CFPB Credit Card Late Fee Suit Now Embroiled in Recusal Fight

The disclosure of Judge Don Willett’s ownership of Citigroup Inc. stock has added a recusal fight to the existing venue battle over the Consumer Financial Protection Bureau’s credit card late fee rule.

The CFPB and the plaintiffs in the case, including the US Chamber of Commerce, have until Thursday to file letters with the US Court of Appeals for the Fifth Circuit over whether Willett should recuse himself from the case due to his ownership of Citigroup stock, according to a Monday memorandum to both parties from Chief Clerk Lyle W. Cayce.

Willett said in a statement that one of his children had a Coverdell Education Savings Account that included a $2,000 investment in Citigroup. A second child had a similar investment, but sold the Citigroup position, he said.

The judge said he regularly seeks recusal guidance from the Fifth Circuit’s ethics advisor, and did so in the CFPB credit card late fee litigation.

“I am painstaking about my recusal obligations, and my court’s conflicts database screens every known variation of Citigroup,” Willett said.

Politico first reported Willett’s Citigroup investment.

Citigroup is the second largest US credit card issuer, according to Nilson Report, but the New York-based bank is not a named plaintiff in the case.

Citigroup is a member of the US Chamber as well as the Consumer Bankers Association and the American Bankers Association, all of which are named plaintiffs in the litigation filed March 7. Three Texas industry groups are also named plaintiffs in the litigation.

According to 2021 and 2022 ethics disclosures, Willett owned shares in Citigroup among a small handful of individual stocks he held. Most of his investments were in index funds.

Federal law states that federal judges should disqualify themselves from hearing cases in which they, their spouses, or minor children have a financial interest in the subject matter of a case or in a party to the proceeding.

President Joe Biden in 2022 signed into law requirements that federal judges and Supreme Court justices reveal their stock purchases and sales as they happen and also required the federal judiciary to start publicly posting those financial disclosures online. The law was passed after the Wall Street Journal reported that over 100 federal judges were hearing cases that involved companies in which they or their immediate family members owned stock.

Venue, Recusal Fights

Willett wrote an April 5 opinion blocking an order from Judge Mark Pittman of the US District Court for the Northern District of Texas transferring the case to the federal district court in Washington, D.C. Pittman, in a March 28 order, found that no banks subject to the CFPB’s credit card late fee rule were based in the Northern District of Texas, while the plaintiff trade groups, the CFPB, and most attorneys involved were based in Washington.

The CFPB sent a letter to Cayce on Monday raising concerns about the potential financial interests of the judges hearing appeals related to the credit card late fee rule, although the letter didn’t name Willett.

“The Bureau makes this representation in order that the judges of this court may evaluate possible disqualification or recusal,” the letter said.

The Revolving Door Project, a group that monitors executive branch and judicial appointees for financial conflicts, said that Willett’s failure to recuse himself despite his Citigroup stock holdings “makes a mockery of the notion of an independent judiciary.”

“Judge Willett’s stock holdings in Chamber member Citigroup—a gigantic credit card company—pose an obvious conflict of interest,” Jeff Hauser, the group’s executive director, said in a statement.

The concerns over Willett’s financial interests aren’t the first involving a judge in the CFPB case.

Judge Reed O’Connor of the Northern District of Texas was originally assigned to hear the case, but recused himself in large part due to his own holding of bank stocks, including Capital One Financial Corp.

Capital One is the fourth largest US credit card issuer.

The CFPB’s rule, released March 5 and set to take effect May 14, caps credit card late fees at $8. Currently, banks can charge $30 for the first missed payment and $41 for each missed payment in the subsequent six months.

Late fees are also subject to an annual inflation adjustment, which the CFPB rule eliminates.

Card issuers stand to lose up to $11 billion of their annual $14.5 billion in annual late fee revenue should the CFPB rule take effect, according to Bloomberg Intelligence.

Banks have asked for a preliminary injunction blocking the rule. Willett in his April 5 opinion said Pittman’s failure to rule on their request for an injunction was effectively a denial.

Paul Hastings LLP represents the US Chamber of Commerce and its co-plaintiffs.

The case is US Chamber of Commerce v. CFPB, 5th Cir., No. 24-10248, Memorandum to Counsel 4/8/24