On April 26, 2024, Plaintiffs filed their response to the CFPB’s Petition for a Panel Rehearing with the Fifth Circuit in the lawsuit challenging the CFPB’s credit card penalty fees rule (Rule). On the same date, the Plaintiffs also filed their brief in support of their motion for a preliminary injunction with the Fifth Circuit. As we have previously stated, the Rule is unlikely to be stayed before its May 14 effective date based on the court briefing schedule set forth below.

Preliminary Injunction Briefing at Fifth Circuit

The Plaintiffs and CFPB fully briefed the motion for the preliminary injunction at the district court. While the district court did not expressly rule on that motion, the district court denied the Plaintiffs’ motion to expedite consideration of the motion for a preliminary injunction. The Plaintiffs then appealed to the Fifth Circuit on the theory that the district court de facto denied their motion for a preliminary injunction by failing to rule on it. The Plaintiffs’ brief in the Fifth Circuit is substantially the same as their brief in the district court.

The Plaintiffs argue that the court should preliminarily enjoin the Rule during the pendency of the lawsuit. In order to obtain a preliminary injunction from the Fifth Circuit, the Plaintiffs must satisfy the following four factors: (1) a substantial threat of irreparable harm to the Plaintiffs absent the injunction, (2) the likelihood of the Plaintiffs’ ultimate success on the merits, (3) the balance of harms to the parties, and (4) the public interest.

The Plaintiffs argue that they satisfy the four factors for the court to grant a preliminary injunction for the following principal reasons:

1. Irreparable Harm—The Plaintiffs have established that the Rule will cause card issuers to suffer irreparable harm, which the CFPB did not contest in its opposition to Plaintiffs’ motion for a preliminary injunction or in its opposition to Plaintiffs’ motion for an injunction pending appeal. If the Rule is allowed to take effect: (1) compliance costs in connection with updating fee disclosures to reflect lower late fees, training compliance, customer-service and other staff on the Rule’s new requirements, and performing an initial and annual cost-justification study if charging a late fee above the $8 safe harbor; (2) lost late fee revenues; (3) risk of enforcement actions because there is a significant risk that it will be impossible to come into compliance by the Rule’s effective date; (4) increased collection costs because the Rule will make consumers more likely to make late payments; (5) changed economics of accounts which would never have been issued, or would not have been issued on their particular terms, had issuers been limited to (or had anticipated) an $8 late fee; and (6) loss of customer goodwill if issuers are forced to reduce their late fees to $8 and subsequently raise them, either through the Rule’s cost-analysis provisions or based on the outcome of this litigation.
2. Success on the Merits—The Plaintiffs are likely to succeed on the merits of their claims because (a) the Fifth Circuit has ruled in CFSA v. CFPB that the CFPB’s funding is unconstitutional, and (b) the Rule violates the CARD Act, TILA, and APA.
3. Balance of Harms to the Parties—The equities favor a stay pending resolution of the case because the harms to the Plaintiffs’ members will be substantial while the harms to the CFPB in delaying the Rule’s effective date are negligible.
4. Public Interest—Because the Rule would likely lead to more late payments, higher interest rates, constricted access to credit, and other less favorable terms, the public interest would be served by delaying these effects while the case is decided. The Rule could also cause consumer confusion if it goes into effect and then later is permanently enjoined.

The CFPB’s response brief in opposition to the motion for a preliminary injunction is due by May 13 and Plaintiffs’ reply brief is due May 17. Thus, the preliminary injunction briefing will be in progress on the Rule’s May 14 effective date.

Petition for Panel Rehearing

On April 18, the CFPB filed a Petition for Panel Rehearing and the Fifth Circuit has directed the Plaintiffs to file a response by April 30. In its petition, the CFPB argues that the Fifth Circuit panel should reconsider its decision vacating the district court’s order transferring the case to the U.S. District Court for the District of Columbia and issuing a writ of mandamus directing the district court to reopen the case for the following reasons:

• TILA does not require advance notice for the only change the Rule would require—a reduction in the maximum late fee.
• Whether or not the Plaintiffs are saved from the cost of preparing new disclosures for distribution after the Rule’s May 14 effective date with a preliminary injunction, a court could still effectively grant them the permanent relief they seek, namely reinstatement of the old rule’s late fee safe harbor.
• The approach taken in the panel’s decision improperly interferes with the district court’s authority to manage their own dockets and assess that expedition of the plaintiffs’ preliminary injunction motion was unwarranted.

In their Response to Petition for Panel Rehearing, the Plaintiffs request the court to deny the “CFPB’s misguided petition” and reject the CFPB’s attempts to further delay the decision. Plaintiffs argue that as the effective date approaches, issuers have suffered irreparable harm and will suffer additional harm by distributing revised applications, marketing materials, disclosures, and statements. Plaintiffs state, “As the CFPB well knows, if issuers are compelled to lower their late fees to $8 and then raise them again after succeeding in this litigation, they must provide 45 days’ advance written change-in-terms notice to customers and once again update their application, marketing, and disclosure materials for new applicants and accounts, inevitably resulting in immense customer confusion and frustration.” Specifically, the Plaintiffs argue:

• Plaintiffs clearly established without CFPB objection that credit card issuers must take action well in advance of the effective date and thus were already suffering irreparable harm and would suffer additional harm.
• The Court correctly understood that March 29 was a significant date for issuers to make mitigating changes to minimize the costs of the Rule (such as increase the APR).
• The Court correctly concluded that there was “a legitimate basis for [] urgency” given the “unusually short timeline for complying with the Final Rule or obtaining injunctive relief.”
• The CFPB’s petition is simply attempting to reargue its case, which is not a basis for panel rehearing under the rules for the Fifth Circuit.
• The Court applied existing law on effective denials to the “unique expedited nature of the case” and did not adopt a bright line rule that applies in all cases.

We will continue to monitor the Fifth Circuit’s ruling on this case and provide further updates. We are also closely monitoring the U.S. Supreme Court’s decision in CFSA v. CFPB, which we expect to have by the end of June.

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