“Fee-harvester cards” are credit cards designed to reign in consumers with poor credit. These cards usually come with accompanying interest rates of up to 36 percent, as well as low credit limits and high fees, according to The Washington Post.
Three years ago, Congress passed a ban that would effectively cap the fees that an issuer could charge at about 25 percent of the credit limit during the first year. A First Premier Bank credit card with a $300 credit limit could, under congressional mandate, come with a $75 annual fee.
The card also comes with a $95 processing fee that First Premier requires up-front before the card is issued. In 2010, the Federal Reserve attempted to extend the ban to include the processing fee, but First Premier filed suit, charging that the central bank was operating outside its authoritative limits.
In September, a South Dakota District Court granted First Premier an injunction that would keep the rule from becoming effective for the length of the legal battle.
“This fundamental shift in statutory policy goes against a clear mandate by Congress and is arbitrary, capricious and contrary to the Board’s statutory authority,” U.S. District Judge Karen Schreier said, according to The Washington Post“>The Washington Post.
Following the creation of the CFPB last summer, the agency assumed all consumer regulatory responsibility from other federal agencies. CEO Miles Beacom of First Premier said that the bank’s attorneys are currently reviewing the agency’s proposal.
“We’re hopeful that it is written so that we’ll be able to continue to market and price the product for the risk and that the customers make a decision whether they want the product or not,” Beacom said, The Washington Post“>The Washington Post reports.
Consumer groups, on the other hand, expressed disappointment that the CFPB would avoid a legal battle, adding that the agency should defend its right to write and enforce strict regulations.
“I was a little bit disappointed in it, and that’s why we’re pushing back,” Ed Mierzwinski, the consumer program director at U.S. PIRG, said, according to The Washington Post“>The Washington Post. “The way to protect consumers is to push back when courts make mistakes.”