The Consumer Financial Protection Bureau’s (CFPB) recent rule limiting credit card late fees at $8 has drawn fire from business groups, economists, and Congress. This rule is a price control, and it will likely shift costs from derelict cardholders to those in good standing.
For companies in the crosshairs of CFPB overreach, time is almost up. On Monday, a group of plaintiffs led by the U.S. Chamber of Commerce asked the 5th U.S. Circuit Court of Appeals for a preliminary injunction. The plaintiffs filed the lawsuit earlier this month and failed to win a preliminary injunction at the district court level. They argue that the CFPB’s rule, if allowed to take effect, will irreparably harm covered businesses who will be forced to comply with onerous regulatory burdens.
“The Rule has an unlawfully-short [sic] effective date of May 14, 2024, such that Plaintiffs’ members must act immediately to meet their obligations under the new Rule,” the plaintiffs write. Without an injunction, they say, customers would need to receive notices of updated policies even sooner – by March 29.
The lawsuit alleges that the CFPB has overstepped its statutory authority. According to the plaintiffs, the CARD Act of 2009 does not give the agency the authority it claims. They argue that the agency warped the congressional language in promulgating its new rule. The CFPB has broad (often unconstrained) authorities over industries it regulates, yet it seems that somehow it may have found a way to overstep even this wide mandate.
The new rule is also bad economic policy. Limiting late fees could very well cause users to be less careful about paying their bills on time, which would benefit no one. Also, by capping the rate of late fees (and thereby reducing the revenues of credit card issuers), the CFPB could force issuers to make up those revenues in other ways. This could manifest in numerous ways, such as increased prices for all users (including those who always pay on time) and degraded consumer services and cardholder perks.
The CFPB’s overstepping will ultimately hurt consumers and businesses. Hopefully, the 5th Circuit will grant the plaintiffs a preliminary injunction and the court system will then jettison the rule entirely.