The CARD Act, passed in 2009, was put into place to help protect consumers from excessive fees and exorbitant rate increases levied on them by credit card companies.
Intended to “… establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes,” the CARD Act, in addition to other provisions, capped total first year fees for new cardholders at 25% of the credit line.
First Premier Bank, a South Dakota Bank that issues the Premier Bankcard, filed a lawsuit against theBoard of Governors of the Federal Reserve System and the newly-opened Consumer Financial Protection Bureau over an addendum to a 25% cap on first-year fees rule that is scheduled to take effect in October of this year. The bank is objecting to the Fed’s decision that any application fees associated with obtaining a new credit card, or other charges a consumer is made to pay prior to an account being opened, are to be calculated as part of the 25% first-year fee limit.
In the lawsuit, the bank is claiming that the Federal Reserve has overstepped their authority by issuing these price controls. First Premier specializes in issuing cards to consumers with bad or no credit and says that, if the addendum does go into effect in October, they will no longer be able to take on the risk of consumers with poor credit.
According to the bank’s complaint,“Congress’s primary concern was protecting consumers from unwittingly agreeing to fees that would be charged to the credit account at the time of account opening, thereby reducing the amount of available credit consumers thought they were obtaining. Congress was not concerned with fees knowingly paid for the credit prior to account opening, which do not reduce the amount of credit available to the consumer.”
First Premier says that their company provides the only opportunity to get a credit card that is available to many bad or no credit consumers. Their up front application fees vary, ranging from $25 to $95. The bank also blames the new regulation for closing one of their facilities and the dramatic scaling back of employees statewide.
The amendments to the CARD Act were given the thumbs up by the Federal Reserve in March in an effort to close up any remaining loopholes that were vulnerable to exploitation by credit card companies.