A United States court vacated the Consumer Financial Protection Bureau's rule capping credit card late fees at USD 8, after the CFPB agreed with the industry plaintiffs that the regulation violated the Credit Card Accountability Responsibility and Disclosure Act by failing to allow issuers to charge penalty fees that are reasonable and proportional to violations.

The CARD Act, enacted in 2009, requires that credit card penalty fees be reasonable and proportional, but it also allows issuers to levy amounts sufficient to deter the behaviour — in this case, late payment — that the fee is designed to discourage. The CFPB's USD 8 cap, which the bureau had argued was sufficient to cover issuers' costs of handling late payments, was challenged by banking and credit industry associations that contended the rule had failed to properly weigh the deterrence element of the statutory standard. A court granted a preliminary injunction in May 2024, blocking the rule from taking effect, and the 15 April decision vacates it in full, bringing the legal proceeding to a close.

INDUSTRY CHALLENGE AND LEGAL GROUNDS

The legal challenge mounted by industry groups centred on the argument that the CFPB had exceeded its authority under the CARD Act by setting the cap at a level below what the statute's cost-and-deterrence standard would permit. The preliminary injunction secured in May 2024 kept the rule in abeyance while the litigation proceeded, meaning that credit card issuers continued to charge late fees at the previously prevailing levels — which in many cases ran to USD 30 or higher — throughout the litigation.

The bureau joined the plaintiffs in asking the court to vacate the rule, agreeing that it violated the CARD Act, and Judge Mark Pittman of the US District Court for the Northern District of Texas granted the request.

EFFECT OF THE VACATUR

The vacatur means that credit card late fees will remain governed by the pre-existing regulatory framework, under which issuers may charge fees up to safe-harbour levels that have been periodically adjusted for inflation and that run considerably higher than the USD 8 figure the CFPB had sought to impose.

The CFPB has not indicated whether it intends to revisit the issue through a revised rulemaking.