U.S. district court judge blocks rule capping credit card late fees at $8

A U.S. district court judge has temporarily put a stop to the Consumer Financial Protection Bureau’s (CFPB) cap on excessive credit card late fees, in a move that would mark a big win for major banks and card issuers that stood to lose billions due to the ban.

The CFPB earlier this year in March finalized a rule that would lower the typical late fee allowed by card issuers to $8 from $32. According to the U.S. agency, issuers raked in over $14B in 2022 alone from credit card late fees. The CFPB’s move was part of a larger crackdown by President Joe Biden’s administration on junk fees charged to consumers.

Judge Mark Pittman of the United States District Court for the Northern District of Texas on Friday granted a preliminary injunction against the CFPB’s ban and issued a stay on the rule.

The injunction was granted on two main reasons: that the CFPB’s final rule was put into effect with funds drawn in violation of the Appropriations Clause; and that the final rule violated the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, the Truth in Lending Act of 1968 and the Administrative Procedure Act.

The stay on the CFPB’s rule would mean a big win in particular for Bread Financial (BFH), Synchrony Financial (SYF) and, to a lesser extent, Capital One Financial (COF). The three card issuers had been listed as the most exposed by S&P Global Ratings back in March.

Synchrony (SYF) had noted an expected hit to its 2024 earnings per share by 15 to 25 cents due to the CFPB’s rule. Earlier this month, KBW upgraded both Synchrony (SYF) and Bread Financial (BFH), citing a fall in uncertainty related to the late fees regulation due to “recent positive developments on the court front.”

The largest credit card issuers – such as top lenders JPMorgan (JPM), Citigroup (C) and Bank of America (BAC) – have very diversified businesses and thus have limited revenue exposure to the late fee cap. Similarly, the impact to revenue at American Express (AXP) was expected to be nominal.

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