(Reuters) - The U.S. Consumer Financial Protection Bureau on Tuesday suffered a jurisdictional setback in a lawsuit challenging its new rule capping credit card late fees at $8 when a federal appeals court held the case should stay in Texas and not be sent to a judge in Washington, D.C.

The ruling by a three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals was a victory for business and banking groups challenging a key part of the crackdown by President Joe Biden's administration on "junk fees."

At issue is a rule that would block card issuers with more than one million open accounts from charging more than $8 for late fees, unless they could prove higher fees are necessary to cover their costs.

The CFPB had fought for months to move the case out of the federal court in Fort Worth, a venue that has become a favorite of litigants challenging the Democrat's agenda and whose two active judges are Republican appointees.

One of those judges, U.S. District Judge Mark Pittman, an appointee of former President Donald Trump, in May halted implementing the rule at the request of groups including the U.S. Chamber of Commerce and American Bankers Association.

But he did so only after the 5th Circuit stymied his earlier attempt to transfer the case to a judge in Washington, where those two trade associations and the agency are based. Critics have accused the groups of "judge shopping."

Pittman ordered the case transferred for a second time on May 28, saying it chiefly involves out-of-state plaintiffs challenging actions of government officials in Washington. The only connection to Fort Worth was a local plaintiff, the Fort Worth Chamber of Commerce.

But the appeals court on Tuesday ordered Pittman to vacate that decision, saying Pittman misapplied the legal standard for transferring cases and that his decision to send the case to Washington was "a clear abuse of discretion."

The CFPB and Chamber of Commerce did not respond to requests for comment.

In Tuesday's ruling, U.S. Circuit Judge Don Willett, a Trump appointee, wrote that a challenge to an agency's rule that is set to affect credit card issuers and customers nationwide is not the type of case that only Washington residents had an interest in.

"Therefore, this case is not one where Fort Worth citizens have a lesser stake in the litigation than D.C. citizens," he wrote.

The other members of the panel, U.S. Circuit Judges Kyle Duncan and Catharina Haynes, were both like Willett appointed by Republican presidents.

According to the CFPB, issuers collected more than $14 billion worth of credit card late fees in 2022, with an average fee of $32.