The Consumer Financial Protection Bureau (“CFPB”) filed an opposition brief (the “Opposition”) on March 12, 2024 in response to a request by plaintiff trade groups to enjoin the CFPB’s final credit card late fee rule (the “Final Rule”) during the pendency of a lawsuit seeking to invalidate the Final Rule. In the Opposition, the CFPB argues that plaintiffs are unlikely to succeed on the merits, and that the Final Rule is consistent with the CARD Act’s mandate that late fees be “reasonable and proportional” to the late payment.

Plaintiff’s reply brief (the “Reply”) in support of its motion for a preliminary injunction (the “Motion”) was filed on Thursday, so the Motion is now fully briefed. The Final Rule, which was issued on March 5, 2024 and published in the Federal Register March 15, 2024, reduces the late fee safe harbor amount to $8 for “large card issuers” and eliminates automatic annual inflation adjustments on the $8 late fee. Absent an injunction, the Final Rule is set to be effective 60 days from today (after publication in the Federal Register).

The plaintiffs in the lawsuit are the Chamber of Commerce of the United States of America, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association, and Texas Association of Business. The lawsuit, filed in the United States District Court for the Northern District of Texas just days after the Final Rule was issued, included the Motion seeking a preliminary injunction.

In the Motion, plaintiffs argued that they are likely to succeed on the merits of their claims because (1) the Fifth Circuit has ruled in CFSA v. CFPB that the CFPB’s funding is unconstitutional, and (2) the Rule violates the CARD Act, Truth In Lending Act (“TILA”), and Administrative Procedures Act (“APA”). Plaintiffs also argue card issuers will suffer irreparable harm if the Final Rule takes effect, including the need to incur compliance costs, lost late fee revenue, and lost customer goodwill if they are forced to reduce their late fees to $8 and then subsequently raise them should they prevail in the lawsuit. We discussed these arguments here.

The CFPB asks the court to deny the plaintiffs’ motion for a preliminary injunction, claiming that venue is improper, that the plaintiffs are not likely to succeed on the merits of their statutory claims, and that the “balance of the equities” does not support a preliminary injunction.

In the introduction to its Opposition, the CFPB begins with a policy argument, rather than a legal argument, asserting that the Final Rule eliminates “an outdated and unjustified regulatory safe harbor, which allowed large card issuers to charge late fees billions of dollars in excess of their cost with relative impunity.” The CFPB also notes that the lawsuit was not brought by large card issuers, but instead by allegedly “forum shopping” industry trade groups, and further to its venue argument, claims that the case does not have “a real connection” to the district court in which the suit was filed: According to the CFPB, only one plaintiff, the Fort Worth Chamber of Commerce, is located in the Northern District of Texas, and that organization only identifies one member — based in Utah — as being harmed by the Final Rule.

The CFPB further argues that the Final Rule is the result of a nearly two-year regulatory review process. According to the CFPB, it determined the existing safe harbor amounts for late fees, the process for which was set by the Federal Reserve Board after notice and comment, were “inconsistent” with the CARD Act’s instructions that fees be “reasonable and proportional” to the late payment.

The Opposition contends the plaintiffs read requirements into TILA that do not exist in determining the late fee, and that the CFPB was only required to “consider” the factors enumerated in 15 U.S.C. § 1665d(c) in setting the late fee (including the cost incurred by the creditor, the deterrent effect on the cardholder, and the conduct of the cardholder), and was not required to directly tie the amount of the late fee to those factors. In response to arguments from the plaintiffs that the data utilized by the CFPB did not support the $8 safe harbor amount, the CFPB asserted it had conducted a detailed analysis of available empirical evidence using late fee data from large card issuers in setting the fee amount. Further, the CFPB contended that the express exclusion of post-charge-off costs was proper and consistent with the CARD Act and the APA. According to the CFPB, just because the plaintiffs dislike the new late fee safe harbor does not mean it is inconsistent with the CARD Act.

The CFPB takes the position that the proposed Final Rule effective date, 60 days after publication in the Federal Register (which occurred today), is permissible, despite a legal requirement to the contrary pointed out by the plaintiffs. TILA dictates that regulations “requiring any disclosure which differs from the disclosures previously required” under certain sections of TILA “shall have an effective date of that October 1 which follows by at least six months the date of promulgation.” 15 U.S.C. § 1604(d). In response, the CFPB argues that the Final Rule does not require any different disclosures, but “at most” just changes the amount of the late fee within disclosures that are already required.

Finally, the CFPB states that the balance of the equities weighs against a preliminary injunction, arguing that that the Final Rule “could return around $10 billion to consumers’ wallets . . . [and] [a]s for the large card issuers, they will be fine.”

In its Reply, plaintiffs note that the CFPB does not contest that the plaintiffs are likely to prevail on their claim that the CFPB is unconstitutionally funded based on the Fifth Circuit opinion in CFSA v. CFPB; that the Final Rule will cause plaintiff’s members irreparable harm; or that plaintiff Fort Worth Chamber of Commerce is based in Fort Worth and has impacted members. They argue that venue is proper in the Northern District of Texas as each plaintiff has standing because at least one plaintiff, the Fort Worth Chamber of Commerce, has standing, and that transactional venue would be proper even if they lacked standing as plaintiffs’ members have cardholder customers within the district.

Plaintiffs also address some of the statutory arguments made by the CFPB in the Opposition, observing that the CFPB ignores the plain-meaning of the term “penalty” in the CARD Act and noting that the agency’s limited reading of TILA’s requirements in setting the $8 late fee ignores statutory requirements in favor of policy arguments. They also argue that the CFPB’s assertion that the Final Rule’s 60 day effective date complies with TILA because new disclosures are not required ignores the fact that every large card issuer will be required to provide new disclosures.

We will continue to monitor the case and the court’s decision on the Motion. On Thursday, Judge Reed C. O’Connor recused himself from the case, which has now been assigned to Judge Mark Pittman. Notably, Judge Pittman, a Trump appointee, vacated the Biden Administration’s plan to forgive approximately $400 billion in federal student loans under the HEROES Act of 2003 in November 2022. It is unclear if the reassignment of the case will impact the timeframe for a decision on the Motion, but we expect the court to move quickly.

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