In a blow to banks and credit card issuers, a Texas judge has agreed to move a lawsuit challenging the Consumer Financial Protection Bureau's
The ruling on Thursday by Judge Mark T. Pittman is a blow to the U.S. Chamber of Commerce and five other trade groups that sued the CFPB in early March to stop the late fee rule from going into effect on May 14. Pittman sided with the CFPB, which
"Venue is not a continental breakfast; you cannot pick and choose on a Plaintiffs' whim where and how a lawsuit is filed," Pittman wrote. "Federal courts have consistently cautioned against such behavior."
The rule could potentially wipe out $10 billion a year in late fee revenue, a massive hit to the industry which currently collects $14 billion a year in late fees. The rule would cut credit card late fees to $8 from $32.
Pittman said there was "a strong interest" in having the dispute resolved in the District of Columbia and not Texas.
"A review of the record shows there are ten attorneys spanning five different firms or organizations representing the various Parties in this case. Of the ten, eight list their offices in the District of Columbia," he wrote. "This means that any proceeding this Court conducts ... will require all of Defendants' counsel and two-thirds of Plaintiffs' counsel to travel to Fort Worth—a task that will be charged to their clients or to the government. This would mean that taxpayers, including residents of Fort Worth, would foot an expensive bill for this litigation."
Earlier this week, Pittman wrote a blistering critique denying the trade groups' emergency request to stop the CFPB's rule from going into effect on May 14.
The CFPB had asked the court for a change of venue by claiming that the Fort Worth Chamber of Commerce lacked standing to file in Texas. The bureau alleged that Synchrony Bank — a $106 billion-asset bank based in Stamford, Connecticut, and chartered in Utah — had only recently become a member of the Fort Worth chamber in order to file the lawsuit in the Northern District of Texas.
"The fact that there are customers of businesses in the Northern District of Texas that will potentially feel the effects of the Rule does not create a particularized injury in the Northern District of Texas, nor does it represent a substantial part of the events giving rise to the claim,"
The trade groups filed the suit against the CFPB largely because the Fifth Circuit Court of Appeals
Analysts said the Texas lawsuit has been a surprise from the get-go.
Isaac Boltansky, managing director and director of policy research at BTIG, said he viewed the case as "an execution failure mixed with bad luck rather than a strategic failure."
"There was an undeniable logic in filing this litigation in Texas given its ideological bent," Boltansky wrote in a research note. But he added that "Judge Pittman's denial order is the cheekiest order we have ever seen from the bench and our sense is that he is primarily motivated by a frustration with what he views as court shopping by the industry."
The CFPB's late fee rule ended an automatic inflation adjustment for late fees and lowered the safe harbor amount to $8, from $32 for the first late fee and $41 for subsequent late fees. The rule only impacts the
"The credit card late fee lawsuit has been a rollercoaster, and it is not even one month old," wrote Ed Groshans, senior research and policy analyst at Compass Point Research & Trading, in a research note.
The lawsuit was filed by the U.S. Chamber of Commerce, American Bankers Association, Consumer Bankers Association and three Texas trade groups: the Fort Worth Chamber of Commerce, Longview Chamber of Commerce and Texas Association of Business.
