Mark Lennihan/AP Photo
The CFPB’s rule capping credit card late fees to $8 has been through a legal odyssey in recent weeks, with a number of legal maneuverings involving the conservative Fifth Circuit.
After the Consumer Financial Protection Bureau’s victory at the Supreme Court, at least 16 lawsuits and attempts to finalize rulemaking, all of which were put on hold because of the unresolved constitutional questions, should now be able to go forward. The delays in these cases, some of which go as far back as December 2022, have disrupted the ability for the CFPB to carry out its mission, and given financial scam artists a year and a half of relatively unimpeded abandon. That open season on consumers is now over, presumably.
But although the Bureau has been filing numerous briefs since Thursday asking for these stays and injunctions to be lifted, the courts are only slowly beginning to respond, and some defendants are attempting other challenges. It’s indicative of the uphill battle regulators face in protecting consumers.
The first battleground was in the Fifth Circuit, from which this constitutional crisis originated. That far-right appeals court ruled in CFPB v. Community Financial Services Association of America (CFSA) that the Bureau was unconstitutionally funded. It’s also a typical venue for big business when it seeks to cut down regulations.
The CFPB’s cap on credit card late fees to $8 faced just such a legal challenge in the Fifth Circuit’s jurisdiction. The rule has been through a legal odyssey in recent weeks, with one district court judge recusing because of credit card company stock holdings, a second judge sending the case to D.C. because of improper venue, and then the Fifth Circuit reversing that venue change and forcing the second judge, Trump appointee Mark Pittman, to rule on a preliminary injunction. Judge Pittman approved the injunction, entirely because of the Fifth Circuit’s ruling in CFPB v. CFSA.
With the Supreme Court having reversed the Fifth Circuit, the injunction of the rule should be lifted. But the Fifth Circuit had retained jurisdiction of an appeal from the Chamber of Commerce in the matter. As long as the Fifth Circuit held onto it, nothing could be done with the injunction.
In a briefing filed Wednesday, before the Supreme Court’s ruling, the CFPB insisted that, since the plaintiffs got their injunction, “the appeal has become an empty vessel that constrains the district court’s management of this case.” A day later, after the Supreme Court ruling, the CFPB said the reversal underscored why the Fifth Circuit must not “micromanage the district court’s supervision of this case.” Even the Chamber of Commerce’s lawyers asked the Fifth Circuit to release the appeal, so they could refile on separate grounds in support of an injunction.
Finally, on Friday afternoon, a week after the initial preliminary injunction on May 10, the Fifth Circuit gave up and dismissed the appeal, in a one-line opinion. But that only gets the CFPB to the stage of asking Judge Pittman to lift the injunction on the late fee cap. The CFPB has already filed briefings with Judge Pittman to that end, but the judge can actually do it now.
Every day that the credit card late fee cap doesn’t go into effect costs consumers $27 million, according to estimates from CFPB officials.
Every day that the credit card late fee cap doesn’t go into effect costs consumers $27 million.
The saga just to get to the point of possibly allowing the credit card late fee rule to go forward is indicative of the financial industry’s continued willingness to fight the CFPB, even after it has cleared hurdle after hurdle regarding its structure and function.
According to agency officials, there are 14 enforcement cases that were made inactive because of the Fifth Circuit’s CFSA ruling. These include litigations against FirstCash and MoneyLion over violations of the Military Lending Act, Heights Finance over hundreds of millions of dollars in fee-harvesting on consumer loans, Credit Acceptance Corp. for tricking customers into high-cost auto loans, Active Networks for signing customers up to a subscription service without their knowledge, and ACE Cash Express over illegal payday loan practices. In addition, at least five civil investigative demands, a subpoena-like request on companies used in CFPB investigations, were halted due to the Supreme Court case.
Another example is the rule that brought the CFPB to the Supreme Court in the first place, its payday lending rule. This modest rule, which mostly involves prohibiting lenders from repeated automatic withdrawals from borrowers’ bank accounts, is what CFSA objected to. Upon the Supreme Court reversal, that rule can theoretically be implemented, but attorneys for the payday lending industry told the Fifth Circuit last Thursday that it would again challenge it in court, seeking an en banc ruling of the entire circuit court on underlying issues that went unaddressed in the initial opinion.
The CFPB, for its part, is charging forward with enforcement actions against companies that now cannot use the Supreme Court uncertainty as an excuse. On Friday, the Bureau sued SoLo Funds, an online lending platform that claimed to broker zero-interest loans with outside lenders, but which deceived borrowers into paying fees through fake “tips” or “donations.” Despite claims that these tips and donations are voluntary, the complaint alleges that the mandatory boxes that ask for fees to SoLo have no option to put in zero, that the “no donation” option is buried in the mobile app’s settings, and that lenders typically decline to fund loans where no tip is added.
Over 99.5 percent of the more than one million loans funded through SoLo include fees to the lender. The cost of credit with the fees included has come to more than 1,000 percent, according to the complaint. The Bureau is seeking an injunction against the company, forfeiture of all revenue back to borrowers, and a civil money penalty.
On a press call Friday, CFPB director Rohit Chopra said that the Bureau plans to increase its enforcement office personnel, and to work on new rules related to credit reports and credit scores, which a large number of recent consumer complaints have involved. He noted that honest businesses should welcome the Supreme Court’s ruling, since they will now compete on a more level playing field, as the risks of acting dishonestly are renewed.
