US court halts implementation of $8 upper cap on credit card late fees

Credit card late fees: A federal judge in Texas has temporarily halted the implementation of the Consumer Financial Protection Bureau's (CFPB) new rule, which aimed to cap credit card late fees at $8. This decision marks a victory for business and banking groups who contested a component of the Biden administration's efforts to curb what it terms "junk fees."

US District Judge Mark Pittman, appointed by former President Donald Trump, issued a preliminary injunction on Friday, preventing the rule from taking effect next week. The injunction was pursued by various groups, including the US Chamber of Commerce and the American Bankers Association.

Judge Pittman's ruling referenced a 2022 decision by the New Orleans-based 5th US Circuit Court of Appeals, which deemed the CFPB's funding structure unconstitutional. He indicated that regulations established under this framework are likely unconstitutional as well, thus indicating a likelihood of success for the plaintiffs challenging the rule.

The US Supreme Court is currently reviewing the 2022 ruling, and Judge Pittman is bound by its jurisdictional authority. The decision has drawn mixed reactions, with proponents of the rule underlining its importance in protecting consumers from what they deem as excessive fees, while opponents argue that it could impede businesses from providing affordable credit.

The CFPB, which championed the rule as a means to address what it sees as exorbitant late fees charged by credit card issuers, has expressed disappointment at the ruling. It warns of the financial burden on consumers in the absence of the rule, estimating that they could collectively incur $800 million in late fees monthly.

While the White House has voiced its support for the CFPB's initiative, the court's decision presents a setback to the Biden administration's agenda to rein in perceived financial industry excesses. The case underscores broader debates over regulatory oversight and consumer protection in the financial sector.

(With Reuters inputs)