Judge’s Citi Investment Doesn’t Merit Recusal, Ethics Panel Says

A federal appellate court judge with a stake in Citigroup Inc. doesn’t need to recuse himself from the banking industry’s challenge to an $8 cap on credit card late fees, a federal judiciary oversight committee said.

An investment held by Judge Don Willett of the US Court of Appeals for the Fifth Circuit in the country’s second largest credit card issuer was too “indirect and contingent” to trigger a requirement that he recuse himself from the case, Judge Gerald A. McHugh, the acting chairman of the US Judicial Conference’s Committee on Codes of Conduct, said in a letter posted Wednesday.

The Fifth Circuit’s release of McHugh’s letter is an indication that Willett won’t step aside from the case and sets the stage for substantive rulings on the future of the credit card late fee rule, which President Joe Biden has highlighted as part of his administration’s efforts to curb so-called junk fees. A legal challenge from industry groups seeking to block the rule has been bogged down by fights over venue and Willett’s stock disclosure.

The Consumer Financial Protection Bureau, which released the credit card late fee rule March 5, has pushed for Willett to recuse himself from the case due to the Citigroup investment. Along with being a major credit card issuer, Citigroup is a member of the US Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association, three of the six trade groups suing to block the rule, the CFPB said.

But the judicial ethics committee previously determined that owning stock in a company that belongs to a trade group involved in litigation didn’t automatically require a judge’s recusal, McHugh, a judge in the US District Court for the Eastern District of Pennsylvania, said in a letter to Willett dated April 16.

The CFPB was effectively arguing for a standard that a judge should recuse any time a litigant raised concerns about impartiality, McHugh said.

“The judicial system could not function effectively under such a standard, and that is exactly why the Code imposes a standard of reasonableness,” he wrote.

Venue, Ethics Disputes

Willett in an April 9 statement said his Citigroup stake amounted to $2,000 in a Coverdell Education Savings Account for one of his children.

A few days earlier, he had authored a split opinion blocking a lower court’s move to transfer the case to the US District Court for the District of Columbia, where the CFPB, three of the industry plaintiffs, and most of the attorneys involved are based.

That transfer, ordered in March by Judge Mark Pittman of the US District Court for the Northern District of Texas, was improper because Pittman had effectively denied a request from the US Chamber and its co-plaintiffs to temporarily halt the rule, the Fifth Circuit ruled in its majority opinion.

Now Willett and his Fifth Circuit panel are considering whether to impose a preliminary injunction on the rule, which is set to take effect May 14.

The CFPB’s rule threatens to eliminate up to $11 billion of banks’ $14 billion in annual credit card late fee revenue, according to Bloomberg Intelligence.

Banks and other credit card issuers can currently charge $30 for a missed payment and $41 for each additional missed payment in the subsequent six months.

Along with an $8 cap on late fees, the CFPB’s rule eliminates an automatic inflation adjustment that allowed late fees from major card issuers to reach $32 on average in 2022, according to the agency.

Paul Hastings LLP represents the plaintiffs.

The case is US Chamber of Commerce v. CFPB, 5th Cir., No. 24-10266, Notice to Parties 4/17/24.