On August 8, 2024, the plaintiffs filed their brief in opposition to the CFPB’s motion to dissolve the preliminary injunction in the lawsuit challenging the CFPB’s credit card late fee final rule (“Rule”). In their brief, the plaintiffs renew their arguments that the CFPB exceeded its authority under Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and the Truth in Lending Act (TILA) in promulgating the Rule. Alternatively, the plaintiffs request a 90-day period to comply with the Rule if the preliminary injunction is dissolved.

In issuing the preliminary injunction on May 10, 2024, Judge Pittman found that that the plaintiffs had established a likelihood of success on the merits based solely on the Fifth Circuit’s decision in CFSA v. CFPB, holding that the CFPB’s funding mechanism established by Dodd-Frank is unconstitutional. Although the court found it unnecessary to address the plaintiffs’ arguments that the Rule violates the TILA, the CARD Act, and the Administrative Procedure Act (APA), Judge Pittman commented that the plaintiffs’ other arguments were “compelling.”

On July 18, 2024, the CFPB filed its motion to dissolve the preliminary injunction, arguing that the Supreme Court’s reversal of the Fifth Circuit’s holding in CFSA v. CFPB “fatally undermines the justification for the May 10, 2024, preliminary injunction” and the plaintiffs have not established the likelihood of success on the merits on any other claim. The CFPB addressed the plaintiffs’ claims that the Rule violates the CARD Act and TILA but not the APA claim.

Dissolving the Preliminary Injunction

To obtain a preliminary injunction, the plaintiffs had to show: (1) a likelihood of ultimate success on the merits, (2) a substantial threat of irreparable harm absent the injunction, (3) the balance of equities and hardships is in their favor, and (4) granting the injunction would be in the public interest. Factors (3) and (4) merge when the government is the opposing party. To dissolve the preliminary injunction, the CFPB must establish a “significant change.”

In addressing whether there was a significant change, the plaintiffs argue that the Court previously determined that all four factors weighed in Plaintiffs’ favor and no changes are warranted under the final three factors. With respect to the first factor, the plaintiffs argue that they are likely to succeed on their CARD Act and TILA claims. Since the CFPB’s brief did not address the APA claims that plaintiffs raised in their initial brief seeking a preliminary injunction, the plaintiffs do not elaborate on those claims.

CARD Act

The plaintiffs argue that the CFPB has jettisoned two of the three criteria set forth in the CARD Act (the deterrent effects of a late fee and the conduct of the cardholder) and focused solely on the costs incurred by the issuer. They argue that the CFPB’s sole focus on issuer costs prevents credit card issuers from collecting penalty fees that are “reasonable and proportional to [the] omission or violation” of the cardholder agreement, as authorized under the CARD Act. The Rule also limits the issuer costs that can be included in the calculation, which plaintiffs argue draws an arbitrary line that is not supported in the CARD Act. The plaintiffs cite to the lengthy discussion in the Supreme Court’s decision in SEC v. Jarkesy for the notion that penalties are “designed to punish and deter, not to compensate” issuer costs. The plaintiffs also contrast the CARD Act verbiage with the narrowly tailored Durbin Amendment. The CARD Act states that the penalty fee “shall be reasonable and proportional to such omission or violation” and in issuing required rules, the CFPB shall consider (1) the cost incurred by the creditor from such omission or violation, (2) the deterrence of such omission or violation by the cardholder, (3) the conduct of the cardholder, and (4) such other factors as the Bureau may deem necessary or appropriate. However, the Durbin Amendment states that the interchange fee shall be “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” The plaintiffs note that the same Congress chose to not include such limiting language for the credit card penalty fee and declined to enact an earlier version of the CARD Act that was written more narrowly and limited to card issuer costs. The plaintiffs argue that the CFPB’s own statements concede that the Rule is based solely on costs and the CFPB has exceeded its authority by substituting its own judgment for that of Congress.

The plaintiffs highlight that “[a]s the CFPB admits, [the Rule] will likely lead to more late payments, higher interest rates, constricted access to credit, and other less favorable credit card terms for consumers nationwide, including those who make their payments on time.”

TILA

The plaintiffs argue that the effective date of the Rule violates TILA, which provides that CFPB rules requiring different disclosures to consumers “shall have an effective date of that October 1 which follows by at least six months the date of promulgation.” Instead, the CFPB set a 60-day effective date, which the plaintiffs argue is a clear violation of TILA.

Motion to Dismiss

The CFPB also has a pending motion to dismiss Plaintiff Fort Worth Chamber of Commerce for lack of standing and if granted, transfer the case to a the Federal District Court for D.C. the plaintiffs are expected to file their response to the motion to dismiss later today August 12, 2024. We anticipate that Judge Pittman will rule on this motion to dismiss before ruling on the motion to dissolve the injunction.

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