The future of the Consumer Financial Protection Bureau’s final credit card late fee rule may be decided in the courts.

Or by Congress.

Or by voters in the 2024 Election.

On March 5, the CFPB issued its final rule governing credit card late fees. The rule will lower most credit card late fees to $8.00 at financial institutions with more than one million open accounts. The 338-page rule is effective 60 days after it is published in the Federal Register.

“The announcement of this rule comes after an extensive process, consideration of thousands of comments, and a great deal of research into the credit card market,” CFPB Director Rohit Chopra said. “We have learned a lot, and we have real concerns about how the competitive process is working in this market.” In issuing the rule, the CFPB said that for some large credit card companies, late fees are a major driver of profits.

The agency said that since it released its 2023 proposed rule, survey data indicate that annual fees, rewards, sign-up bonuses, credit limits and interest rates have more of an impact on consumers shopping for a credit card than late fee charges. In addition, the CFPB said that credit card companies generally stress those other services, based on the placement of the information and the size of the font in solicitations.

The CFPB has received 57,900 responses to the proposed rule, although many of the letters from consumers and bankers contained the same language, which could indicate they were form letters prepared by interested groups. The CFPB said it also had consulted with several financial regulators, including the National Credit Union Administration, before issuing the proposed and final rules.

The CFPB cites statistics showing that the issuers impacted by the final rule account for more than 95% of the total outstanding credit card balances. “CFPB data shows that smaller issuers tend to charge lower rates and fees to their borrowers, while the vast majority of the largest issuers charge close to the maximum allowable late fee amount,” the agency said.

Chopra gave another reason for only including the largest financial institutions. “We did not find evidence these smaller companies are employing the fee churning business model, and in fact they generally charge much lower fees overall,” he said.

The Biden Administration has lumped credit card late fees into a category of “junk fees” that it says disguise the actual cost of goods and services. The administration already has released a proposed rule that would limit overdraft fees at the largest financial institutions as part of that initiative. The administration’s effort also includes fees outside financial services, such as fees attached to the purchase of concert tickets.

Two days after the credit card rule was released, President Biden touted it and his “junk fee” campaign in his State of the Union address. “The credit card companies don’t like it, but I’m saving American families $20 billion a year with all of the junk fees I’m eliminating,” Biden told the joint session of Congress. “Folks at home, that’s why the banks are so mad. It’s $20 billion in profit.”

Biden is right about the attitude of financial institutions on this topic. The banks do not like it. Neither do credit union trade groups. Neither do congressional Republicans.

On the morning of the State of the Union address, the House Financial Services Committee’s Financial Institutions and Monetary Policy Subcommittee held a hearing on allegations that the financial regulatory process has been politicized. The hearing included a discussion of the credit card late fee rule.

“In deciding to finalize the credit card late fee rule nearby President Biden’s State of the Union address, the CFPB is showing how politics, not consumer protection, drives the train under Director Chopra,” Subcommittee Chairman Rep. Andy Barr, R-Ky., said, during his opening remarks.

Barr, a longtime critic of the CFPB, charged that the credit card late fee punishes borrowers who pay on time to subsidize people who do not. “This rule encourages borrowers to not worry about paying on time,” Barr said. “Delinquent payment costs will be socialized, with late payer costs transferred to all other consumers through higher interest rates and less availability of credit, including for low-and-moderate income borrowers.”

Barr concluded that in the eyes of the CFPB, consumers should take on credit card debt with no fear of consequences if they do not repay on time.

Subcommittee Democrats came to Chopra’s defense, with panel ranking Democrat Rep. Bill Foster, D-Ill., praising the agency under Chopra’s leadership. “The CFPB has fulfilled its mission,” Foster said, adding that the agency is extremely popular with the American people. “If this is politicization, the American people are winning,” he said.

A credit union witness who testified before Barr’s subcommittee, said that financial institutions do not deceive consumers or hide information about fees.

