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A Consumer Financial Protection Bureau regulation that promised to save Americans billions of dollars in credit card late fees is facing a last-ditch effort to prevent its 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 back and forth for weeks between venues in Texas and Washington, D.C., is now nearing a milestone: A judge in the Northern District of Texas is expected to announce Friday evening whether the court will grant the industry’s request for a permit will freeze.
That could delay passage of the regulation, which would cut late fees charged by most banks to $8 per incident, just days before it takes effect Tuesday.
“We should have clarity soon on whether the rule will be allowed 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-year fight against what he says are junk fees.
According to CFPB Director Rohit Chopra, major card issuers have steadily increased the cost of late fees since 2010, capitalizing on low-credit users who rack up an average of $138 per year in fees per card.
New fees, higher rates
As expected, the industry has launched a campaign to derail the regulations, believing them to be a misguided effort that redistributes costs to those who pay their bills on time and ultimately harms those it supposedly benefits by increasing the likelihood that users will fall behind.
Up for grabs are the $10 billion a year in fees that the CFPB estimates the rule would save American families by reducing late penalties from an average of $32 per incident to $8.
Card issuers included Capital one And Synchronicity have already discussed efforts to offset the revenue losses they would face if the rule goes into effect. They could do this by raising interest rates, introducing new fees for things like paper statements, or changing who they lend to.
Capital One CEO Richard Fairbank said last month that the CFPB rule, if implemented, would impact his bank’s revenue for “a couple of years” as the company takes “remedial actions” to boost revenue elsewhere .
“Some of these remedial actions have already been implemented and are underway,” Fairbank told analysts during its first-quarter earnings call. “We plan to take further action as we learn more about where the litigation will be resolved.”
Trial imminent?
Like some other observers, Wolfe Research’s Marcus believes the Chamber of Commerce is likely to prevail in its efforts to stop the rule either through the Northern District of Texas or the 5th Circuit Court of Appeals. If granted, an injunction could delay settlement until the dispute is resolved, perhaps through a lengthy process.
The industry group, which includes Washington, D.C.-based trade groups such as the American Bankers Association and the Consumer Bankers Association, filed its lawsuit in Texas because Texas is widely considered a friendlier location for businesses, Marcus said.
“I would be very surprised if [Texas Judge Mark T.] Pittman disputes this injunction on the merits,” he said. “One way or another, I think implementation will be blocked before the rule is scheduled to take effect.”
The CFPB declined to comment and the Chamber of Commerce did not immediately respond to a request for comment.
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2024-05-09 17:12:31
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