During the Biden Administration, the Consumer Financial Protection Bureau (CFPB) enacted new rules designed to eliminate “bank junk fees.” While popular on the surface, the new rules did little to address the various levels of risk and the ability to provide credit.
In March of last year, the CFPB celebrated the closure of a “loophole” that lowered, on average, credit card late fees from $32 to $8. The agency claimed that it was “concerned” about banks building a business model on penalties and fees.
The law of unintended consequences thought otherwise, as concerns arose that underserved segments would no longer be able to access credit as the banks would simply walk away from this business as too risky and thus too costly. In effect, it would end up punishing those individuals who are most vulnerable.
On Tuesday, the US District Court for Northern Texas issued an order and final judgment vacating the CFPB’s rules as it was “in violation of the Credit Card Accountability and Disclosure Act.” This Act establishes that banks are allowed to charge fees that are reasonable and proportionate.
The CFPB is a new regulator and has been in the process of effectively winding down its businesses. The CFPB was established under Dodd-Frank, legislation that was signed into law following the Great Recession. Certain aspects of the law, have been deemed as overly burdensome following the crisis.