PYMNTS MonitorEdge May 2024

CFPB Late Fee Lawsuit Gets Sent Back to Texas

A federal lawsuit challenging new credit card late fee limits will remain in Texas.

The U.S. Court of Appeals for the Fifth Circuit ruled Friday (April 5) that the suit will be heard in Fort Worth, reversing an earlier decision by federal Judge Mark Pittman moving the case to Washington, D.C. 

Pittman had ruled late last month that the plaintiffs had no cause to have their case heard in Texas, as the CFPB, three of the plaintiffs and eight of the attorneys involved all have ties to D.C., while just one plaintiff lives in Fort Worth.

“Under plaintiffs’ theory, there isn’t a city in the country where venue would not lie, as every city has customers who may potentially be impacted by the rule,” Pittman wrote, per a report by Reuters. “Venue is not a continental breakfast; you cannot pick and choose on a plaintiffs’ whim where and how a lawsuit is filed.”

The case – filed last month against the Consumer Financial Protection Bureau (CFPB) – was brought by the U.S. Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association, as well as several Texas industry groups. 

The suit was filed after the CFPB announced a rule change that will lower the typical late fees charged by card issuers from an average of $32 to — in most cases — $8. 

“The CFPB is acting outside its authority and the Chamber’s lawsuit seeks to protect American cardholders who pay their bills on time and enjoy the numerous benefits of diverse credit card offerings from America’s financial institutions,” Neil Bradley, executive vice president, chief policy officer and head of strategic advocacy at the U.S. Chamber of Commerce, said in a news release following the suit.

“The final rule closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream, charging consumers more than five times the companies’ associated costs,” a bureau spokesperson told PYMNTS via email. “The CFPB will defend this rule, which will rein in these excessive charges and put $10 billion back in consumers’ pockets.”

PYMNTS wrote last month that the CFPB’s rule change could have the unexpected effect of limiting innovation by banks, noting that the cap is happening in the wake of an industrywide shift from overdraft fees, which the bureau is also considering reducing.

“The dwindling, capped pool of fees may give the regulators grist for the headline mill, but eventually, the move may have unintended consequences as banks look to cut costs elsewhere to offset the impact by trimming some services and product features,” that report said.