In a notable win for business and banking factions, a federal judge in Texas, U.S. District Judge Mark Pittman, has put a brake on the Consumer Financial Protection Bureau’s (CFPB) new regulation that sought to cap credit card late fees at a modest $8. This move, part of the Biden administration’s crackdown on what they term “junk fees,” was halted by Pittman’s issuance of a preliminary injunction, effectively stalling the rule’s enforcement scheduled for the upcoming week.
Pittman’s ruling, sought by entities including the U.S. Chamber of Commerce and the American Bankers Association, comes with a twist. He referenced a 2022 ruling by the New Orleans-based 5th U.S. Circuit Court of Appeals, which found the CFPB’s funding structure to be constitutionally flawed. According to Pittman, any regulations stemming from such a flawed foundation are inherently questionable, suggesting a likelihood of unconstitutionality.
However, the narrative takes a twist of its own. The U.S. Supreme Court is currently scrutinizing the 5th Circuit’s 2022 ruling, hinting at a potential overturn. Nonetheless, Pittman finds himself bound by this contested ruling due to his court’s geographical jurisdiction.
Maria Monaghan, counsel to the U.S. Chamber of Commerce Litigation Center, hailed Pittman’s decision as a triumph for conscientious consumers and businesses alike, stressing the importance of affordable credit provision. Conversely, the CFPB remains resolute in its defense of the rule, highlighting the financial burden shouldered by consumers in the face of delayed implementation.
The rule, endorsed by President Joe Biden, aimed to counter what the CFPB perceives as “exorbitant” late payment charges levied by credit card issuers. Under this regulation, card issuers overseeing more than 1 million accounts would be restricted from imposing late fees surpassing $8, unless they could substantiate higher fees as indispensable to covering their operational expenses.
The legal saga surrounding this rule has been riddled with jurisdictional maneuvers. After an initial transfer from Texas to Washington, D.C., the case saw a jurisdictional ping-pong before a 5th Circuit panel, predominantly composed of Trump appointees, eventually ruled in favor of keeping the case within Texas’ ambit.
Pittman, in his order, expressed reservations regarding the 5th Circuit’s handling of the case while pondering whether a judge in Washington could have dispensed a more equitable judgment. Despite his reservations, Pittman’s decision underscores the imperative of abiding by the legal system’s trajectory, leaving the fate of the contested regulation dangling in the balance.
