Credit Card Rule: Praise, Condemnation and Lawsuit Challenge
Chamber of Commerce and banking trade groups filed lawsuit
It was a big day on the junk fee front on Thursday. The U.S. Chamber of Commerce and banking trade groups filed suit in a Texas federal court challenging the Consumer Financial Protection Board’s final credit card late fee rule. During a hearing, a key Republican House member accused agency Director Rohit Chopra of running an unaccountable agency. Then in the evening, during the State of the Union, President Biden lauded the Consumer Financial Protection Bureau’s efforts to rein in so-called “junk fees.”
The Chamber of Commerce had warned that if the credit card late fee was adopted that they would file a lawsuit, and they wasted no time in doing so. The CFPB issued the final rule earlier this week and the rule will decrease most credit card late fees to $8.
On Thursday the U.S. Chamber of Congress was joined by the American Bankers Association, the Consumer Bankers Association, and state business groups in a lawsuit filed in the U.S. District Court for the District of Texas, challenging the credit card late fee rule. Texas federal courts generally have favored business over federal regulators, which likely explains why the suit was filed there.
“The Rule, which upends more than a decade of regulations, is unlawful,” the suit states. It argues that Congress has specifically authorized the use of penalty fees for late payments. It asks the court to nullify the rule.
Also on Thursday, the House Financial Institutions and Monetary Policy Subcommittee was holding a hearing on the alleged politicization of the regulatory process. Chairman Rep. Andy Barr, R-Ky., took the opportunity to say that the Biden Administration was using independent agencies such as the CFPB to “circumvent Congress and drive leftist transformations in financial regulation to the detriment of consumers and communities.”
Barr noted that the CFPB released the final credit card late fee rule during the same week as Biden’s State of the Union address. “In deciding to finalize the credit card late fee rule nearby President Biden’s State of the Union address, the CFPB is showing how politics, not consumer protection, drives the train under Director Chopra,” Barr said.
Subcommittee Democrats came to Chopra’s defense. Panel ranking Democrat Rep. Bill Foster, D-Ill., praised the agency under Chopra’s leadership. “The CFPB has fulfilled its mission,” Foster said, adding that the agency is extremely popular with the American people. “If this is politicization, the American people are winning,” he said.
A credit union witness disagreed with that assessment. “Under Director Rohit Chopra’s leadership, the Bureau has yet again missed numerous opportunities to recalibrate its approach to regulation in a manner that fulfills its consumer protection mission without impeding consumers’ access to credit or safe and affordable financial products and service,” said Karen Harbin, president/CEO of Commonwealth Credit Union, a state-chartered financial institution in Barr’s home state of Kentucky.
She added that the agency also should consider the impact its rules have on financial institutions. “We support tailored and rightsized regulation, but diverting resources toward meeting excessive regulatory compliance has ripple effects, one of the more prominent being a trend toward industry consolidation,” she said.
In her testimony, Harbin, who was representing America’s Credit Unions, called on Congress to transform the CFPB from an agency run by a single director to a five-member commission. She also charged that it is common for the agency to issue rules without sufficient data or evidence needed to justify the action.
Arguing the other side, Santiago Sueiro, senior policy analyst at Unidosus, told the panel that the CFPB’s work is essential to efforts to foster a fair financial system.
“Lowering fees and offering products that meet the financial needs of lower-income people and marginalized consumers can build trust and loyalty among those consumers,” he said. “If consumers see that their financial institution is willing to be flexible and meet them where they are, they will in turn be more likely to remain loyal to the financial institution and will likely use more financial products as they improve stability and grow economically.”
In the evening, junk fees came up again in President Biden’s State of the Union Address. Biden touted his administration’s fight against junk fees, saying that the effort will save Americans $20 billion a year.