Credit Cards Blog

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The law known as the Credit CARD Act implemented a number of restrictions on credit card fees. This week a federal judge stepped in to stall the effective date of one of those fee limits.

A quick recap of events:

One of the provisions in the Credit Card Accountability, Responsibility and Disclosure Act of 2009 limited nonpenalty fees that an issuer could charge during the first year to 25 percent of the initial credit limit. So, if your limit was $1,000, nonpenalty fees couldn't top $250 for the first year. This restriction protected consumers from cards that applied such high fees after an account opening that very little available credit remained. It took effect Feb. 22, 2010, as did many of the reforms.

Fast forward to 2011. In March, the Federal Reserve Board clarified that the rule also applied to any application or similar fees assessed before an account was opened. The new regulation was set to take effect Oct. 1.

That extension prompted a lawsuit from South Dakota-based First Premier Bank and Premier Bankcard, which offered such high-fee cards to subprime borrowers, against the Federal Reserve Board and the new Consumer Financial Protection Bureau.

In the company blog, Premier Bankcard president and CEO Miles Beacom argued that the Federal Reserve Board overstepped its authority "by establishing strict price controls for credit cards issued to underserved consumers with damaged credit."

He also cited significant layoffs at his company as a result of the regulation and warned of the impact on access to credit:

"If the regulation is not overturned, the more than 70 million Americans who find themselves with damaged credit will be severely restricted in their ability to establish or restore their credit scores through the use of credit cards. The regulation prevents us from being able to price for risk, and Congress did not intend that result."

This week Sioux Falls, S.D.-based Argus Leader reported that a federal judge in South Dakota granted a preliminary injunction against enforcement of the Oct. 1 rule until it makes a final decision.

Weigh in: Should the fee restriction extend to fees charged before account opening?

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