The Consumer Financial Protection Bureau is proposing that a cap on credit card fees charged prior to opening an account be eliminated, following the directive given by Chief Judge Karen Schreier late last year.
Fees were capped in 2009 with the passage of the Credit Card Act. The cap for fees was set at 25 percent of an accountholder’s credit limit within the first year of opening an account. However, the law did not expressly include fees charged prior to account opening, such as an application fee, in the cap.
In 2011, the Federal Reserve Board adopted an interpretation of the Act that did include fees charged prior to account opening in the cap calculation. When application fees pushed total fees over the cap, the Board viewed this practice as “inconsistent with the intent” of the law, “insofar as it alters the statutory relationship between the costs and benefits of opening a credit card account.”
Not surprisingly, card issuers challenged this interpretation. In July, First Premier Bank filed suit in a South Dakota court, alleging that the Board’s interpretation went beyond its authority. First Premier went on to seek an injunction against the Board’s new rule, which was granted by district court in September.
And that’s where the issue stands now — the Board’s attempt to include fees charged prior to account opening in the cap calculation has been temporarily suspended. But resolving the issue is no longer the Federal Reserve’s job; instead, the CFPB has taken over.
To that end, the CFPB is now seeking public comment on a proposal to conform to the court’s ruling and abandon the Federal Reserve Board’s broader interpretation of the law. The CFPB’s proposed rule changes basically strip the relevant piece of the law — Regulation Z — of any text referring explicitly to fees charged prior to account opening.
The window to receive comment closes on June 11. The CFPB’s proposal is available online.