Judge blocks Biden administration rule capping credit card late fees at $8

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CNN
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A federal judge in Fort Worth, Texas, on Friday blocked a new Biden administration rule that would prohibit credit card companies from charging customers late fees greater than $8.

U.S. District Judge Mark T. Pittman, appointed by former President Donald Trump, granted a preliminary injunction to several business and banking organizations that allege the new rule violates several federal laws.

These organizations, led by the right-wing American Chamber of Commerce, sued the Consumer Financial Protection Bureau after the rule was finalized in March. The rule, set to take effect Tuesday, would save consumers about $10 billion a year by reducing fees by an average of $32, the CFPB estimated.

A preliminary injunction means that the rule can only go into effect after a hearing is held at which the case can be tried in more detail.

“The credit card lobby’s lawsuit is an attempt to derail a rule that will save families $10 billion each year in order to continue making tens of billions of dollars in profits by charging borrowers fees. delays that far exceed their actual costs,” a CFPB spokesperson said. CNN in a statement. “Consumers will have to pay $800 million in late fees every month while the rule is delayed – money that bolsters the profit margins of the largest credit card issuers. We will continue to defend this rule so that working families can stop paying excessive late fees that Congress banned more than a decade ago.

The American Chamber of Commerce did not respond to CNN’s request for comment.

“It is disappointing that the court granted this last-ditch effort by banks to prevent these critical limits on credit card late fees from going into effect next week,” said Chuck Bell, advocacy program director for the nonprofit Consumer Reports. “Credit card companies have been gouging consumers out of billions of dollars in excessive late fees for far too long. »

The rule, first proposed in February 2023, is part of a broader initiative by the Biden administration to eliminate “junk fees,” considered hidden or misleading charges to consumers.

The new rule would apply to large credit card issuers, meaning those with more than 1 million accounts. These companies account for more than 95% of total outstanding credit card debt, according to the CFPB.

The push to target credit card fees is part of the Biden administration’s efforts to ease the financial burden on many Americans. Some borrowers, particularly millennials and those with lower incomes, have fallen behind on their credit card debt after more than two years of high inflation.

The new rule also aims to close a 2010 loophole that the CFPB says was “exploited” by credit card companies to increase late payment fees.

According to a Consumer Reports national survey released in September, one in five American adults reported paying late fees on a credit card in the previous 12 months. Eighty-two percent said they favor reducing the maximum late fees.