Bankers Notch Win in Fight to Keep Billions in Credit-Card Fees

Banks are celebrating an early legal win in their fight to kill new US rules that threaten billions of dollars in revenue from credit-card late fees.

A federal judge’s decision last week to freeze caps on the charges mandated by the Consumer Financial Protection Bureau gave a last-minute reprieve to lenders before they were scheduled to take effect this week. Opponents of the regulations are also touting the hold, which is in place as the US Supreme Court considers a broad challenge to the CFPB’s funding, as a sign that the regulation may be completely overturned in court.

Financial firms have been scrambling to thwart the regulations, which could have hit the revenue at banks including JPMorgan Chase & Co., nonbank players like Synchrony Financial and retailers such as Macy’s Inc. The CFPB rule would have forced companies to limit late payment surcharges to $8 in most cases. Some companies now charge $30 or more.

The U.S. Chamber of Commerce, American Bankers Association, Consumer Bankers Association and three local Texas industry groups sued in March to block the rule. The restrictions could shave off more than 70%, or around $10 billion, of credit-card lenders’ annual late fee revenue, according to one Bloomberg Intelligence calculation.

Rohit Chopra, director of the Consumer Financial Protection Bureau

Photographer: Samuel Corum/Bloomberg

In a sign of the impact, shortly after the CFPB published its rule in March, Synchrony dropped its annual earnings forecast. Capital One Financial Corp. also said when reporting its first-quarter results that if the rule were to take effect before October, it would be a “headwind” to the firm’s operating efficiency ratio — a key measure of how well a company uses its resources.

Jurisdictional Wrangling

After an usual bout of jurisdictional wrangling saw the case tossed from Texas to Washington and then back to Texas, Judge Mark Pittman said Friday that the CFPB can’t impose its new rule, at least for the time being.

Read More: CFPB’s $8 Credit Card Late Fee Cap Paused by Texas Judge

Pittman cited a Fifth Circuit appeals court ruling that found unconstitutional the way the Federal Reserve funds the CFPB. That finding is under consideration at the Supreme Court with a decision expected soon.

Rob Nichols, who leads the American Bankers Association, cheered Friday’s ruling. “We look forward to the Court ultimately ruling on the merits of our case,” he said in a statement. For its part, the CFPB said it would continue to defends its rule.

Meanwhile, TD Cowen’s Jaret Seiberg said that “there is considerable litigation risk remaining that could put the preliminary injunction at risk, though we still expect the banks ultimately will prevail in the case.”

Political Stakes

Regardless of how long Pittman’s pause stays in place, it is a win for critics who are eying November’s US election. If former President Donald Trump were elected again, his administration would almost certainly reverse course and could halt the plan altogether.

Even if the Supreme Court rules in favor of the CFPB and determines its funding is constitutional, the late fee rule also faces long odds in Pittman’s courtroom, according to Alan Kaplinsky, senior counsel at Ballard Spahr LLP.

Pittman’s characterization on the merits of the credit card issuers’ problems with the CFPB’s rule “augurs well for the plaintiffs and poorly for the CFPB,” he said in an email.

--With assistance from Bre Bradham.

To contact the reporters on this story:
Paige Smith in New York at psmith494@bloomberg.net;
Evan Weinberger in New York at eweinberger4@bloomberg.net

To contact the editors responsible for this story:
Sally Bakewell at sbakewell1@bloomberg.net

Ben Bain, Stephanie Stoughton

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