Judge Could Block New Rule Capping Credit Card Late Fees

An amended Consumer Financial Protection Bureau (CFPB) regulation that was set to take effect next week is facing a final effort to block its implementation.

In March, the CFPB finalized a rule that would cut excessive credit card late fees by closing a loophole that companies have used to steadily increase their fees for late payment. The CFPB found that since 2010, issuers have used late penalties as a major generator of additional revenue growing to over $14 billion in 2022.

The new rule was set to take effect on May 14 and would have capped credit card late fees at $8 per incident. Prior to the new guidelines, the typical late fee was $32.

In March, CFPB Director Rohit Chopra said, "For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers. Today's rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines."

The U.S. Chamber of Commerce promptly filed a lawsuit seeking a preliminary injunction to stop the CFPB from implementing the rule, which the chamber alleges "punishes responsible credit card users who pay their bills on time."

Neil Bradley, executive vice president of the Chamber of Commerce, said at the time, "By significantly limiting late fees, the CFPB is not only discouraging responsible credit card use but also imposing higher costs on consumers and limiting choices in credit card options and benefits."

In case the new plan goes forward, credit companies have already discussed alternate ways of keeping the revenue flowing, such as increased interest rates, fees for paper statements, and adjusting lender requirements.

Capital One CEO Richard Fairbank said last month that if the rule stays, it would impact his bank's revenue for a "couple of years." Speaking to analysts during the company's earning's call, Fairbank said the company would be taking "mitigating actions" to find additional revenue.

"We are planning on additional actions once we learn more about where the litigation settles out," he added.

Wolfe Research's Tobin Marcus told CNBC that he believes the Chamber of Commerce will succeed on its injunction efforts, noting that the lawsuit was filed in corporation-friendly Texas.

"I would be very surprised if [U.S. District Judge Mark] Pittman denies that injunction on the merits," he said. "One way or another, I think implementation is going to be blocked before the rule is supposed to go into effect."

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