Responding to a lawsuit filed nearly two years ago by a Sioux Falls bank, the Consumer Financial Protection Bureau has issued a final rule amending the Credit Card Accountability and Disclosure Act of 2009. The Credit Card Act was implemented by the Federal Reserve Board, but jurisdiction for the Act moved to the CFPB in July 2011. The CFPB’s March 22, 2013 final rule acknowledges a federal court ruling last year that had granted a preliminary injunction to block a part of the Federal Reserve Board’s 2011 rule from taking effect.
The Credit Card Act limits the fees a card issuer can charge during the first year the account is open to 25 percent of the card’s credit limit. For example, if the credit limit is $500, fees charged during the first year after the account is opened cannot exceed $125.
In April 2011, however, the Federal Reserve Board amended the Act to broaden its limit on first year fees. Instead of only applying to fees charged during the first year after the account is opened, the Fed changed the rule to include fees paid prior to opening the account, such as application fees.
First Premier Bank, a $1.2 billion bank based in Sioux Falls, S.D., filed suit in U.S. District Court for the District of South Dakota on July 20, 2011. The suit alleged the Federal Reserve Board exceeded its authority when it changed the Card Act to include application fees. The court agreed with the bank and on Sept. 23, 2011, it granted the motion for a preliminary injunction to prevent the amendment to the rule from being implemented.
On April 12, 2012 the CFPB issued a proposed rule to restore the Card Act to its original intent: fees during the first year after the account is opened are limited to 25 percent of the credit limit. This language leaves the issue of application fees unaddressed. The CFPB said the proposed change in the law by the Federal Reserve, the law suit and the court’s preliminary injunction caused confusion and that it made this proposal to clarify the Card Act.
More than 1,000 comments were submitted to the CFPB during the public comment period after the rule was proposed. The CFPB said many of the comments opposed the CFPB’s proposed rule arguing that it would reduce protections for vulnerable consumers. Some of the commenters suggested the CFPB pursue other means of limiting pre-account opening fees. Industry representatives who commented largely supported the proposed rule.
The CFPB said it proposed reverting to the original Card Act rules as a way to resolve the legal dispute. The CFPB said it would continue to monitor the credit card market to determine if it should take further action to protection consumers.
Click here to read the CFPB press release.