FORT WORTH, Texas – In a blow to banks and credit card issuers, a Texas judge has agreed to move a lawsuit challenging the Consumer Financial Protection Bureau’s $8 credit card late fee rule to the District of Columbia. The ruling by Judge Mark T. Pittman is a setback for the U.S. Chamber of Commerce and five other trade groups that sued the CFPB in March to stop the rule from taking effect on May 14.
The CFPB accused the trade groups of engaging in “forum shopping” by filing the case in Texas to find a judge sympathetic to their cause. Judge Pittman agreed with the CFPB, stating that “venue is not a continental breakfast; you cannot pick and choose on a Plaintiffs’ whim where and how a lawsuit is filed.” The dispute, which could potentially eliminate $10 billion a year in late fee revenue, will now be resolved in the District of Columbia.
The trade groups’ lawsuit against the CFPB was prompted by a ruling by the Fifth Circuit Court of Appeals last year, which declared the CFPB unconstitutional due to its funding structure. The case is currently being challenged before the Supreme Court, with a ruling expected by June.
Analysts have characterized the Texas lawsuit as unexpected. Isaac Boltansky, managing director and director of policy research at BTIG, described it as “an execution failure mixed with bad luck rather than a strategic failure.” The denial order from Judge Pittman, he said, is indicative of the court’s frustration with what it perceives as industry manipulation.
The CFPB’s late fee rule eliminates the automatic inflation adjustment for late fees and lowers the safe harbor amount from $32 to $8. It only applies to the 30 to 35 largest credit card issuers, including JPMorgan Chase, Citibank, Capital One, Bank of America, and Discover.
The lawsuit was filed by the U.S. Chamber of Commerce, American Bankers Association, Consumer Bankers Association, and three Texas trade groups: the Fort Worth Chamber of Commerce, Longview Chamber of Commerce, and Texas Association of Business.