A federal judge has overturned a proposed regulation from the Biden administration that sought to limit late fees on credit cards. This decision arose from a lawsuit involving several key banking organizations, including the American Bankers Association and the Consumer Bankers Association.

Background of the Ruling

The contested regulation was introduced last year under President Biden and was intended to enforce stricter controls on late fees imposed by credit card companies. Opponents of the rule argued that it contravened the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which was designed to safeguard consumers from unreasonable fees imposed by credit card issuers.

Details of the Lawsuit

The legal challenge claimed that the proposed caps would prevent credit card companies from implementing penalty fees that reflect the nature of the violations, including those related to repeat offenses. U.S. District Judge Mark Pittman delivered the ruling in Fort Worth, Texas, just a day after the Consumer Financial Protection Bureau (CFPB) and the banking associations reached an agreement to dismiss the regulation.

Statements from the Parties Involved

In a joint motion with banking representatives, attorneys from the CFPB acknowledged that the Late Fee Rule failed to comply with the CARD Act, stating, “the Bureau violated the CARD Act by failing to allow card issuers to ‘charge penalty fees reasonable and proportional to violations.’”

The banking associations hailed the ruling as beneficial for consumers, asserting that the implementation of the CFPB’s rule could lead to an increase in late payments, a decline in credit scores, higher interest rates, and restricted access to credit for those in need. “It would have also penalized the millions of Americans who pay their credit card bills on time,” they emphasized in a statement following the ruling.

Reasons Behind the Banking Groups’ Opposition

The banks have been fervently contesting this rule due to concerns over substantial revenue losses, as it was estimated that the credit card industry collected around $14 billion annually from late fees alone. Prior to the ruling, expectations were high that the banking groups would be successful in their legal challenge, particularly since Judge Pittman had previously suggested that the new regulation did not align with the CARD Act.

Current Status of the CFPB

The CFPB, which was established to protect consumers from unfair practices in the financial sector, has faced challenges in recent months. Under the previous administration, there were efforts to reduce the agency’s influence, leading to significant restructuring. Recently, a federal judge temporarily halted these changes, ensuring the CFPB remains operational as it navigates its regulatory responsibilities.