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A Consumer Financial Protection Bureau regulation that promised to save Americans billions of dollars in late fees on credit cards is facing a last-ditch effort to avoid implementation.
Led by the U.S. Chamber of Commerce, the card industry sued the CFPB in federal court in March to block the new rule from taking effect.
That effort, which has bounced for weeks between venues in Texas and Washington, D.C., is now poised to reach an important milestone: A judge in the Northern District of Texas is expected to announce by Friday evening whether the court will grant industry demand for a freeze.
That could delay enforcement of the regulation, which would reduce the late fees most banks can charge to $8 per incident, just days before it takes effect Tuesday.
“We should soon have more clarity on whether the rule will be able to go into effect,” said Tobin Marcus, senior policy analyst at Wolfe Research.
Credit card regulation is part of President Joe Biden’s broader election war against what he sees as unwanted fees.
Large card issuers have steadily increased the cost of late fees since 2010, taking advantage of users with low credit scores who rack up an average of $138 in fees per year per card, according to CFPB Director Rohit Chopra.
New fees, higher rates
Predictably, the industry has launched a campaign to derail the regulations, viewing them as a misguided effort that redistributes costs to those who pay their bills on time and ultimately harms those which it claims to benefit by making users more likely to fall behind.
Up for grabs is the $10 billion a year in fees the CFPB estimates the rule would save American families by reducing late fees to $8 from the typical $32 per incident.
Card issuers, including Capital one And Synchronization have already spoken about efforts to offset the revenue losses they would face if the rule takes effect. They could do this by raising interest rates, adding new fees for things like paper statements, or changing who they choose to lend to.
Capital One CEO Richard Fairbank said last month that, if implemented, the CFPB rule would impact his bank’s revenue for “a few years” as the company took “mitigating steps.” to increase their income elsewhere.
“Some of these mitigation measures have already been implemented and are underway,” Fairbank told analysts during the company’s first-quarter earnings conference call. “We plan to take additional action once we know more about the outcome of the litigation.”
An upcoming trial?
Like other observers, Marcus of Wolfe Research believes that the Chamber of Commerce is likely to prevail in its effort to push back against the rule, either through the Northern District of Texas or through the US Court of Commerce. ‘Appeal from the Fifth Circuit. If granted, a preliminary injunction could delay enforcement of the rule until the dispute is resolved, possibly through a lengthy trial.
The industry group, which includes Washington-based trade associations such as the American Bankers Association and the Consumer Bankers Association, filed the suit in Texas because it is widely considered a more business-friendly location, said Marcus.
“I would be very surprised if (Texas Judge Mark T.) Pittman rejected this injunction on the merits,” he said. “One way or another, I think the implementation is going to be stalled before the rule is supposed to go into effect.”
The CFPB declined to comment and the Chamber of Commerce did not immediately respond to a request for comment.
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