The court fight continues, but Capital One complies (for now).
May 8, 2024 – Capital One has lowered late fees on its consumer credit cards to a maximum of $8, in line with a new regulation from the Consumer Financial Protection Bureau (CFPB). Capital One is the first major credit card issuer to do so, and their decision feels surprising, as an ongoing court battle may halt the regulation before it can take effect.
As of today, the new regulation capping late fees at $8 for the largest card issuers is set to take effect on May 14. However, the CFPB is being sued in an attempt to stop the law, with the American Bankers Association and the U.S. Chamber of Commerce being two of the organizations acting as plaintiffs in the lawsuit.
A ruling on a potential halt is due by Friday, after a variety of legal wrangling led to the 5th U.S. Circuit Court of Appeals directing U.S. District Judge Mark Pittman to decide whether a preliminary injunction should be granted.
(A preliminary injunction would halt the regulation from going into effect on May 14, but would likely not be the end of the legal battle.)
While the CFPB says excessive credit card late fees hurt consumers, opponents of the new regulation say that forcing a cap on late fees will lead to unintended consequences, such as higher credit card interest rates and less access to credit for those with lower credit scores.
Credit card issuers maintain that higher late fees dissuade cardholders from paying late, and that an $8 fee is low enough that some cardholders may simply choose to pay late once the fee is less painful. Further, they say making the choice to pay late may cause credit scores to drop if cardholders’ failure to pay gets reported to credit bureaus.
While Capital One’s decision to preemptively lower late fees seems curious, it’s possible that the company has a larger strategy in mind: play nice today in order to be seen in a more favorable light when U.S. regulators decide on approval of Capital One’s proposed acquisition of Discover Financial.
Author: Adam Jusko