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Court Blocks Enforcement of Rule Limiting Credit Card Late Fees

Image Source: Pormezz / Shutterstock

A recent court decision has halted the implementation of a Consumer Financial Protection Bureau (CFPB) rule designed to restrict credit card late fees. The rule, which was scheduled to go into effect this week, has been suspended due to a legal challenge from the U.S. banking industry.

Judge Mark Pittman of the Northern District of Texas granted a preliminary injunction at the request of plaintiffs, including the U.S. Chamber of Commerce, pausing the rule’s enforcement. This decision delays measures that aimed to cap late payment fees charged by credit card companies, potentially saving American households billions of dollars annually.

As per the proposed rule, late fees, which typically average $32 per incident, would have been limited to $8 each, with constraints on the industry’s ability to raise these fees. However, the court’s ruling has created uncertainty regarding the timeline for enforcing the regulation.

The CFPB projected that the rule could save consumers $10 billion yearly in fees. Nevertheless, the delay means consumers might still face significant monthly late fees amounting to $800 million, according to a CFPB spokesperson. The White House expressed disappointment over the court’s decision, highlighting President Biden’s commitment to safeguarding consumers from excessive fees.

The CFPB argues that credit card issuers have disproportionately benefited from high late penalties, particularly impacting individuals with low credit scores. Conversely, industry trade groups assert that fee caps could unfairly burden consumers who consistently pay their bills on time.

In light of the court’s ruling, the Consumer Bankers Association welcomed the injunction and declared plans to contest the rule further in court. The association aims to have the CFPB’s late fee regulation completely dismissed.

The decision highlights the ongoing conflict between consumer advocates advocating for fee reductions and industry stakeholders protecting their revenue. As legal proceedings progress, consumers may face continued uncertainty regarding potential savings from reduced late fees.

Image Source: Pormezz / Shutterstock

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