Trade Groups Sue to Block Credit Card Late Fee Limit

Six trade groups sued the Consumer Financial Protection Bureau on Thursday over a new rule that would cap most credit card late fees at $8 a month.

The lawsuit, filed in federal court in Fort Worth, asks the court to vacate the rule, which the consumer bureau completed two days ago. The complaint says the bureau violated laws about agency rule-making and exceeded its statutory authority, and argues that consumers will be financially harmed if the rule takes effect.

“Late fees encourage timely payments, which in turn help card issuers both to manage credit risk and to lower costs, allowing them to offer more competitive terms and features,” the trade groups wrote in their complaint.

A spokeswoman for the consumer bureau said the rule “closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream.” The rule, which applies to issuers that have more than one million open credit card accounts, would slash most fees from their current average of $32, saving households $10 billion a year, according to the consumer bureau’s estimates.

The spokeswoman added that the agency would fight the lawsuit.

The litigation was brought by the American Bankers Association, the Consumer Bankers Association, the U.S. Chamber of Commerce and three Texas business associations.

“Once again, we have reluctantly been forced to sue a federal regulator because the C.F.P.B. has ignored industry and other stakeholder comments demonstrating that this rule exceeds the bureau’s statutory authority and will hurt rather than help consumers,” said Rob Nichols, the American Bankers Association’s chief executive. (His group is part of active litigation against the consumer bureau over its attempt to scrutinize financial firms for signs of customer discrimination during its routine examinations.)

The trade groups have asked the court for a preliminary injunction blocking the rule, which would otherwise take effect in a few months.

The case was filed in a court within the jurisdiction of the U.S. Court of Appeals for the Fifth Circuit, in New Orleans, which previously ruled that the consumer bureau’s funding structure violated the Appropriations Clause of the Constitution. That ruling is before the Supreme Court, which heard arguments on it in October.

Consumer advocates said they had anticipated both the litigation and the venue. The trade groups “intentionally chose a conservative-leaning, industry-friendly court in the hopes of derailing any kind of regulation that would cut into their bottom line,” said Liz Zelnick, a program director at Accountable.US, a progressive research group.

President Biden, who has made fighting “junk fees” a signature effort of his administration, is likely to promote the consumer bureau’s rule at his State of the Union address on Thursday night.

Critics accused the consumer bureau of rushing out the rule — which has been in development for more than a year — to promote Mr. Biden’s political agenda. Lindsey Johnson, chief executive of the Consumer Bankers Association, said on Thursday that the bureau was trying to deliver “a few short-term headlines for a White House that is searching for political wins.”