CFPB has 30 days to settle $8 credit card late fee lawsuit

The Consumer Financial Protection Bureau said it is in discussions with bank trade groups to settle a lawsuit challenging the bureau’s $8 credit card late fee rule.

The CFPB was granted 30 days by Judge Mark T. Pittman of the U.S. District Court for the Northern District of Texas to resolve the suit, saying in a status report that the bureau is “optimistic” that it will find a resolution. The bureau had asked Pittman to stay all pending deadlines in the case and agreed that the parties would file a joint status report in April if no resolution has been reached by then.

“Counsel for the Bureau have begun discussing with Plaintiffs’ counsel [on] potential ways to resolve this case,” wrote Mark Paoletta, the CFPB’s chief legal officer, in a status report filed March 12. “Based on those conversations, the Bureau is optimistic that an agreement can be reached within 30 days, but the parties require additional time to see if an agreed resolution is feasible.”

Ed Groshans, senior vice president and policy research analyst at Compass Point Research & Trading, said he expects the CFPB will agree to rescind the final late fee rule and to a permanent injunction that would prevent the bureau from issuing a similar rule in the future. 

“If the industry cannot get a permanent injunction, it will likely seek to continue the proceedings given that it is expected to win on the merits and its request for permanent injunction could be granted by the court,” Groshans wrote in a research note. “This is a positive development and in line with our expectation that the CFPB’s final late fee rule would be overturned sometime in 2Q25 to 3Q25.”

In December, Pittman blocked the $8 credit card late fee rule from going into effect after ruling that bank trades groups were “likely to succeed on the merits” of the case. The lawsuit was filed in March by the U.S. Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and three Texas-based business groups.

Former CFPB Director Rohit Chopra finalized the credit card late fee rule last March by reducing a safe harbor amount for larger credit card issuers to a proposed $8, while eliminating an automatic annual inflation adjustment that had previously been granted. The safe harbor was given to credit card issuers with at least 1 million or more open accounts and had allowed issuers to charge from $30 to $32 for a late fee, and from $41 to $43 for additional late fees. 

“The Bureau’s new leadership is currently reviewing and considering its positions on various agency actions, including the regulation at issue in this case,” Paoletta wrote in the status report.

Pittman already took issue with the CFPB’s legal theory under Chopra that late fees must be  “reasonable and proportional,” and cannot include a “penalty fee” for the purpose of deterrence.

Pittman said in December that Congress specified deterrence as one of four factors regulators must consider when establishing standards for late fees. He found that the CFPB had exceeded its authority and that the final rule issued under Chopra during the Biden administration violated the Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act, which allows credit card issuers to impose penalty fees.

“A plain language reading reveals that the Final Rule violates the CFPB’s statutory authority under the CARD Act. To begin, the CARD Act explicitly allows card issuers to impose ‘penalty fee[s],’ ” Pittman wrote. 

Groshans said that he expects the CFPB could have the elimination of the credit card late fee rule wrapped up in 60 days, or by June at the latest.