Court Halts CFPB Rule on Credit Card Late Fees Amid Constitutional Concerns

A Texas court has temporarily stopped the Consumer Financial Protection Bureau's (CFPB) new rule that would cap credit card late fees at $8. The preliminary injunction highlights constitutional questions concerning the CFPB's funding and halts the rule's implementation amid discussions on its impact on credit unions and the broader financial industry.

The injunction, issued on May 10th, was in part supported by a 5th Circuit Court of Appeals ruling that the CFPB’s funding structure was unconstitutional. At the time the injunction was issued, that issue was still under review by the Supreme Court. Yesterday, the Supreme Court ruled that the Bureau’s funding structure is Constitutional. This ruling could have potential impacts on this preliminary injunction, as well as others in cases involving the CFPB.

The implications of this legal challenge are extensive, emphasizing the balance between consumer protection and the financial necessities of credit unions. As the case progresses, it's vital for credit unions to stay informed and consider how different outcomes might require adjustments to their financial practices.

While no immediate action is required, your League recommends credit unions continue their operations and evaluate their fee programs, revenues, and costs. While this rule would only directly apply to financial institutions with over 1 million active credit cards, market pressures and changes can shift and impact credit unions and banks of all sizes. It’s critical for credit unions to be prepared to adapt if the legal landscape shifts. This situation underlines the need for a thoughtful approach to regulation that considers both consumer protection and the sustainability of financial institutions.