Yesterday, the Consumer Financial Protection Bureau (CFPB or Bureau) issued an “interpretive rule,” subjecting “Buy Now, Pay Later” (BNPL) transactions to provisions of Regulation Z applicable to “credit cards.” Among other things, this classification would require BNPL and other lenders to extend many of the same legal protections and rights to consumers that apply to traditional credit cards, including the rights to dispute charges and demand refunds for returned products, and, potentially, receive periodic statements. The Bureau claims its authority to issue this interpretive rule — in lieu of a formal rulemaking — stems from the Truth in Lending Act (TILA) and Regulation Z, and its general authority to issue guidance as set forth in § 1022(b)(1) of the Consumer Financial Protection Act of 2010.
Glen Trudel
A former bank in-house counsel, Glen brings real-world experience to financial institutions, marketplace lenders, fintechs, and other companies grappling with both regulatory and transactional issues.
Trade Groups Score Big Win: Texas Federal Court Grants Preliminary Injunction in Credit Card Late Fee Rule Lawsuit
On May 10, a Texas federal court granted a preliminary injunction enjoining the Consumer Financial Protection Bureau (CFPB or Bureau) from implementing the credit card late fee rule, most recently discussed here. The court found the plaintiffs demonstrated a likelihood of success based on their reliance on the Fifth Circuit’s decision in CFPB v. Community Financial Services Association of America, Ltd. finding that the CFPB’s “double-insulated funding scheme is unconstitutional.” The court further found that the balance of interest test weighed in the plaintiffs’ favor because if the court denied the injunction, “[p]laintiffs face an enormous undertaking based upon a potentially unconstitutional rule,” whereas if the court granted the injunction “the CFPB is relatively unaffected because the Final Rule has not yet gone into effect.”
CFPB Fixes Spotlight on Credit Card Rewards Programs
Today, the Consumer Financial Protection Bureau (CFPB or Bureau) published an Issue Spotlight focusing on consumer complaints relating to credit card rewards programs. The report notes that credit card companies often focus marketing efforts on rewards, like cash back and travel, instead of on interest rates and fees. However, the CFPB has previously reported that consumers who carry debt from month to month earn just 27% of rewards at major credit card companies, while paying 94% of the interest and fees that those companies charged. In its analysis of several hundred complaints relating to these rewards programs, the Bureau identified four recurring themes: 1) vague or hidden promotional conditions; 2) devalued rewards; 3) customer service issues that delay or block reward redemption; and 4) issuers unilaterally revoking reward balances.
Fifth Circuit Denies CFPB’s Petition for Panel Rehearing in Credit Card Late Fee Rule Lawsuit
On May 3, the U.S. Court of Appeals for the Fifth Circuit entered an order denying the CFPB’s (CFPB) petition for a panel rehearing and effectively setting the stage for a long-awaited ruling on a preliminary injunction in the ongoing lawsuit challenging the CFPB credit card late fee rule. The petition was filed by the CFPB to reconsider the panel’s order vacating the district court’s order that transferred the case to the U.S. District Court for the District of Columbia and issuing a writ of mandamus directing the district court to reopen the case.
Fifth Circuit Vacates District Court’s Denial of Preliminary Injunction in Credit Card Late Fee Rule Lawsuit, Remands for Further Review
On April 30, the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the district court’s effective denial of the motion for a preliminary injunction filed by several trade groups, including the U.S. Chamber of Commerce, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association, and Texas Association of Business (collectively, the trade groups). The trade groups are challenging the credit card late fee rule issued by the Consumer Financial Protection Bureau (CFPB) as unconstitutional and violative of the Administrative Procedures Act and seek a preliminary injunction while the case is pending.
Fifth Circuit Reverses Transfer of Credit Card Late Fee Rule Lawsuit to D.C.
On April 5, the U.S. Court of Appeals for the Fifth Circuit issued an order effectively reversing the district court’s decision to transfer the lawsuit challenging the Consumer Financial Protection Bureau’s (CFPB or Bureau) credit card late fee rule from the Northern District of Texas to the District Court for the District of Columbia (D.D.C), finding that the Texas district court lacked jurisdiction to issue its order because the plaintiffs’ appeal of the effective denial of their motion for preliminary injunction was already pending before the appellate court.
Fifth Circuit Temporarily Halts Transfer of Credit Card Late Fee Rule Lawsuit
On April 2, the U.S. Court of Appeals for the Fifth Circuit issued an order staying the district court’s decision to transfer the lawsuit challenging the Consumer Financial Protection Bureau’s (CFPB) credit card late fee rule from the Northern District of Texas to the District Court for the District of Columbia (D.D.C). As discussed here, on March 28, 2024, the district court had transferred the case to D.D.C. finding an “attenuated nexus” to the Fort Worth Division since, according to the district court, only one of the six plaintiffs had even a remote tie to the division. The Fifth Circuit’s stay is in effect until 5:00 pm on Friday, April 5, 2024.
CFPB Warns Remittance Transfer Providers That Marketing About Speed and Cost Could Violate the CFPA
Can remittance transfer providers be held liable under the Consumer Financial Protection Act (CFPA) when marketing about the speed and cost of their services? According to a March 27 Circular issued by the Consumer Financial Protection Bureau (CFPB or Bureau), the answer to that question is yes, if the marketing is deceptive. Specifically, according to the CFPB, providers may be liable under the CFPA for deceptive marketing practices if they market: remittance transfers as being delivered within a certain time frame when transfers actually take longer; remittance transfers as “no fee” when in fact the provider charges fees; promotional fees or promotional exchange rates for remittance transfers without sufficiently clarifying when an offer is temporary; and remittance transfers as “free” if they are not in fact free.
Texas District Court Transfers Credit Card Late Fee Rule Lawsuit to D.C.
Yesterday, the lawsuit challenging the Consumer Financial Protection Bureau’s (CFPB or Bureau) credit card late fee rule (Final Rule) was transferred from the U.S. District Court for the Northern District of Texas to the District Court for the District of Columbia (D.D.C.).
The CFPB’s Final Credit Card Late Fee Rule: Implications and Industry Response
In this special crossover edition of The Consumer Finance Podcast and the Payments Pros podcast, Chris Willis is joined by Josh McBeain and Glen Trudel. They discuss the recent final credit card late fee rule issued by the Consumer Financial Protection Bureau (CFPB) and the industry’s reaction to it. The rule lowers the safe harbor provision dollar amount for late fees to $8 for large credit card issuers and increases it for small issuers. The team also discusses the legal challenge filed against the rule by a collective of trade groups. They speculate on potential industry responses if the rule survives legal challenges, such as increasing APRs, creating new fees, raising minimum payments, and tightening credit.