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A US Senator has taken up the cause of the Consumer Financial Protection Bureau (CFPB) in its efforts to uphold a new rule that would drastically reduce credit card late fees.

Senator Elizabeth Warren (D-MA)  to the US Chamber of Commerce this week to demand answers for its “outrageous” and “unwarranted” lawsuit against the CFPB.

“We seek an explanation for the chamber’s opposition to this rule and its defense of credit card companies’ deeply exploitative late fee practices,” said Warren. “Big banks and other card issuers abuse late fees to pad their bottom line.”

������covered by 91����ԭ��, the CFPB rule in question would limit late fees for the vast majority of credit card late fees from $32 to $8. The rule was finalised on March 5, 2024, and two days later, the Chamber of Commerce initiated a legal challenge seeking a preliminary injunction against it.

The chamber was joined by five other co-plaintiffs: the American Bankers Association; the Consumer Bankers Association; the Texas Association of Business; Fort Worth Chamber of Commerce; and Longview Chamber of Commerce.

Warren said the chamber “owes the American public an explanation” for its opposition to a rule that seeks to protect consumers and small businesses from “abusive” practices.

At the foot of the letter she included seven questions for the chamber, asking it to explain its motives for opposing the rule and to explain which of its members would benefit from vacating the rule and to what extent.

In the opening pages of the , the co-plaintiffs made their case clear.

“The concept of attaching consequences to the failure to pay an obligation is ubiquitous in our legal system,” they said.

“Credit card obligations are no different: Congress has recognized that credit card late fees appropriately serve three commonsense, important purposes: deterring late payments, accounting for cardholder conduct, and compensating credit card issuers for the costs they incur when payments are late.”

The complaint adds that Congress has “expressly authorized” penalty fees for late payments, providing that such fees are “reasonable and proportional” to the violation of the credit card agreement.

“The CFPB, however, has now apparently decided that such penalty fees are ‘junk fees’ and has instead limited issuers to collecting late payment fees that compensate them only for a subset of their costs.

“This is a sharp break both from the statute and from more than ten years of regulations interpreting it.”

Late fee costs

Quoting a , Warren noted that US consumers spent more than $25.4bn on credit card late fees in 2022.

This was over $5bn more than during the previous year, and about two-thirds ($14.5bn) of the total went towards late fees.

She also complained that late fees as high as $41.50 can be  for payments that are “only a few hours late”.

When the proposed rule was open to consultation, it struck a chord with consumers. The CFPB received 57,000 comments from the public, of which 56,000 endorsed the measure.

Warren sees the rule as an effective way to rein in the largest credit card issuers, with the rule only applying to those that have 1m open accounts or more.

This translates to 30 of the 35 largest issuers, but less than 1 percent of the 4,000 financial institutions in the US that offer credit cards.

Split Congress

As noted by Warren, the Chamber of Commerce sues the CFPB on a regular basis. Calling the lawsuit “meritless”, she said it is “just the latest” in a string of industry-backed court challenges against the regulator.

But in this case, the chamber’s arguments are finding support from within Congress. On the Republican side of the aisle, this week Senator Tim Scott (R-SC)  a bill to overturn the CFPB rule.

Scott, the most senior Republican on the Senate Banking Committee, of which Warren is also a member, won the support of 12 other Republicans in opposing the rule.

“Lawful and contractually agreed upon payment incentives promote financial discipline and responsibility, and this rule shows that the CFPB is more focused on scoring political talking points than policies that protect consumers,” said Scott.

“It will decrease the availability of credit card products and important financial services, particularly for Americans who need them most.”

Even if both Houses vote to overturn the rule, it could still fail at the last hurdle. Last year, both the  and the  voted to overturn a  requiring financial institutions to report credit application data from small businesses to the CFPB.

In December, President Joe Biden  the repeal, giving the Senate one last chance to overturn the President’s veto with a two-thirds supermajority vote.

Since the supermajority , Biden’s veto was upheld and the CFPB rule survived.