A federal judge in Texas on Friday (May 10) halted a new regulation proposed by the Biden administration that would reduce the maximum late credit card fee to $8. The regulation was originally set to take effect next week.
This marks a victory for business and banking industry groups challenging some of the measures introduced by the Biden administration to combat “junk fees,” which refer to hidden charges imposed on loans, bank accounts, or purchases of goods and services.
Fort Worth area Judge Mark Pittman issued a preliminary injunction on Friday, preventing the regulation from going into effect next week. He cited a 2022 ruling by the Fifth Circuit Court of Appeals, which found the funding structure of the Consumer Financial Protection Bureau (CFPB) to be unconstitutional.
“Thus, any regulations issued under that ruling may also be unconstitutional,” Pittman wrote, “Therefore, the plaintiff has shown a likelihood of success on the merits.”
The 2022 case has currently been appealed to the Supreme Court. While the Supreme Court has heard oral arguments and appears to lean towards upholding the appeals court’s ruling, a final decision has not yet been made.
The new regulation proposed by the Consumer Financial Protection Bureau would set a cap of $8 for most credit card late fees, or require banks to justify charging fees exceeding $8.
The bureau estimates that banks collect around $14 billion annually in credit card late fees, with an average late fee of $32.
Maria Monaghan, a lawyer from the U.S. Chamber of Commerce Litigation Center, stated in a release that Pittman’s decision is “a significant victory for responsible consumers who pay their credit card bills on time and for businesses seeking to offer affordable credit.”
White House spokesperson Jeremy Edwards expressed disappointment in the ruling in a statement on Friday night, emphasizing that the new regulation is a “key measure to save American families billions in junk fees.”
In March of this year, business and banking industry groups filed a lawsuit challenging the new regulation on credit card late fees. Pittman initially ordered the case to be transferred to Washington D.C. for jurisdictional reasons, citing the scarcity of banks in operation in northern Texas as a reason.
The Fifth Circuit panel ultimately overturned Pittman’s decision to transfer the case, directing him to preside over the case and setting a deadline of May 10 for Pittman to issue the injunction.
Pittman issued a temporary injunction on May 10, with much of his order focusing on criticizing the Fifth Circuit Court of Appeals for remanding the case back to him for review.
As part of his re-election campaign, President Biden has sought to emphasize his efforts to combat “junk fees,” some of which are bank-related fees like late fees, ATM fees, and overdraft fees.
Banks view this movement as a political battle against their business model. Consumer advocates argue that the level of bank fees is excessive considering the level of risk borne by banks and credit card companies.