Late Fee Rule Halted by TX Court

Late on Friday, May 10, 2024, a District Court in Texas entered an order stopping the Consumer Financial Protection Bureau's (CFPB) Late Fee Rule (Rule), which would slash credit card late fees to $8.00, from going into effect on May 14, 2024. The Order says the injunction is warranted because of the CFPB's funding structure and because the injuries created by the Rule, if it were to go into effect tomorrow, could not be practicably measured. 

Upon its release, the Rule was widely criticized for both the CFPB's alleged failure to follow the Administrative Procedures Act (APA) and for its significant operational impacts. The announcement of the Final Rule on credit card late fees sparked an immediate reaction. A collective of trade groups, including the U.S. Chamber of Commerce, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and Texas Association of Business (collectively, the Trade Groups) filed a complaint in the U.S. District Court for the Northern District of Texas challenging the Rule.

The Trade Groups alleged they were entitled to a preliminary injunction because of the CFPB's funding structure, and the Rule violates the  Credit Card Accountability Responsibility and Disclosure Act (CARD Act), the Truth in Lending Act (TILA), and APA. More specifically, the Trade Groups argued that because the Fifth Circuit Court of Appeals had previously held that the CFPB's funding structure is unconstitutional, any rule passed under that same funding structure, including the Late Fee Rule, is likewise unconstitutional. 

The Court agreed with the Trade Group's argument regarding the CFPB's funding argument and did not address the CARD Act, TILA, and APA claims. That said, standing alone, the funding issue is not enough to meet the legal threshold for a preliminary injunction. To meet that threshold, there must be an irreparable injury and an examination of the relative harm of both parties. 

In reviewing the Rule and the arguments of the parties, the Court held that should the Rule go into effect on May 14, 2024, there would indeed be an irreparable injury.  Per the Court, "The issue isn’t so much that the Plaintiffs’ injury could never be repaired by damages, but that damages for their injury could not practicably be measured." Because damages would not be able to be computed, the Court found that the Trade Groups met their legal burden on this factor.

Finally, the Court reviewed the “relative harm to both parties" if the injunction were to be granted or denied. In its examination, the Court reasoned that entering the injunction would cause less harm to the CFPB than to the Trade Groups. Specifically, if it denied the injunction, the Trade Groups would face an enormous undertaking based upon a potentially unconstitutional rule. However, if the Court were to grant an injunction, the CFPB would be relatively unaffected because the  Rule has not yet gone into effect.

Since the Trade Groups met their legal burden, the Court entered a preliminary injunction effectively stopping the Late Fee Rule from becoming effecitve tomorrow, May 14, 2024. 

You can read the full Opinion and Order here. 

insideARM Perspective

The Opinion and Order in this matter should not be construed to mean that the Court Disagrees with the policy behind the Rule. Interested parties should take note of footnote 1, which states, "Importantly, the Court offers no opinion and has no opinion as to whether the CFPB’s Final Rule reducing the credit card late fee cap is good or bad policy, as that is irrelevant to the Court’s analysis." Coupled with the fact that the U.S. Supreme Court heard oral arguments in the CFPB funding case in October of 2023, and is expected to issue its ruling in 2024, the effects of this ruling may be short-lived. We will continue to watch for developments.