Credit: Tim Samuel (via Pexels)
A federal judge in Texas has scrapped a rule capping credit card late fees at $8. The potentially-lame-duck CFPB formed an unlikely pact with business and banking groups to urge justice officials to squash the Biden-era initiative.
Reasonable and proportional ruling: The judge granted the request on April 15, saying the rule violated the Credit Card Accountability and Disclosure Act of 2009 by preventing lenders from charging fees "reasonable and proportional" to late payment violations, as reported by Reuters.
Junk fees: The credit card fee cap was developed under former President Biden’s campaign to tame so-called "junk fees", which were averaging around $32 before the cap. Business groups argued the measure would force newer customers to shoulder increased costs, while also undermining legitimate efforts to prompt timely payments.
Critics said lowering fees would reduce the deterrent effect for delinquent borrowers, as noted by reporting from the American Bankers Association. Those industry players emphasized the costs of pursuing overdue funds and passed these expenses on to responsible customers.
Partisan policy: The CFPB’s change of heart fits into a larger pattern of pulling back on Biden-era regulations under current President Donald Trump, who has targeted rules deemed damaging to business, says The Hill. The bureau also recently announced an end to enforcing a mandate requiring nonbank financial companies that repeatedly break consumer laws to register.
Consumer consequences: The ruling has real consequences for cardholders. Many face reinstated late fees ranging between $30 and $41, rather than the $8 limit. Advocates worry that financially vulnerable people will be most affected by the jump in penalties, but issuers say it keeps costs in line with actual risks and prevents higher fees from trickling down to those who pay on time.