Late fee litigation
U.S. Chamber of Commerce v. CFPB
Date: Feb. 20, 2025
Issue: Whether the Consumer Financial Protection Bureau’s (CFPB) late fee final rule exceeds its statutory authority and violates the U.S. Constitution, Credit Card Accountability Responsibility and Disclosure (CARD) Act, Administrative Procedure Act (APA), and Truth in Lending Act’s (TILA) effective date requirement.
Case Summary: ABA moved for summary judgment in its lawsuit challenging CFPB’s Late Fee final rule (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 TILA’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, 2024, 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. On Dec. 6, 2024, Judge Pittman denied CFPB’s motion, holding that ABA is likely to succeed on the merits because the final rule “clearly violates the CARD Act.”
In its brief, ABA argued it is entitled to summary judgment on all claims, presenting four main arguments. First, ABA argued that the final rule misconstrues the CARD Act by redefining “penalty fees” as mere “cost fees,” preventing issuers from imposing reasonable and proportional penalties for late payments. ABA emphasized that penalty fees serve not only to compensate issuers but also to deter violations, citing SEC v. Jarkesy, where the Supreme Court affirmed that civil penalties aim to punish and deter, not just compensate. Because Congress specifically used the term “penalty,” ABA explained that its definition must extend beyond issuer costs. What is more, the statutory text and context confirm Congress’s intent to allow issuers to collect reasonable and proportional penalty fees. The final rule, however, improperly limits fees to an amount that only partially covers issuer costs.
ABA also contended that the final rule conflicts with the CARD Act’s language on “cost” by arbitrarily excluding post-charge-off collection expenses, even though the Federal Reserve previously recognized that collection efforts continue beyond charge-off. Furthermore, Congress demonstrated in Dodd-Frank that it knew how to distinguish between different types of costs, when necessary, yet it made no such distinction in the CARD Act’s penalty-fee provision. This omission, ABA argued, confirms that Congress intended issuers to consider all relevant costs when determining penalty fees.
Second, ABA argued that the final rule violates TILA’s effective date requirement. TILA mandates that any rule requiring new disclosures, different from those required, must take effect on the first October 1 that follows by at least six months after the final rule’s promulgation. The brief underscored that CFPB acknowledged the final rule forces issuers to disclose a new penalty fee amount for late payments. Despite this requirement, CFPB set the final rule’s effective date 60 days after its publication in the Federal Register, violating TILA’s clear timeline.
Third, ABA argued that the final rule is arbitrary and capricious under the APA, citing multiple flaws in CFPB’s reliance on non-public Y-14M data from the Board’s Capital Assessments and Stress Testing survey. The bureau failed to disclose the data or provide sufficient technical analyses, violating procedural requirements and preventing meaningful public comment. Additionally, ABA maintained that CFPB’s deterrence analysis was similarly arbitrary, as the bureau dismissed peer-reviewed research showing that reducing late fees to $8 would increase late payments. Instead, CFPB relied on a confidential internal study shielded from public scrutiny. Finally, ABA contended that the final rule ignores its likely consequences—higher interest rates and reduced credit access.
Finally, ABA argued that the final rule violates the U.S. Constitution because it breaches the separation of powers by unlawfully granting CFPB the authority to determine its own funding based on what it deems “reasonably necessary.” ABA explained the Constitution prohibits Congress from delegating its legislative powers to the executive branch without an intelligible principle to guide the exercise of that power. Determining how much funding is “reasonably necessary” to execute the bureau’s responsibilities under federal consumer financial law is a “quintessential legislative power.” Thus, ABA argued that Congress has not provided a sufficient intelligible principle to convert this legislative power into an executive one.
As to remedy, ABA argued it is entitled to vacatur, declaratory relief, and a permanent injunction. ABA emphasized that the Northern District of Texas should set aside the final rule and declare it unlawful.
Bottom Line: CFPB’s response to ABA’s motion for summary judgment is due April 3, 2025.
Document: Brief
