NEW YORK – The Consumer Financial Protection Bureau (CFPB) was sued on March 7 over its new rule capping late fees on credit cards at US$8 (S$10.70), which banking groups and the United States Chamber of Commerce say punishes consumers who pay their bills on time.
In a complaint filed in a Fort Worth, Texas, federal court, the fee’s opponents accused the bureau of exceeding its authority, and ignoring Congress’ intent that fees be high enough to deter late payments, ensure cardholder accountability and compensate issuers for their costs when payments are late.
The plaintiffs include the chamber, the American Bankers Association, the Consumer Bankers Association and three Texas-based trade groups.
In a statement, the consumer bureau pledged to defend the rule, saying it “closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream” and will save American consumers more than US$10 billion.
Credit card late fees have been a boon to issuers, totalling more than US$14 billion in 2022 as the average fee swelled to US$32, the bureau estimated.
The new rule caps fees for issuers with more than one million open accounts, unless they can prove that higher fees are necessary to cover their costs, and end what the CFPB called “abuse” of an automatic adjustment for inflation.
More than 95 per cent of outstanding credit card balances are expected to be covered. CFPB director Rohit Chopra has characterised the higher fees as “junk fees”.
In March 7’s complaint, opponents said capping late fees would cause irreparable harm through higher card losses and compliance costs for issuers, including on accounts they would have never opened had they known about the cap.
“The agency’s own analysis has found that by limiting late fees, associated costs will be passed on to all credit card users, even those who have never made a late payment,” said Mr Neil Bradley, chief policy officer at the chamber.
The case was assigned to District Judge Reed O’Connor, an appointee of former president George W. Bush.
His rulings have included a 2018 decision declaring unconstitutional the Affordable Care Act, also known as Obamacare. That ruling was reversed on appeal. REUTERS
