In a significant blow to the Biden administration's efforts to curb "junk" fees, a federal judge in Texas has issued an injunction to block a new government rule that aimed to slash credit card late-payment charges. The decision comes after the American Bankers Association (ABA) and the U.S. Chamber of Commerce filed a legal challenge against the regulations.

Judge Mark Pittman of the U.S. District Court for the Northern District of Texas granted the injunction on Friday, freezing the restrictions that were set to take effect on May 14. Citing a 2022 decision by the U.S. Court of Appeals for the Fifth Circuit, which ruled that funding for the Consumer Financial Protection Bureau (CFPB) is unconstitutional, Pittman highlighted concerns about the agency's authority to enforce the credit card rule.

The rule, introduced by the CFPB in March, aimed to cap late fees for credit card payments at $8, significantly lower than the current late fees that can be as high as $30 or more. While these fees generate around $9 billion per year for card issuers, they prove burdensome for consumers.

The ABA, an industry trade group, welcomed Judge Pittman's decision, stating that it spares banks from immediate compliance with a rule that they believe surpasses the CFPB's statutory authority. ABA CEO Rob Nichols expressed concerns that the rule would lead to more late payments, lower credit scores, increased debt, reduced credit access, and higher annual percentage rates (APRs) for all consumers.

On the other hand, consumer advocacy groups criticized the decision, arguing that it will negatively impact credit card users throughout the United States. Liz Zelnick of Accountable. US, a nonpartisan advocacy group, accused the U.S. Chamber of Commerce of leveraging its influence to extend price-gouging practices with exorbitant late fee charges.

According to consumer advocates aligned with the CFPB's late-fee rule, credit card issuers imposed approximately $14 billion in late-payment charges in 2019 alone, comprising a significant portion of their fee revenue. Critics of the financial industry argue that such fees disproportionately impact low- and moderate-income consumers, particularly individuals of color.

Although Judge Pittman's injunction has put the rule on hold, analysts anticipate that the legal battle over credit card late fees will persist. The case may even make its way to the Supreme Court, especially if there are future developments concerning the funding of the CFPB.

Jaret Seiberg of TD Cowen Washington Research Group believes that the CFPB could seek to lift the preliminary injunction if the Supreme Court rules in favor of Congress properly funding the agency. Consequently, this decision is not the end of the ongoing disputes surrounding the implementation of the fee reduction, and the fate of the rule remains uncertain pending further examination of the merits of the lawsuit.