Consumers might have heard a little bit about one particular rule that made it more difficult for consumers to be charged fees simply for signing up for new credit cards, but the restrictions on those sign-up costs were recently relaxed thanks to a bit of legal pressure.
The federal Consumer Financial Protection Bureau, which is tasked with helping to protect the the fiscal concerns of consumers nationwide, recently said that it would allow for a little more wiggle room for lenders under the controversial Regulation Z, following a lawsuit filed by banks in South Dakota last year, according to a report from the agency. The rule originally stated that fees related to the opening of a new card could not exceed 25 percent of an account’s total credit limit for the first year, including sign-up costs.
“Regulation Z generally limits the total amount of fees that a credit card issuer may require a consumer to pay with respect to an account to 25 percent of the credit limit in effect when the account is opened,” the rule said. “Regulation Z previously stated that this limitation applies prior to account opening and during the first year after account opening. This final rule amends Regulation Z to apply the limitation only during the first year after account opening.”
Consequently, annual fees on a credit card, which can total $100 or sometimes more, will still operate under the rule, while fees for opening an account will not, and that could add significant costs to consumers who have lower credit scores than normal, the report said. Many subprime credit card lenders charge these fees when granting borrowers with bad credit unsecured accounts, as a means of insulating themselves from losses related to delinquency and default. However, consumer advocates have long noted that these fees are often so large as to be prohibitive against borrowers with bad credit being able to open them at all, and those who are successful in doing so typically face exorbitant fees.
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Credit card fees can be avoided, for the most part, by consumers taking the time to increase their credit standing before signing up, and this can be done by getting debt under control and making efforts to rein in late payments and other problematic borrowing behaviors.