Legislation Seeks to Overturn CFPB Limits on Credit Card Late Fees

The fight over credit card late fees may go to Capitol Hill.

Sen. Tim Scott of South Carolina unveiled a joint resolution Monday (April 8) that would prevent the Consumer Financial Protection Bureau (CFPB) from instituting caps on credit card late fees.

The joint resolution, which would require both houses of Congress and the president’s signature to take effect, is simple in its language.

“Resolved by the Senate and House of Representatives of the United States of America in Congress assembled … that Congress disapproves the rule submitted by the Bureau of Consumer Financial Protection relating to ‘credit card penalty fees (Regulation Z)’… and such rule shall have no force or effect,” it said.

The effort by Scott, who is the top-ranking member on the Senate Committee on Banking, Housing and Urban Affairs, to overturn the rule comes in the form of a Congressional Review Act (CRA), which can be used by Congress to overturn regulatory rules before they take effect.

Generally speaking, the resolution would require approval by both the Senate and the House, and President Joe Biden may signal slim chances for enactment. Biden has called for the caps.

If vetoed by Biden, the rule can still be invalidated if the veto is overruled by two-thirds of the Senate.

The announcement Monday does point to an additional theater of battle over the caps, even while legal wrangling continues.

Back and Forth in the Courts

The U.S. Court of Appeals for the Fifth Circuit ruled Friday (April 5) that an ongoing suit over the fees will be heard in Fort Worth, Texas, reversing an earlier decision by federal Judge Mark Pittman moving the case to Washington, D.C. The suit was brought by the U.S. Chamber of Commerce, the American Bankers Association and the Consumer Bankers Association, as well as several Texas industry groups.

At issue in the courts and on the Hill is the CFPB’s rule that would lower the late fees charged by issuers to about $8, where they have averaged about $32. Critics argue that the CFPB is acting outside its authority, while the CFPB contends that consumers would save $10 billion.

Scott maintained in a statement that the CFPB’s cap “will decrease the availability of credit card products and important financial services, particularly for Americans who need them most.”

He added in the statement that the CRA resolution has the support of several financial services industry groups, including the Consumer Bankers Association, America’s Credit Unions, Independent Community Bankers of America, Bank Policy Institute, American Bankers Association, Americans for Tax Reform, Competitive Enterprise Institute and the U.S. Chamber of Commerce.

As the CFPB’s rule was finalized last month, PYMNTS reported that the Federal Reserve estimated in its own research that “the credit function makes up approximately 80% of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks’ interchange revenues. In addition, fees — in particular late fees — comprise approximately 15% of credit card profitability.”

Credit card fees can be and often are earmarked to help fund other innovations elsewhere in the banking industry, such as email reminders and other outreach mechanisms. Capping the card late fees also comes in the wake of an industry-wide shift from overdraft fees, which were $9 billion in 2022, down from nearly $13 billion in 2019 as more banks eliminated them.