WASHINGTON—The Consumer Financial Protection Bureau has reached an agreement with plaintiffs to settle a lawsuit over its rule on credit card late fees.
Last year, the CFPB finalized a rule that reduced the safe harbor limit for late fees to $8, removed the higher threshold for repeat violations, and eliminated the annual inflation adjustment originally established by the Federal Reserve in 2010. In response, the ABA, along with the U.S. Chamber of Commerce and other plaintiffs, filed a legal challenge in the U.S. District Court for the Northern District of Texas, arguing that the bureau had overstepped its statutory authority.
Under the terms of the settlement, the Bureau acknowledged it exceeded its authority under the Credit Card Accountability Responsibility and Disclosure Act, and that the late fee rule violates the Administrative Procedure Act. The parties asked the court to vacate the final rule. The judge must approve the agreement, the ABA Banking Journal reported.
In a joint statement, ABA and the other plaintiffs called the agreement a win for consumers and common sense.
“If the CFPB’s rule had gone into effect, it would have resulted in more late payments, lower credit scores, higher interest rates and reduced credit access for those who need it most,” they said. “It would have also penalized the millions of Americans who pay their credit card bills on time and reduced important incentives for consumers to manage their finances. We look forward to the court’s consideration of our joint request to vacate the rule.”
DCUC Reacts
The Defense Credit Union Council said the settlement represents "a critical step forward in reforming regulatory overreach" that would have significantly hindered credit unions’ ability to serve their members effectively.
"The CFPB’s final rule not only exceeded its statutory authority under the Credit CARD Act but also posed a direct threat to the financial well-being of millions of Americans—including those in vulnerable and underserved communities," said Anthony Hernandez, DCUC president/CEO.
Prior to the suit, DCUC had voiced its concerns on the CFPB's rule and the obstacles it would introduce to defense credit unions dedicated to serving the financial needs of their members. In previous letters to leaders at the Senate Banking and House Financial Services Committees, DCUC Chief Advocacy Officer Jason Stverak explained how access to reliable, innovative financial tools is critical for America's communities, especially for military members.
"Overly burdensome regulations like the CFPB’s late fee rule not only threaten those tools but also risk worsening financial discipline, increasing costs, and reducing access to credit," said Stverak. "While we support reasonable limits, the market—not one-size-fits-all mandates—remains the best regulator for our military families’ financial well-being.”
"These outcomes would have disproportionately harmed those with limited financial means, including military families, veterans, and individuals in rural or low-income areas—many of whom rely on credit unions for fair, transparent, and mission-driven financial services," added Hernandez. "We believe this resolution is a positive step toward restoring common-sense regulation that enables financial institutions, including credit unions, to continue providing responsible credit access, financial education, and long-term security to the communities they serve."
ACU Responds
The late fee rule would have negatively impacted consumers, ACU President and CEO Jim Nussle said.
"As trusted financial partners, credit unions offer consumers affordable and safe credit card programs," Nussle stated. "The credit card late fees rule would have upended that system and increased costs for all cardholding members, while also decreasing the availability of credit for those who need access the most. Credit unions were clear with their concerns about the negative impact of the CFPB's credit card late fees rule, and we appreciate the CFPB agreeing to settle the lawsuit challenging the rule and vacate it. America's Credit Unions will continue to advocate for policies that allow credit unions to support the financial well-being of their 142 million members."