The Consumer Financial Protection Bureau (CFPB) was created to protect consumers against unfair practices, such as hidden fees and unclear policies. This bureau has been going after the financial services industry regarding student loans, checking account fees, bank credit card fees, savings, CDs and mortgages. They have also targeted consumer reporting agencies, payday lenders and collections agencies. Now that they have been put to the test, they have backed down when it came to defending an amendment to a federal law regarding credit card fees.
Prior to April 2011, the Federal law stated that credit card issuers can’t charge fees totaling more than 25 percent of the cardholder’s available credit limit for the first year the account is opened. For example, if the credit limit is $1000, the cardholder can’t be charged more than $250 in fees for the first year. The loophole in the law was that there is no limit to the fees that can be charged before the card is activated. This means that the card applicant can be charged application fees, annual fees or whatever other fees the card issuer wants to charge before the card is issued. In April 2011, the Federal Reserve Board adopted an amendment to make up-front fees subject to the same 25 percent cap as other first-year fees.
A credit card issuer, First Premier Bank, issued a card with a $300 credit limit and a $95 processing fee with a $75 annual fee. The Federal Reserve acted on the issuer. In the summer of 2011, First Premier took both the Federal Reserve and the Consumer Financial Protection Bureau to court, arguing that the government didn’t have the authority to cap the fees associated with opening an account. On April 11, 2012, a federal court in South Dakota issued an injunction preventing the amendment from taking effect, effectively freezing it. As a result the Consumer Financial Protection Agency is advocating to change the amendment based upon the ruling and has requested public comment until June 2012.
“It’s a big deal for those consumers who end up getting one of these credit cards that charge extremely high fees up front,” said Chi Wu, a staff attorney at the nonprofit National Consumer Law Center, in an interview with The Huffington Post. “Basically, it reopens a loophole that the Federal Reserve had closed.”