FORT WORTH, Texas (Legal Newsline) - A Texas federal judge has blocked a controversial rule imposed by a federal agency without Congress' consent that would keep credit card companies from charging late fees over $8.
Fort Worth judge Mark Pittman on May 10 issued a preliminary injunction against the Consumer Financial Protection Bureau's proposed rule, which critics claim will actually hurt consumers currently subject to late fees up to $32.
The U.S. Chamber of Commerce and other groups sued the CFPB in March, saying the move upends more than a decade of regulations and is unlawful. They also note it implements a promise made by President Joe Biden during his State of the Union address before the public-comment period on the rule had even begun.
Key to the argument is a matter currently before the U.S. Supreme Court. The CFPB is funded by the Federal Reserve - and not taxpayer money. This was established in 2011 when the CFPB was created to avoid political disputes in Congress when appropriating the CFPB's yearly budget.
The U.S. Court of Appeals for the Fifth Circuit found this structure violates the Appropriations Clause.
"Here, Plaintiffs argue that the CFPB's junk fee Final Rule should be stayed under the reasoning of the (Supreme Court case), as it was promulgated under the same funding regime. The Court agrees," Pittman wrote.
"The Fifth Circuit has held that the CFPB's double-insulated funding scheme is unconstitutional. Consequently, any regulations promulgated under that regime are likely unconstitutional as well."
The plaintiffs made other arguments for the injunction, but Pittman did not rule on them since he was swayed by the appropriations claim.
Rulemaking has become a hot topic with the CFPB, as a House committee recently held a hearing to discuss late fees from banks and so-called junk fees.
The credit card late fees fall under the latter, the suit says.
"The concept of attaching consequences to the failure to pay an obligation is ubiquitous in our legal system," the suit says.
"Credit card obligations are no different: Congress has recognized that credit card late fees appropriately serve three commonsense, important purposes: deterring late payments, accounting for cardholder conduct, and compensating credit card issuers for the costs they incur when payments are late."
House Republicans in the Financial Services Committee have voted to repeal the late fees rule, with chair Andy Barr, a Kentucky Republican, calling the agency "rogue."
Other Biden Administration rules are also headed to court, including the Federal Trade Commission's move to ban noncompete employment contracts.
Other plaintiffs in the late fees case are the Fort Worth Chamber of Commerce, the Longview Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and the Texas Association of Business.