Texas Federal Court Vacates CFPB’s Credit Card Late Fee Rule

On April 15, the U.S. District Court for the Northern District of Texas granted a joint motion for entry of consent judgment filed by the CFPB and several business advocacy groups, vacating the Bureau’s credit card late fee rule because it contravened the plain language of the Credit Card Accountability and Disclosure Act (the CARD Act).

The CARD Act prohibits an issuer from charging a late fee unless it is “reasonable and proportional” to the payment owed or it is less than the safe harbor amount, which is adjusted for inflation.  Currently, the safe harbor amount is $32 for the first billing cycle during which the payment is late and $43 for the following six billing cycles.  The now-vacated rule would have reduced the safe harbor amount to $8 (with no future inflation adjustment) for a card issuer with more than one million open accounts.  The rule would have retained the safe harbor limits for a card issuer with fewer than one million open accounts.

Two days after the CFPB issued the final rule, the business advocacy groups filed suit, arguing that the rule conflicted with the CARD Act’s provision that expressly permits card issuers to charge a “reasonable and proportional” late fee.  The court’s order granted the joint motion, vacated the rule, and dismissed all the other claims with prejudice.