ABA Sues CFPB Over New Regulation Restricting Credit Card Late Fees

The American Bankers Association today joined the U.S. Chamber of Commerce, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, Consumer Bankers Association, and Texas Association of Business in filing a lawsuit in the U.S. District Court for the Northern District of Texas against the Consumer Financial Protection Bureau (CFPB) that challenges the CFPB’s new rule limiting credit card late fees. The plaintiffs are also seeking a preliminary injunction barring the bureau from implementing the new rule.

“The CFPB’s action to cap credit card late fees below banks’ actual costs exceeds its authority and would result in more late payments, increased debt, reduced credit access and higher APRs for all consumers – including the vast majority of card holders who pay on time each month,” said ABA President and CEO Rob Nichols. “Once again, we have reluctantly been forced to sue a federal regulator because the CFPB has ignored industry and other stakeholder comments demonstrating that this rule exceeds the bureau’s statutory authority and will hurt rather than help consumers. This rule is about politics not policy, and we look forward to the court’s review.”

The litigation challenges the bureau’s March 5 decision to finalize a rule restricting credit card late fees. The rule specifically slashes the safe harbor amount that the Federal Reserve set for those fees — and every previous CFPB has maintained — by 75% and upends more than a decade of regulations.

In the filing, ABA and its co-plaintiffs argue:

“In taking these actions, the CFPB violated the Appropriations Clause, exceeded its statutory authority, and offered deficient analysis and reasoning, all in order to achieve a pre-ordained outcome that will ultimately harm those consumers the CFPB is charged with protecting. To top it off, the CFPB adopted an effective date that violates yet another statute and that exposes issuers to immediate and irreparable harm. This Court should vacate the Final Rule.”

ABA and its co-plaintiffs’ specific arguments for challenging the rule and seeking a preliminary injunction include:

• Violating the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 by preventing issuers from collecting reasonable and proportional late fees when cardholders don’t pay their bills on time;
• Violating the Administrative Procedure Act (APA) by promulgating a final rule that is arbitrary and capricious, relying on incomplete and nonpublic data to estimate card issuers’ costs;
• Violating the Dodd-Frank Act (DFA) by failing to sufficiently consider the costs to consumers, including the reduced access to credit that will result from the final rule;
• Violating the Truth in Lending Act (TILA) by failing to implement an effective date of Oct. 1 as required with new consumer-credit disclosures; and
• Issuing the rulemaking with funds drawn in violation of the U.S. Constitution’s Appropriations Clause.

Read the full complaint.