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Breaking: U.S. Banks Garner Early Win in Credit Card Fee Litigation!


Michael Chen

May 13, 2024 - 17:49 pm


Banks Score Preliminary Victory in Legal Battle Over Credit Card Fees

In a significant turn of events within the financial sector, American banks have recently achieved an early legal victory against novel regulations instituted by the United States authorities that threatened to greatly reduce their revenue from credit card late fees.

CFPB's Regulation Receives a Last-Minute Reprieve

A federal judge's recent decision to put a temporary hold on the lowering of caps for credit card late fees, which was a directive from the Consumer Financial Protection Bureau (CFPB), has provided a momentary respite for lenders. This legal intervention arrived right before the new rules were set to be enforced this week. The freeze is currently maintained while the highest court in the land, the US Supreme Court, carefully deliberates a comprehensive challenge to the method of funding for the CFPB.

The challenged regulation intended to limit the additional charges levied on late credit card payments to a maximum of $8 in the majority of scenarios. Conversely, some financial institutions currently impose late payment fees exceeding $30. This rule posed a sizeable impact on the bottom lines of prominent banks such as JPMorgan Chase & Co., non-banking entities like Synchrony Financial, and major retail players including Macy’s Inc.

Legal Challenge to the Late Fee Rule

Challenging the fiduciary constraints, a collective lawsuit was filed in March by the U.S. Chamber of Commerce alongside the American Bankers Association, the Consumer Bankers Association, and three additional local Texas industry groups with the aim of obstructing the enactment of the CFPB rule. Should the regulation have survived unscathed, it holds the potential to slash a staggering 70%, equating to around $10 billion, from the annual revenue banks accrue from late payment fees on credit cards, as estimated by Bloomberg Intelligence.

Reflecting the significance of these imposed financial pressures, Synchrony Financial promptly revised their annual earnings projection in the downard direction soon after the rule was officially announced in March. Furthermore, Capital One Financial Corp. acknowledged in its first-quarter financial outcome report that the implementation of the rule before October of the current fiscal year would introduce challenges that could hinder the company’s operating efficiency ratio, which is a pivotal metric measuring resource utilization.

Jurisdictional Wrangling and the Texas Ruling

Following an unconventional series of legal maneuvers that saw the case redirected from Texas to Washington and subsequently back to Texas, Judge Mark Pittman issued a pronouncement last Friday. He declared that the CFPB is, at least temporarily, unable to enforce the new rule on credit card late fees.

An appeals court within the Fifth Circuit had previously identified a constitutional flaw within the Federal Reserve’s method of financing the CFPB. This essential finding has propelled the case forward to the Supreme Court, which is poised to deliver a verdict soon.

Rohit Chopra, director of the Consumer Financial Protection Bureau

Rob Nichols, the leader of the American Bankers Association, publicly welcomed the Texas court’s ruling, asserting his confidence in the merits of their case during forthcoming legal evaluations. Contrarily, the CFPB has firmly indicated its intention of defending the late fee cap regulation.

Ongoing Litigation Risks

Within the backdrop of these decisions, Jaret Seiberg from TD Cowen incisively pointed out that notwithstanding the temporary protective injunction, there remains a significant litigation risk which may overturn the current legal reprieve. Nevertheless, his expert analysis projects a eventual triumph for the banking industry in this arduous legal contest.

Political Ramifications and the Upcoming US Election

The political landscape also casts a long shadow over the ongoing litigation as the decision hinges not only on current legislative provisions but also on upcoming electoral outcomes. Specifically, the holding of judicial pause is a victory for critics as they anticipate the US elections scheduled for November.

A potential re-election of former President Donald Trump could foreseeably result in an administrative rollback, thereby discontinuing the controversial credit card late fee agenda entirely. Regardless of the SCOTUS verdict on the constitutionality of the CFPB’s funding, the late fee regulation is likely facing tough challenges in Judge Pittman's courtroom.

According to Alan Kaplinsky, who provides his legal insight as senior counsel at Ballard Spahr LLP, Judge Pittman’s initial comments regarding the merits of the credit card issuers’ complaints about the CFPB’s rule predict a favorable outcome for the plaintiffs and a less promising one for the CFPB.

To delve deeper into the evolving situation regarding the Consumer Financial Protection Bureau's attempts to cap credit card late fees, more information can be accessed through the provided Bloomberg article.


This legal victory for the banks, although preliminary, has upheld a multi-billion dollar revenue stream for now. The ruling has granted an interim period of relief for the banking industry, yet it has set the stage for further legal scrutiny and a potential political battle that may ultimately reshape the landscape of consumer financial protection in the United States.

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