A federal judge has thrown out a Biden-era rule that capped credit card late fees at $ after the Trump-led Consumer Financial Protection Bureau changed sides and agreed with credit card companies that the rule was illegal.

Federal Judge Abolishes $8 Cap On Credit Card Lates Fees As Law Removing Bank Overdraft Fees Awaits Trump’s Signature

During the Biden administration, a concerted effort was made to crack down on so-called “junk fees” ranging from credit card late fees to hidden fees in airline tickets to hotel resort fees. One of those changes was capping credit card late fees at $8 (which applied to all credit card issuers with more than 1 million open accounts, subject to an exception for proving that its actual costs for late payments fees were higher. At the time, the typical late fee was $32.

But under the Trump administration, the US Consumer Financial Protection Bureau has taken a very different position, agreeing with opponents that the rule violated the Credit Card Accountability and Disclosure Act of 2009 because it ignored Congressional intent that high fees be permissible to deter late payments. It also argued that the rule penalized those who paid on time by forcing them the subsidize the cost of those who were financially irresponsible.

U.S. District Judge Mark Pittman, a Fort Worth, Texas-based judge appointed by President Trump, agreed and held that the rule violated the Credit Card Accountability and Disclosure Act of 2009, arguing it prohibited card issuers from charging fees “reasonable and proportional to violations.”

The Pros And Cons Of This Rule

The Gate, which alerted me to this story, argues, “Why should the issuer of a credit card be required to pay the costs of what essentially is loaning the money to delinquent and irresponsible holders of their credit card when merchants are paid on time? Even worse, why should responsible people like me who pay their bills in a timely manner pay the costs for many irresponsible people who do not take their debts seriously?”

Others have made the counterpoint that the late fees are different than interest…that interest can still be charged on late payments but the late fees themselves do not actually cost the bank or credit card issuer any money.

But the US Chamber of Commerce and other plaintiff groups praised the ruling, arguing, “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.”

Congress recently passed  legislation to remove a $5 cap on bank overdraft fees, which President Trump is expected to sign as early as today, prompting incredulity from former US Transportation Secretary Pete Buttigieg:

Senator Tim Scott (R – SC), Chair of the Senate Banking Committee, argued the rule actually hurt the poor, “Your bank account goes beyond zero, you have to pay a fee, your bills are paid. Some people will say that people who live paycheck to paycheck use their overdraft option to pay their rent. So, when you start capping this fee structure, you start eliminating overdraft. You start eliminating the possibility of people working paycheck to paycheck to make the decision to continue to use their resources in the most effective way.”

CONCLUSION

The travel angle here is that some in Congress and the administration are also coming after all-in pricing for airfare, transparency requirements for add-ons like luggage and change fees, and even disclosures for hotel resort or destination fees. The moves to remove caps on credit card late fees and bank overdraft fees represent the start of what may be the dismantling of many consumer protections that Republicans argue distort markets and hurt the very people they intend to help.