On February 20, several business groups and trade associations filed a motion for summary judgment in the U.S. District Court for the Northern District of Texas in their lawsuit seeking to vacate the CFPB’s final rule limiting credit card late fees. As previously covered by InfoBytes, the rule, among other changes, would amend Regulation Z to reduce the discretionary safe harbor for late fees charged by certain card issuers (issuers with at least one million open credit card accounts, i.e., “larger card issuers”). The plaintiffs alleged the CFPB violated the APA by skipping necessary steps and making economic miscalculations (covered here).
On May 10, 2024, the district court issued a preliminary injunction and stayed implementation of the rule (covered here), and on December 6, 2024, declined the CFPB’s subsequent request to dissolve the preliminary injunction and lift the stay, holding the plaintiffs had demonstrated a substantial likelihood of success on the merits because the CFPB’s rule was inconsistent with the statute’s authorization for issuers to charge “penalty fees” that not only covered the costs associated with late fees but also deterred violations of the card agreement (CFPB’s motion here, and district court’s denial here).
In their motion, the plaintiffs argued the CFPB exceeded its authority under the CARD Act, TILA, APA and the Constitution by implementing the final rule. Specifically, plaintiffs asserted that under the CARD Act, Congress acknowledged that late fees may function as a penalty, rejecting proposals limiting such fees to the costs that issuers incur from late payments, and that the final rule would unlawfully transform the CARD Act’s authorization of a “penalty fee” into a “cost fee.” Plaintiffs also argued that setting a 60-day effective date violated TILA’s requirement to provide at least six months before allowing a rule requiring different disclosures to consumers to go into effect. Additionally, the plaintiffs claimed the CFPB breached the APA by relying on nonpublic data to justify the final rule, thus relying on data that did not include detailed or comprehensive information regarding costs associated with late fees, and by neglecting to assess the rule’s potential negative impact on consumers, leading to an arbitrary analysis that, among other insufficiencies, failed to account for the deterrent effects of late fees.
In addition to their procedural and statutory arguments, the plaintiffs’ motion also challenges the CFPB’s funding structure, arguing that delegating discretion to determine what is reasonably necessary to fund the agency to the CFPB Director is unconstitutional under the nondelegation doctrine. Plaintiffs asserted that such delegation infringes upon the separation of powers by granting the CFPB broad authority without an “intelligible principle” from Congress delineating boundaries on the delegated authority to guide the CFPB’s discretion.
Plaintiffs asked the court to set aside the final rule, declare the rule unlawful, and enter a permanent injunction prohibiting the CFPB from enforcing the final rule.