“The current regulatory structure and safe harbor limits for credit card late fees have resulted in clear disclosures to consumers, providing ample opportunity for comparison shopping, and a deterrence effect that encourages consumers to make timely payments on their accounts,” said Karen Harbin, president/CEO of Commonwealth Credit Union in Kentucky. Harbin was representing America’s Credit Unions, in her testimony before the committee.

Jim Nussle, America’s Credit Unions president/CEO, also voiced his displeasure with the rule. Nussle said it is “laughable” that the rule is being issued under the guise of increasing competition, while it will do the opposite. “The bureau is racing toward a future with fewer choices, greater homogenization, and limited access for at-risk consumers,” Nussle said. “This rule is yet another death blow in the CFPB’s latest trend of dismantling real protections and stifling access to the competitive and safe services that credit unions provide.”

Community bankers, often at odds with credit unions, also condemned the rule. “The CFPB’s rule sends the wrong message that punctual credit card payments are not a significant priority, which could result in consumers making more late payments and incurring additional interest charges that would harm them in the long term,” said ICBA President/CEO Rebeca Romero Rainey.

On the other side, consumer groups said they support the rule and the move toward banning other “junk fees.” “This rule will save consumers nearly $12 billion, letting people keep their hard-earned dollars in their pockets instead of forfeiting them to huge corporations,” said Chi Chi Wu, senior attorney at the National Consumer Law Center.

Americans for Financial Reform also supported the rule. “There are changes that fiddle at the edges of a problem and there are reforms like this one that will save consumers billions each year by slashing a particularly nasty kind of junk fee,” said Amanda Jackson, director of consumer campaigns at Americans for Financial Reform. “This new protection will help all credit card users, especially Black, brown and low-income consumers who bear the brunt of these abusive practices.”

With the final rule issued, opponents of the proposal are mounting formal challenges to the credit card rule before it goes into effect.

Senate Banking Committee ranking Republican Sen. Tim Scott of South Carolina said he will use the Congressional Review Act to try to nullify the rule.

“While lowering the cap on late penalties may sound like a good talking point, in practice it will decrease the availability of credit card products for those who need it most, raise rates for many borrowers who carry a balance but pay on time, and increase the likelihood of later payments across the board,” Scott said.

The Congressional Review Act allows Congress to void major rules issued by federal agencies. However, even if the House and Senate were to adopt a resolution to nullify a rule, it would go to the president for his signature. Based on Biden’s praise of the rule, it is easy to predict that he would veto it and it is safe to say that Congress would not have the votes it would take to override that veto.

The legal challenge has a much better chance.

Business groups have filed a suit asking a Texas federal judge to stop enforcement of the rule. The U.S. Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and state business groups filed the suit in the U.S. District Court for the District of Texas. Texas federal courts generally have favored businesses over federal regulators, which likely explains why the suit was filed there.

“The Rule, which upends more than a decade of regulations, is unlawful,” the suit contends. It argues that Congress has specifically authorized the use of penalty fees for late payments. The groups said that attaching consequences to the failure to pay an obligation is ubiquitous in the U.S. legal system. They go on to accuse the CFPB of exceeding its statutory authority.

“The result is a Final Rule that, if allowed to go into effect, will prevent card issuers from being able to collect the penalty fees that the statute authorizes them to collect for late payments, making credit cards less competitive and less accessible, undermining the separation of powers between the legislative and the executive branches, and ultimately harming consumers,” the groups conclude in the suit.  They accuse the CFPB of seeking a “headline grabbing result” in issuing the rule.

Ultimately, the issue may come down to the voters. Depending on the results of the 2024 congressional and presidential elections, the power balance in Washington may change. Republicans have opposed the aggressive rulemaking by the CFPB under the Biden Administration.  A Republican Congress could be expected to attempt a repeal or legislative fix to the rule and a Republican president, unlike Biden, might go along. While this credit card late fee rule is unlikely to be an issue in voters’ minds when they go to the polls in November, nevertheless, they may be the ones that ultimately decide the outcome of this conflict.