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A Consumer Financial Protection Bureau regulation that promised to save Americans billions of dollars in credit card late fees faces a last-ditch effort to prevent 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 bounced between venues in Texas and Washington, D.C., for weeks, is now about to reach a milestone: A judge in the Northern District of Texas is expected to announce Friday afternoon whether the court will grant the court's request. industry of a freeze.
That could delay the regulation, which would reduce what most banks can charge in late payment fees to $8 per incident, just days before it took effect Tuesday.
“We should soon have some clarity on whether the rule will be allowed to take effect,” said Tobin Marcus, senior policy analyst at Wolfe Research.
The credit card regulation is part of President Joe Biden's broader election-year war against what he sees as junk fees.
Large card issuers have steadily raised the cost of late fees since 2010, benefiting from users with low credit scores racking up $138 in annual fees per card on average, according to CFPB Director Rohit Chopra.
New rates, higher rates
Unsurprisingly, the industry has mounted a campaign to derail the regulations, viewing them as a misguided effort that redistributes costs among those who pay their bills on time and ultimately harms those it aims to benefit by making it more likely cause users to delay.
At stake is the $10 billion in fees per year that the CFPB estimates the rule would save American families by reducing late penalties to $8 from a typical $32 per incident.
Card issuers, including capital one and Synchrony They have already talked about efforts to offset the revenue hit they would face if the rule goes into 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 “couple of years” while the company takes “mitigation measures” to boost revenue in other places.
“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 are planning additional action once we know more about where the litigation is resolved.”
Judgment ahead?
Like other observers, Wolfe Research's Marcus believes the Chamber of Commerce is likely to prevail in its efforts to delay the rule, either through the Northern District of Texas or through the Fifth Circuit Court of Appeals. If granted, a preliminary injunction could delay the rule until the dispute is resolved, possibly through a lengthy trial.
The industry group, which includes Washington, D.C.-based trade associations such as the American Bankers Association and the Consumer Bankers Association, filed its lawsuit in Texas because it is widely viewed as a friendlier place for corporations, Marcus said.
“I would be very surprised if [Texas Judge Mark T.] Pittman denies that court order on the merits,” he said. “One way or another, I think implementation will be blocked 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.
