Brief in Support of Plaintiffs' Motion for Preliminary Injunction

INTRODUCTION

The new rulemaking promulgated by the Consumer Financial Protection Bureau(“CFPB”), which upends the way that credit card issuers have assessed late fees for over a decade,is already imposing immediate and irreparable harm on the affected credit card issuers, whoaccount for an estimated 95% of open credit card accounts in this country.Such issuers mustdispose of application, marketing, and monthly physical disclosure materials that reflect theirexisting late fees; design and print new versions; and ensure the accuracy of any periodic digitaldisclosures that they provide to the millions of customers with credit card accounts. Should suchissuers take the CFPB’s advice to mitigate the effect of the rule by changing other credit card terms,they would need to provide additional updated disclosures, with at least 45 days’ notice to theircustomers. If such issuers are unable to complete these tasks within 60 days of the rule’spublication in the Federal Register, they risk being out of compliance on the effective date,exposing themselves to civil enforcement actions. And they risk all of this for a regulation thatboth exceeds the CFPB’s statutory authority and was issued with funds acquired in violation ofour Constitution. Plaintiffs request preliminary injunctive relief to preserve the status quo whilethey litigate their claims. That status quo has served the interests of American consumers and creditcard issuers alike for over a decade.

It is a commonly accepted, commonsense feature of American law that the failure to payan obligation on time may incur consequences. In the context of credit cards, Congress expresslyrecognized that issuers may impose “penalty fee[s]” when customers violate their credit cardagreements, so long as such fees are “reasonable and proportional to the omission or violation.” 15 U.S.C. § 1665d(b). And it tasked federal agencies—first the Federal Reserve Board ofGovernors (the “Board”), and now the CFPB—with establishing standards for ensuring that such“penalty fees” are reasonable and proportional, taking into account the costs incurred by the issuerfrom such violation, the deterrence effects of a late fee, and the conduct of the cardholder. 15U.S.C. § 1665d. A decade ago, the Board promulgated, and the CFPB subsequently adopted, aregulatory framework that attempted to incorporate those three statutory criteria into its late-feesafe harbor.

Now, the CFPB has effectively jettisoned two of those criteria and issued a rule that willprevent issuers from collecting the reasonable and proportional penalty fees that the Credit CardAccountability Responsibility and Disclosure Act of 2009 (“CARD Act”) expressly authorize. Thenew rule will allow issuers to collect only a subset of the costs incurred as a result of late payments.This rule not only exceeds the CFPB’s authority, it will also ultimately harm consumers. Issuerswill be forced to try to recoup their unrecovered costs either by charging higher interest rates orannual fees to customers who do pay on time, or by restricting credit for customers who are morelikely to pay late.

The CFPB (in another violation of federal law) has set the effective date of its regulationat 60 days from the date the rule is published in the Federal Register. That amount of time isinadequate, and it is imposing immediate and irreparable harm on issuers. Issuers respectfullyrequest preliminary injunctive relief within 10 days, or as soon as possible thereafter, to preventmore irrecoverable harm.

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