First Premier Case: U.S. Agency Urged to Fight ‘Fee Harvester’ Cards

Consumer advocates from several national groups are urging the Consumer Financial Protection Bureau to legally fight the high sign-up costs of subprime, so-called “fee-harvester” credit cards.
The response from the consumer groups comes after the CFPB proposed a reversal of a Federal Reserve rule restricting credit card sign-up fees – effectively siding with First Premier bank, a card issuer that targets those with poor credit histories.
First Premier Bank’s Gold Card, a credit card promoted to consumers with “less than perfect credit,” charges a $95 processing fee, a 36 percent APR for purchases and cash advances, and a $75 annual fee for the first year.
The card’s promoted credit limit is $300, but drops to $225 after the annual fee is subtracted.
“Charging $170 for a credit card with available credit of $225 is exactly the sort of abuse that the fee-harvester rule should prohibit,” said Chi Chi Wu, National Consumer Law Center staff attorney. “The CFPB should not back down in protecting consumers from this sort of chicanery.”
First Premier has, thus far, succeeded in challenging the 2009 Credit CARD Act that limits certain fees charged during the first year a card account is opened to 25 percent of the account’s initial credit limit. For example, if the credit limit is $400, fees charged during the first year generally cannot exceed $100.
In September, the U.S. District Court in South Dakota granted First Premier a preliminary injunction that prevented the rule from taking effect as the card issuer continues its legal challenge.
The federal judge agreed with First Premier’s argument that the Federal Reserve wrongly interpreted and expanded the reform’s first-year limit to include sign-up fees paid before an account is opened.
But the National Consumer Law Center and other legal experts say that the Fed was within its right in applying the 25 percent limit to fees charged before the account is open.
The Fed has the authority to issue rules to prevent circumvention or evasion under the Truth in Lending Act, of which the Credit CARD Act is a component, the advocacy group said. This authority has been transferred to the CFPB under the Dodd-Frank Wall Street reform law of 2010.
Supreme Court decisions since 1973 have affirmed that Federal Reserve regulations under the Truth in Lending Act are entitled to substantial deference and should not be struck down unless “demonstrably irrational,” advocates said.
“The Supreme Court has said repeatedly as recently as 2009 that the Federal Reserve was entitled to expansive authority in issuing Truth in Lending regulations,” said Lauren Saunders, National Consumer Law Center managing attorney. “Now the CFPB stands in the shoes of the Fed. We urge the CFPB to protect this authority, keep the original rule, and take this case to the Court of Appeals.”
Consumers can submit a comment to the CFPB on its proposal in the First Premier case at

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