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CFPB lets down the little guys

By Janna Herron ·
Friday, April 13, 2012
Posted: 3 pm ET

The federal consumer watchdog wants to take a smaller bite out of credit card fees.

The Consumer Financial Protection Bureau on Thursday posted a proposal allowing credit card issuers to charge what they wish before an account is opened. It's a 180-turnaround from a Federal Reserve ruling last year that stipulated upfront fees are subject to the fee restrictions put in place by the Credit CARD Act of 2009.

The act limits credit card fees to no more than 25 percent of the card's limit in the first year. That means a consumer can't pay more than $250 in fees on a credit card with a $1,000 limit.

The CFPB's surprisingly consumer-unfriendly proposal comes after the agency, along with the Fed, was successfully sued over the ruling.

In July, First Premier Bank of South Dakota -- notorious for rolling out a credit card two years ago with a 59.9 percent APR -- filed a lawsuit saying the Fed and CFPB had overstepped their authority on the ruling. The bank, which makes much of its money issuing high-cost credit cards to people with spotty credit, also said the ruling could drive it out of business.

When the bank's CEOs spoke to me in July, he said the bank had laid off 330 people and closed one of its offices. The number of new credit card accounts it opened each month had dropped by 80 percent.

The Federal District Court of South Dakota was swayed by the bank's sob story in September and granted an injunction that blocked the ruling from taking effect last October.

First Premier now charges a $95 processing fee just to apply for its credit card. That's not all. The card comes with a $75 annual fee for the first year, while the credit limit generally isn't more than $300. That means a consumer's out-of-pocket costs to even get the card total more than half the credit limit.

(The fees don't stop there. While the annual fee drops to $45 after the first year, a monthly servicing fee of $6.25 starts at the same time. In other words, you're paying $45 more each year after the first year.)

It's worth noting that First Premier is the loudest and possibly the only (but not confirmed) bellyacher over the ruling. Most major issuers don't require you to pay a fee to submit an application, so the ruling doesn't mean much to them. Which begs the question: Why did the CFPB back off?

Keefe, Bruyette & Woods analyst Brian Gardner believes the proposal is just in response to the court ruling.

"So we do not view the proposal as a significant indicator of future softening by the CFPB towards credit card issuers," he wrote in a research note.

In the meantime, the CFPB is waiting to hear from you on its proposal. Visit to put in your two cents. The proposal's ID number is 3170-AA21.

I'd also like to hear from you. What do you think about the proposal?

Follow me on Twitter: @JannaHerron.

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