On April 15, Judge Mark T. Pittman of the U.S. District Court for the Northern District of Texas entered an Order and Final Judgement vacating the CFPB’s 2024 credit card late fee rule (previously discussed here) for violating the federal Credit Card Accountability and Disclosure (CARD) Act and the Administrative Procedure Act. The rule, which amended Regulation Z, had established a new $8 late fee safe harbor for larger credit card issuers and eliminated annual inflation adjustments.
The court granted a joint motion filed by the CFPB and a coalition of trade associations and chambers of commerce. The parties agreed that the rule prevented card issuers from charging penalty fees that are “reasonable and proportional” as required by the statute. All other claims in the lawsuit were dismissed with prejudice.
The rule was part of the CFPB’s effort under the previous administration to reduce penalty fees across the credit card industry, especially for repeat late payments. The Bureau had justified the rule based on market data showing that most large issuers charged late fees at or near maximum permitted levels, with limited consumer awareness.
Key provisions of the vacated rule include:
- An $8 Safe Harbor for Large Issuers. Larger card issuers could charge no more than $8 per late payment under the safe harbor.
- Elimination of tiered safe harbors for repeat violations. The rule repealed the higher safe harbor of $41 for repeated late payments within six billing cycles.
- No CPI adjustments. Annual inflation adjustments would no longer apply to the $8 safe harbor.
- Preserved existing rules for smaller issuers. Issuers with fewer than one million open accounts retained the prior safe harbors—$32 for initial violations and $43 for subsequent ones.
- Clarification of Cost Analysis Rules. The rule clarified that post-charge-off collection costs cannot be included in cost-based penalty fee calculations.
The court vacated the rule on the grounds that it violated the CARD Act’s requirement that penalty fees be “reasonable and proportional” to the violation. The parties agreed that the CFPB failed to account for the deterrent function of late fees, particularly for repeat violations, when setting the $8 safe harbor.
Putting It Into Practice: Given the CFPB’s current retreat from the prior administration’s regulatory priorities (previously discussed here and here), the future of the late fee rule appears effectively over. However, other federal or state regulators may pursue alternative approaches to curbing credit card penalty fees. Financial institutions should continue monitoring for potential regulatory changes to ensure ongoing compliance.