Responding to a judge’s decision, the Consumer Financial Protection Bureau has reversed its ruling concerning credit card caps as they apply to opening a new line of credit — at least for now. Some activist groups are saying that even considering backing down is an indication that the CFPB is getting soft.
The Credit CARD Act
Back in 2009, as part of the Credit Card Accountability, Responsibility and Disclosure Act, Congress ruled that credit card fees could not exceed 25 percent of the credit limit on the card in the first year. However, late last week the agency said it is considering revising that decision as it applies to fees associated with establishing the line of credit.
Fee caps challenged last year
The Federal Reserve clarified the cap rule in 2011. The Fed decided that the cap should also apply to any fees associated with opening an account, such as application or sign-up fees. Lender First Premiere Bank took exception to the clarification and took the Fed to court. A federal judge in South Dakota sided with the bank, ruling that the fee cap can’t kick in until the account is actually approved and opened.
CFPB collecting consumer comments
The CFPB, however, says it needs to hear from consumers before finalizing its rule. Also, it said the issue could cause confusion for consumers, should it go to court. It is currently collecting comments on the matter on its website, and a final decision will be made in June.
Consumer advocates speak up
The National Consumer Law Center, the National Council of La Raza and other consumer groups are saying the CFPB is essentially rolling over on the rule. They urge it to “stay strong,” rather than backing down just to avoid a conflict in court. Some critics say the decision will allow credit card issuers autonomy in charging consumers exorbitant fees to establish a line of credit.
Chi Chi Wu, an attorney for the National Consumer Law Center, said:
“Charging $170 for a credit card with available credit of $225 is exactly the sort of abuse that the fee-harvester rule should prohibit. The CFPB should not back down in protecting consumers from this sort of chicanery.”
Some say, however, that the bureau, which has been under fire from Congressional Republicans from the start, cannot afford a public confrontation in court at this time and needs to pick its battles. Consumer advocate Ed Mierzwinski said:
“[The CFPB] … is being risk-averse. As a new agency, they won’t want to lose in court.”