Court Halts Implementation of Credit Card Late Fee Cap Rule: What It Means for Consumers

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A federal court ruling on Friday delivered a significant setback to the implementation of a Consumer Financial Protection Bureau (CFPB) rule aimed at curbing credit card late fees. The regulation, announced in March, was set to take effect this week but has now been put on hold following a legal challenge from the U.S. banking industry.

Judge Mark Pittman of the Northern District of Texas sided with plaintiffs, including the U.S. Chamber of Commerce, granting their request for a preliminary injunction to freeze the rule. This decision suspends the implementation of measures that would have limited late payment fees charged by credit card companies, potentially saving American families billions of dollars annually.

Under the proposed rule, late fees, typically averaging $32 per incident, would have been capped at $8 each, with restrictions on the industry’s ability to raise these fees. However, the court’s ruling raises uncertainty about when or if the regulation will be enforced.

The CFPB estimated that the rule would have saved consumers $10 billion annually in fees. However, the delay means that consumers could continue to bear significant monthly late fees totaling $800 million, according to a CFPB spokesman. The White House expressed disappointment with the court’s decision, emphasizing President Biden’s support for measures to protect consumers from excessive fees.

The CFPB contends that credit card issuers have profited from disproportionately high late penalties, particularly affecting borrowers with low credit scores. On the other hand, industry trade groups argue that fee caps would unfairly shift costs to consumers who pay their bills on time.

In response to the court’s decision, the Consumer Bankers Association expressed satisfaction with the injunction, stating its intention to challenge the rule further in court. The association seeks the complete dismissal of the CFPB’s late fee regulation.

The ruling underscores ongoing tensions between consumer advocates pushing for fee reductions and industry stakeholders defending their revenue streams. As legal proceedings continue, consumers may face continued uncertainty regarding potential savings from reduced late fees.

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