Consumer bureau eases limits on credit card fees

In 2011, the Consumer Financial Protection Bureau (CFPB) took over certain oversight duties from the Federal Reserve, including the authority to issue Truth in Lending Act regulations.

As that transition was under way, a South Dakota-based bank, First Premier Bank, sued the Fed and claimed the regulator acted outside of legal bounds when writing rules for credit card fees.

Regulation Z in the Truth in Lending Act prohibits card issuers from charging fees that exceed 25 percent of a cardholder’s total credit limit. The Federal Reserve interpreted the congressional guidance to include fees that are charged when a card is opened, as well fees from the first year of an account.

First Premier Bank disagreed, and a federal court upheld the complaint.

On Wednesday, the CFPB wrote that the restrictions on fees would only apply to the first year of an account, but not when a new card is opened.

The credit card industry applauded the new proposal, saying it is a more accurate reading of the law.

The consumer bureau said it “takes seriously” the concerns about endangering financially vulnerable populations, but also wanted to end the legal uncertainty.

“The final rule is necessary to resolve the uncertainty created by the South Dakota litigation,” the CFPB wrote in the Federal Register. “The bureau will continue to monitor the credit card market to determine if it should take further action to protect consumers, using one or more of its powers.”

The regulation will become effective on Thursday.