Judge Blocks Biden's Plan to Cap Credit Card Late Fees

On Friday, a significant regulatory change intended to limit late fees on credit cards was stalled by a federal court in Fort Worth, Texas.

by Faruk Imamovic
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Judge Blocks Biden's Plan to Cap Credit Card Late Fees
© Getty Images/Sandra Mu

On Friday, a significant regulatory change intended to limit late fees on credit cards was stalled by a federal court in Fort Worth, Texas. U.S. District Judge Mark T. Pittman, appointed by former President Donald Trump, issued a preliminary injunction against a Biden administration rule that would cap late fees at $8.

This ruling came in response to a lawsuit from business and banking organizations, including the U.S. Chamber of Commerce, which argued that the new regulation violates federal statutes.

A Blow to Consumer Protections

The blocked rule, finalized by the Consumer Financial Protection Bureau (CFPB) in March and set to go into effect next Tuesday, aimed to reduce the financial burden on consumers by slashing the average late fee from $32 to $8.

The CFPB estimated that this change would save consumers approximately $10 billion annually. However, the injunction means the rule will remain on hold pending a more detailed court hearing. “The credit card lobby’s lawsuit is an attempt to derail a rule that will save families $10 billion each year in order to continue making tens of billions of dollars in profits by charging borrowers late fees that far exceed their actual costs,” a CFPB spokesperson explained.

The delay of this rule costs consumers roughly $800 million in late fees each month, benefitting the profit margins of major credit card issuers.

Reactions and Implications

Maria Monaghan, counsel for the U.S. Chamber of Commerce Litigation Center, hailed the court's decision as "a major win for responsible consumers who pay their credit card bills on time and for businesses that want to provide affordable credit." On the other side, Chuck Bell, advocacy program director for the non-profit Consumer Reports, expressed disappointment, criticizing credit card companies for "bilking consumers out of billions of dollars in excessive late fees for far too long." The rule is part of a broader initiative by the Biden administration to eliminate what it describes as "junk fees"—hidden or misleading charges that disproportionately affect financially vulnerable groups, including millennials and low-income earners.

This effort includes addressing a loophole from 2010, which the CFPB claims has been exploited by credit card companies to increase late payment fees. With over 95% of the total outstanding credit card debt held by the large issuers targeted by this rule, its implementation could significantly impact the financial landscape.

According to a Consumer Reports survey, a vast majority of American adults support reducing maximum late fees, illustrating broad public backing for the regulation despite the legal challenge it now faces.

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