Friday’s preliminary injunction positive for card industry, says TD Cowen

TD Cowen analyst Moshe Orenbuch says Friday’s preliminary injunction by a Texas district court on the Consumer Financial Protection Bureau’s late fee rule, on grounds of the un-constitutionality of the funding mechanism, is a positive for the credit card industry. While this is expected given the 5th Circuit’s prior ruling on the funding issue, the district judge remarked that the industry makes “compelling arguments under the CARD Act, TILA, and APA” against the merits of the rule, though he did not address them, the analyst tells investors in a research note. TD believes the Supreme Court could soon rule on the CFPB’s funding mechanism, and will likely rule in favor of the CFPB, thus overturn the 5th Circuit ruling, which was the basis for this preliminary injunction. With this, for now, the May 14 effective date is no longer a significant date, contends the firm. If there is no late fee rule this year, Synchrony (SYF) and to some extent Bread Financial (BFH) will likely over-earn, given the companies have started rolling out mitigants to the rule.