Late fee litigation
U.S. Chamber of Commerce v. CFPB
Date: Dec. 6, 2024
Issue: The Consumer Financial Protection Bureau’s (CFPB) attempt to dissolve the preliminary injunction in ABA’s lawsuit challenging the Bureau’s late fee final rule.
Case Summary: Judge Mark Pittman of the Northern District Court of Texas rejected the CFPB’s motion to dissolve the preliminary injunction, as well as its motion to dismiss or transfer ABA’s 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,” CFPB must consider issuer costs, cardholder deterrence, and cardholder conduct. In the final rule, 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 that 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 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.
On July 8, 2024, CFPB filed a motion to dissolve the preliminary injunction and lift the stay of the final rule, arguing the Supreme Court’s decision in CFSA undermines the justification for the preliminary injunction. ABA contended, however, that the final rule violates the CARD Act by misconstruing its mandate that issuers charge a “penalty fee” for the violation of the “cardholder agreement” and conflicts with the CARD Act’s text on “cost.” ABA also argued the injunction should remain in place because its members would face irreparable injury from the final rule’s statutory violations.
CFPB also moved 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. This was CFPB’s third attempt to transfer the case to Washington, D.C., after prior attempts had been granted but later reversed by the Fifth Circuit, returning the case to the Northern District of Texas. In its opposition brief, ABA argued the Fort Worth Chamber of Commerce has standing and satisfies the “germaneness” requirement for associational standing, because the 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.
Denying CFPB’s motion to dismiss and transfer, Judge Pittman held that the Fort Worth Chamber has associational standing, because the Fort Worth Chamber satisfied the germaneness requirement. According to Judge Pittman, the Fifth Circuit has characterized the germaneness requirement as “undemanding” and requiring “mere pertinence” between the litigation at issue and the organization’s purpose. Judge Pittman explained the court did not need to address any potential economic consequences of the final rule to conclude that the Fort Worth Chamber’s purpose would be impacted if card issuers within its organization faced the rule’s changes. While CFPB claimed a finding of associational standing would “create an improper end-run around the venue limitations,” Judge Pittman observed that circuit precedent leaves little room for dismissing parties based on geographical ties. As a result, Judge Pittman concluded that the Fort Worth Chamber has associational standing.
Judge Pittman also concluded that venue is proper in the Northern District of Texas. According to Judge Pittman, venue is proper in an action against federal agencies where “the plaintiff resides if no real property is involved in the action.” Judge Pittman noted that neither side disputes that the Fort Worth Chamber resides in the Northern District of Texas or that no real property is in dispute. Judge Pittman also noted that the Northern District of Texas has been mandamused twice and found by the Fifth Circuit as having failed to act diligently and clearly abusing its discretion by transferring this case to Washington, D.C.
Denying CFPB’s motion to dissolve the preliminary injunction, Judge Pittman held that ABA is likely to succeed on the merits. Judge Pittman agreed with ABA’s argument that the final rule violates the CARD Act, reiterating the statute explicitly allows card issuers to impose “penalty fees” as long as they are “reasonable and proportional” to cardholder agreement violations. Yet the final rule lowered the safe harbor to $8 for card issuers because, in CFPB’s view, it would cover pre-charge-off collection costs. However, Judge Pittman observed that fees to cover “costs” and fees that constitute “penalties” are not the same thing. By narrowing the safe harbor to cost-based fees, Judge Pittman declared the final rule eliminates card issuer’s ability to charge penalty fees reasonable and proportional to violations. Further, Judge Pittman explained that the CARD Act does two things: enables card issuers to impose penalty fees; and tasks the CFPB with establishing standards for those fees. Put differently, Judge Pittman concluded that “Congress assigned the CFPB as an umpire to call balls and strikes on the reasonableness and proportionality of penalty fees.”
Judge Pittman also held that the balance of equities and public interests favors ABA. CFPB did not contest whether ABA and its members would face irreparable harm from the final rule. But the CFPB asked the court to reconsider its findings that the balance of equities and public interest support a preliminary injunction. The bureau cited caselaw claiming “courts must balance the equities” and consider the implications on public interest. Even so, Judge Pittman concluded that even if it were necessary for the court to revisit the factors, such analysis reveals that the balance of equities and public interest do not favor the CFPB, because “there is generally no public interest in the perpetuation of unlawful agency action.”
Bottom Line: ABA’s motion for summary judgment is due Feb. 20, 2025.
Documents: Order
