CFPB $8 late fee cap moves closer to reality

Bank trade groups are battling the Consumer Financial Protection Bureau in federal court to thwart the agency’s new $8 late fee cap rule, but so far, they haven’t stopped the edict from moving toward implementation next month. 

While a lawsuit seeking a preliminary injunction of the rule ping-ponged back and forth between Texas and Washington, D.C. courts in recent weeks, the clock kept ticking toward the rule’s May 14 effective date. 

Credit card late fees range as high as $41 currently, and have been on the rise, according to the CFPB’s March 5 press release when the rule was issued. The card issuers collected $14 billion in late fees in 2022, equal to about 10% of interest and fees charged. 

Card issuers are becoming increasingly nervous about preparations for complying with the new rule, say industry lawyers watching the case. Complying with the rule isn’t something bank card issuers can do overnight.  

While some lawyers believe the Fifth Circuit Court of Appeals, which has once again taken up the case, will side with the bank card issuers and against the CFPB, that’s increasingly less likely to happen before the rule takes effect, given the court’s recent lack of process. 

While the Fifth Circuit could expedite the proceedings as it leans toward siding with the plaintiffs, current court deliberations over one judge’s potential conflict of interests could slow down the process. 

To stop the rule from being implemented, the U.S. Chamber of Commerce teamed with the American Bankers Association and Consumer Bankers Association, among other trade groups, in a lawsuit against the CFPB filed on March 7. That was two days after the CFPB issued the new rule. 

The CFPB, under the leadership of Director Rohit Chopra, has been on a campaign to eliminate what the agency and President Biden refer to as “junk fees,” including late fees imposed when credit card customers make late payments. 

The card issuers that would be the hardest hit if the rule goes into effect are Capital One Financial, Bread Financial and Synchrony Financial, given their larger percentages of card holders likely to make late payments, according to a March 8 report from credit research firm S&P Global Ratings. 

S&P estimated the three most exposed card issuers could each lose about a quarter of their revenue in the short term due to the CFPB’s new late fee cap. 

Those companies are already contemplating mitigation strategies to “soften the blow to earnings over the years,” including increasing the interest rates they charge; changing private label agreements they have with merchants; and “reducing their exposure to the least creditworthy borrowers,” according to the S&P report.