Plaintiffs' Brief in Opposition to Defendants' Motion to Dissolve the Preliminary Injunction and Lift the Stay of the Final Rule (Or In Alternative Renewed Motion For A Preliminary Injunction)

INTRODUCTION

The CFPB’s final rule on credit card late fees originally suffered two fatal flaws meriting preliminary relief—one constitutional and one statutory. See Credit Card Penalty Fees (Regulation Z), 89 Fed. Reg. 19,128 (Mar. 15, 2024) (“Final Rule”). The first was that its promulgation was inconsistent with the Fifth Circuit’s Appropriations Clause holding in Community Financial Services Ass’n v. CFPB, 51 F.4th 616, 635-42 (5th Cir. 2022). The second flaw was that the CFPB exceeded its authority under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and the Truth in Lending Act (TILA). This Court ultimately relied on the Fifth Circuit’s Appropriations Clause precedent in preliminarily enjoining the Final Rule, along with its findings that Plaintiffs had established irreparable harm and satisfied the balance of the equities. See Order 5-7, ECF No. 82 (“PI Order”). But the Court also commented that Plaintiffs’ statutory arguments were “compelling.” Id. at 5.

Although the Supreme Court has since reversed the Fifth Circuit’s Appropriations Clause holding, those statutory bases for a preliminary injunction of the Final Rule remain. The CFPB’s latest attempts to harmonize its Final Rule with the text of the CARD Act and TILA are unavailing. And this Court’s findings on irreparable harm and the balance of the equities also remain correct (indeed, the CFPB does not even contest the former and rehashes old arguments in asking for reconsideration of the latter). The Court should accordingly deny the CFPB’s motion to dissolve the preliminary injunction. 

The CARD Act expressly recognizes that issuers may impose “penalty fee[s]” when customers violate their credit card agreements, so long as such fees are “reasonable and proportional to the omission or violation.” 15 U.S.C. § 1665d(b). Congress tasked federal agencies—first the Federal Reserve Board of Governors (the “Board”), and now the CFPB— with establishing standards for ensuring that such “penalty fees” are reasonable and proportional, taking into account the costs incurred by the issuer from such violation, the deterrent effects of a late fee, and the conduct of the cardholder. Id. § 1665d. A decade ago, the Board promulgated, and the CFPB subsequently adopted, a regulatory framework that attempted to incorporate those three statutory criteria into its late-fee safe harbor. Now, the CFPB has effectively jettisoned two of those criteria and issued a rule that will prevent issuers from collecting the reasonable and proportional penalty fees that the CARD Act expressly authorizes. To add insult to injury, the Final Rule would allow issuers to collect only a subset of the costs they incur as a result of late payments, instead of the full amount set forth by Congress. 

This rule not only exceeds the CFPB’s authority, it will also ultimately harm consumers. As the CFPB admits, it will likely lead to more late payments, higher interest rates, constricted access to credit, and other less favorable credit card terms for consumers nationwide, including those who make their payments on time. See 89 Fed. Reg. at 19,191-92. 

This CARD Act violation is sufficiently damning in itself. But it is exacerbated by the CFPB’s violation of TILA, which provides that CFPB rules requiring different disclosures to consumers “shall have an effective date of that October 1 which follows by at least six months the date of promulgation.” 15 U.S.C. § 1604(d). In the Final Rule, the CFPB set an effective date of 60 days instead of the 6-month-plus compliance period that is required by statute. The Final Rule’s short compliance period creates the very risks of turmoil in the credit card markets that Congress intended to avoid. 

Against these statutory arguments, the CFPB doubles down on expanding its own authority at the expense of Congress’s text. The CFPB’s brief describes how Congress meant “nothing” by the term “penalty fee,” Br. 15, that the CFPB need not incorporate Congress’s express statutory factors “in any particular way,” Br. 13-14, that the CFPB can add distinctions not in the statutory text (and not posited for over a decade), Br. 18-19, that the CFPB can interpret Congress’s “any” to mean “some,” Br. 19, and that its rule should be put in effect for now, even if it is likely unlawful, because it is good policy, Br. 20-22. To the extent there was any doubt before, these arguments confirm that the CFPB simply disagrees with Congress’s policy judgments and seeks to impose its own through this Final Rule. 

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