Home > Credit Cards > In First Showdown, Credit Card Fee Limits Lose

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One of the first lawsuits filed against the government’s new consumer protection agency can move forward, a federal judge has ruled, signaling that new rules limiting upfront credit card fees may be struck down.

The lawsuit pits two natural enemies against each other. It was filed by First Premier, which issues credit cards mostly to consumers with bad or little credit history. Because such consumers generally pose a higher risk of default, First Premier charges relatively high upfront fees and interest rates on many of its cards.

[Related Article: The Credit CARD Act: Fee Restrictions]

On the other side sits the Consumer Financial Protection Bureau. In April the newly-created agency, together with the Federal Reserve, issued new rules cracking down on upfront card fees. The Credit CARD Act of 2009, which limits upfront fees from totaling over 25 percent of the available credit in the card’s first year.

Some companies were getting around the restriction by charging fees higher than 25 percent before the account was officially open, often as an application fee. First Premier sued in July, saying the agencies were overstepping their authority and going beyond the intent of Congress.

The “Federal Reserve Board overstepped its authority by establishing strict price controls for credit cards issued to underserved consumers with damaged credit,” Miles Beacom, First Premier’s CEO, wrote in a blog post on the company’s website when the lawsuit was filed.

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So far, Judge Karen E. Schreier of the U.S. District Court of South Dakota has agreed with First Premier. Schreier granted the card issuer a preliminary injunction to stop the rules from taking effect until after the lawsuit is decided.

And, Schreier wrote, “First Premier has sufficiently demonstrated that it is ‘likely’ to succeed on the merits of its claim because the Board acted in excess of its statutory authority.”

First Premier says the new rules would cost it $1.2 million a month in lost revenue. The company, based in Sioux Falls, SD, already has laid off 300 of its 1,800 employees because of Credit CARD Act, and will have to lay off more if the new rules take effect, the company said in legal filings.

[Resource: Get your free Credit Report Card]

Image: REL Waldman, via Flickr.com

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  • Frank

    BofA calls regulation and consumer-friendly oversight “price controls” — another rich accusation meant to mean “class warfare.” Oh oh oh poor me I’m a bank I’m being price controlled. Save me!

  • Frank

    edit correction: First Premier, (not BofA)

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