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A Consumer Financial Protection Bureau regulation that promised to save Americans billions of dollars in credit card delinquencies faces a last-ditch effort to prevent its implementation.
Led by the U.S. Chamber of Commerce, the card industry sued the CFPB in federal court in March to block the new rule from taking effect.
That effort, which bounced for weeks between locations in Texas and Washington, D.C., is now about to reach a milestone: A judge in the Northern District of Texas is expected to announce Friday evening whether the court will grant the industry's request for a freeze.
That could hold up the regulation, which would reduce the fees most banks can charge in late fees to $8 per incident, just days before it was set to take effect Tuesday.
“We need to get clarity soon on whether the rule will go into effect,” said Tobin Marcus, chief policy analyst at Wolfe Research.
The credit card regulation is part of President Joe Biden's broader election war against what he sees as junk fees.
Major card issuers have steadily increased late fees since 2010, taking advantage of users with low credit scores who earn an average of $138 in fees per card annually, according to CFPB Director Rohit Chopra.
New rates, higher rates
As expected, the industry has waged a campaign to derail the regulation, framing it as a misguided effort that redistributes costs among those who pay their bills on time, and ultimately harms those it claims to benefit by making it more likely that users are falling behind.
Up for grabs is the $10 billion in annual fees that the CFPB estimates this rule could save American families by reducing late fines from $32 per incident to $8.
Card issuers included Capital One And Synchrony have already discussed efforts to offset the revenue shortfall they will face if the rule takes effect. They could do this by raising interest rates, adding new fees for things like paper statements, or changing who they lend to.
Capital One CEO Richard Fairbank said last month that, if implemented, the CFPB rule would impact his bank's earnings for a “couple of years” as the company would take “mitigating measures” to generate revenue elsewhere.
“Some of these mitigation measures have already been implemented and are underway,” Fairbank told analysts during the company's first-quarter earnings call. “We plan to take additional actions once we know more about the outcome of the lawsuit.”
Taste ahead?
Like some other observers, Marcus of Wolfe Research believes the Chamber of Commerce will likely prevail in its efforts to block the rule, either through the Northern District of Texas or the Fifth Circuit Court of Appeals. If a preliminary injunction is granted, the rule could be upheld until the dispute is resolved, possibly through a lengthy process.
The industry group, which includes Washington, D.C.-based trade associations such as the American Bankers Association and the Consumer Bankers Association, filed its lawsuit in Texas because it is widely seen as a friendlier venue for businesses, Marcus said.
“I would be very surprised if [Texas Judge Mark T.] Pittman denies that order on the merits,” he said. “Somehow I think the implementation will be blocked before the rule would go into effect.”
The CFPB declined to comment and the Chamber of Commerce did not immediately respond to a request for comment.