A federal judge has annulled a rule from the U.S. Consumer Financial Protection Bureau (CFPB) that limited credit card late fees to $8. U.S. District Judge Mark Pittman from the Northern District of Texas sanctioned a joint motion by a coalition of six business and banking organizations, which included the American Bankers Association (ABA) and the CFPB, to remove the rule implemented the previous year.
The plaintiffs, including the ABA and the U.S. Chamber of Commerce, contested the rule in the U.S. District Court for Northern Texas, claiming the bureau overstepped its legal boundaries. Court documents reveal that the groups contended the rule infringed on the Credit Card Accountability and Disclosure Act and Administrative Procedure Act by restricting card issuers from imposing fees that were “reasonable and proportional to violations.”
Originally established in March 2024 by the Biden administration, the CFPB predicted that the regulation would save families over $10 billion annually on late fees by reducing the average late fee from $32 to $8. This would have resulted in an average annual savings of approximately $220 for the 45 million people incurring late fees.
According to Ted Rossman, a Senior Industry Analyst at Bankrate, the rule’s retraction was anticipated due to a change in presidential administrations and associated budget reductions at the CFPB. Rossman highlighted that although the rule would have favored credit card holders who incur late payments, the costs would potentially be offset by other means.
Rossman explained that credit card companies might have raised other fees or curtailed perks like rewards. Indeed, some issuers had already increased other fees in anticipation of lost revenue due to the late fee cap. These fees might remain elevated despite the rule’s termination.
Bankrate data indicated that 33% of cardholders incurred a late fee in 2020, with nearly half, about 47%, requesting a waiver. Of those, 82% received some form of relief, with 45% having all fees waived and 37% having at least one waived.
The ABA stated that the rule, if implemented, would have led to “more late payments, lower credit scores, higher interest rates, and reduced credit access for those who need it most.” The group also suggested it would have “penalized the millions of Americans who pay their credit card bills on time and reduced vital incentives for consumers to manage their finances.”