Month: December 2024

On December 18, 2024, the CFPB issued Circular 2024-07 addressing potential violations of law by reducing the value of rewards or otherwise inhibiting consumers from obtaining promised reward. In the circular the CFPB takes the position that credit card issuers are…Read More

The Ohio Division of Financial Institutions posted on its website and circulated a “Bank Partnership Alert” in which the Division takes on new position on interpreting the Ohio Small Loan Act (“SLA”). The SLA applies to loans of $5,000 or less. The SLA provides…Read More

As the latest action in the ongoing litigation regarding the Consumer Financial Protection Bureau’s (“CFPB”) rule limiting the credit card late fee safe harbor to $8, the District Court for the Northern District of Texas, Fort Worth Division kept in place the preliminary injunction staying the rule’s effective date, denying two CFPB motions in the process.

As a reminder, the procedural history of this case dates back to March, when the U.S. Chamber of Commerce, American Bankers Association and three Texas trade groups, including the Fort Worth Chamber of Commerce, filed suit against the CFPB to halt implementation of the then-recently finalized credit card late fee rule (“Final Rule”). See our ALERT of March 8, 2024. The CFPB moved to transfer the lawsuit to the District Court for the District of Columbia three separate times, including in one of the motions resolved by the District Court’s most recent opinion and order, to no avail. See our ALERTS of April 8, 2024 and June 20, 2024. The District Court initially granted the Chamber of Commerce’s motion for preliminary injunction staying the Final Rule until the Supreme Court issued a decision on the constitutionality of the CFPB’s funding mechanism in CFPB v. Community Financial Services Association of America. See our ALERT of May 13, 2024. The CFPB moved to dissolve the preliminary injunction and lift the stay following the Supreme Court’s decision upholding the CFPB’s funding mechanism. See our ALERT of May 21, 2024.

The District Court issued its most recent opinion and order in response to two motions by the CFPB: (i) a motion to dismiss the Fort Worth Chamber of Commerce for lack of standing and transfer the case to the District Court for the District of Columbia and (ii) a motion to dissolve the preliminary injunction and lift the stay of the Final Rule. Addressing the motion to dismiss the Fort Worth Chamber of Commerce first, the court held that the Fort Worth Chamber of Commerce has associational standing to sue under applicable Fifth Circuit precedent, making venue proper in the Northern District of Texas and denying transfer of the case to the District of Columbia.

In response to the motion to dissolve the preliminary injunction, the District Court considered a claim from the initial motion for preliminary injunction that the Final Rule violates the CARD Act and the Truth in Lending Act. The court agreed, holding that the Final Rule clearly violates the CARD Act such that the Chamber of Commerce is likely to succeed on the merits. According to the court, a plain language reading of the CARD Act and Final Rule reveals that the Final Rule violates the CFPB’s statutory authority under the CARD Act. The CARD Act expressly allows issuers to charge “penalty fees” for violations of the cardholder agreement so long as they are “reasonable and proportional” to the violation of the agreement. The CFPB’s Final Rule would lower the safe harbor to $8, an amount calculated to “cover [only] pre-charge-off collection costs for Large Card Issuers on average”. The court drew a sharp distinction between fees that cover “costs” and fees that constitute “penalties”, holding that the Final Rule narrows the safe harbor to cost-based fees only, eliminating card issuers’ opportunity to charge reasonable and proportional penalty fees as authorized by Congress under the CARD Act.

We will continue to monitor the status of the rule litigation, which will likely continue to play out in the New Year.

• Mike Tomkies and Mercedes Ramsey

The U.S. Court of Appeals for the Fifth Circuit issued a per curium order stating that the compliance date for the Consumer Financial Protection Bureau’s (CFPB) Payday Loan Rule is March 30, 2025. The Order stated…Read More