholder agreement” and conflicts with the CARD Act’s text on “cost.” The CARD Act requires that the CFPB’s penalty-fee standard take account of “the cost incurred by the creditor from omission or violation for which the fee is charged. However, the final rule draws an arbitrary line disallowing consideration of any costs incurred by issuers after an account is charged off. ABA argued the final rule’s sole focus on issuer costs prevents credit card issuers from collecting penalty fees that are “reasonable and proportional to the omission or violation” of the cardholder agreement, as authorized under the CARD Act. ABA also highlighted that “the final rule will likely lead to more late payments, higher interest rates, constricted access to credit, and other less favorable credit card terms for consumers nationwide, including those who make their payments on time.”
On top of this, ABA argued the final rule violates the Truth in Lending Act’s effective-date requirement. TILA provides that rules “requiring any disclosure which differs from the disclosures previously required by this part … shall have an effective date of that Oct. 1, which follow by at least six months the date of promulgation.” Yet, the final rule sets its effective date 60 days after publication in the Federal Register, which is a clear violation of TILA.
ABA also argued the remaining factors favor maintaining the injunction. ABA has already established their members would face irreparable injury from the final rule’s statutory violations. But according to CFPB’s argument, even if the final rule is likely unlawful and will irreparably harm ABA’s members, it should still be allowed to go into effect “because it’s good policy.” ABA emphasized that argument is untenable, and the court was right to reject it the first time around. Alternatively, ABA requested the court allow for a 90-day compliance period if the court dissolves the preliminary injunction.
Opposition to Motion to Dismiss or Transfer. On July 29, 2024, CFPB filed a motion to dismiss or transfer under 28 U.S.C. § 1406 for improper venue, arguing the Fort Worth Chamber lacks associational standing because the lawsuit is not germane to its organizational purposes. In response, on August 12, 2024, ABA filed its opposition brief arguing the Fort Worth Chamber of Commerce has standing and satisfies the “germaneness” requirement for associational standing. ABA asserted this litigation is “germane” to the Fort Worth Chamber’s purpose of cultivating Fort Worth’s business climate, including for at least six member credit card issuers. Additionally, ABA emphasized CFPB’s arguments are unsupported by facts or precedent. To support its associational standing argument, CFPB relied on U.S. Supreme Court Justice Clarence Thomas’ concurrence in FDA v. Alliance for Hippocratic Medicine. In his concurrence, Justice Thomas questioned the doctrine of associational standing, But ABA stressed Justice Thomas’ concurrence does not change, nor does it claim to change, the settled doctrine of associational standing which the Supreme Court previously articulated. As a result, ABA contended venue is proper in the Northern District of Texas and this case should not be transferred.
Bottom Line: Judge Pittman has not yet ruled on CFPB’s motion to dismiss for improper venue under Section 1406.
Documents: Opposition to Motion to Dissolve, Opposition to Motion to Dismiss or Transfer
