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Consumer advocates turn on CFPB over credit card rules

The Consumer Financial Protection Bureau is taking criticism from consumer advocates after announcing on Thursday that it is considering repealing a ban on fees that card issuers can charge consumers to open an account.

Following the passage of the 2009 Credit Card Accountability, Responsibility and Disclosure Act, annual fees charged during the first year after opening an account were capped at 25 percent of the credit card’s limit. The Federal Reserve extended the cap in April 2011 to include initial fees for opening the account, including application fees, according to Government Executive.

In 2011 a South Dakota district court attempted to block the extended rule, arguing that the 2009 Credit CARD Act was not meant to cap initial fees. The CFPB has requested public comment on whether the agency should seek to support the injunction.

Several consumer advocacy groups issued statements to the agency, encouraging the CFPB to “stay strong” against moves by “predatory lenders” to cut back rules designed to protect the American consumer. These groups have also requested that the agency appeal the injunction, Government Executive reports.

Many have also speculated that the CFPB does not want to alienate the financial industry by supporting the ban on initial fees.

“The CFPB was in a difficult place in light of the district court’s ruling,” Lauren K. Saunders, a managing attorney at the National Consumer Law Center, said, according to Government Executive. “We hope that after the comment period is over, they will decide to retain the rule, and we do not question the bureau’s commitment to protecting consumers.”

Some also cited the agency’s recent operational beginning as a reason for dodging confrontation with the courts. Ed Mierzwinski, a consumer program director at PIRG, said that the agency “either made a mistake in reading the case, or is being risk-averse. As a new agency, they won’t want to lose in court,” Government Executive reports.

Chi Chi Wu, an attorney for the National Consumer Law Center, said that the ban is designed to prevent credit card issuers from charging exorbitant fees on a low-limit credit card.

“Charging $170 for a credit card with available credit of $225 is exactly the sort of abuse that the fee-harvester rule should prohibit,” Wu said, according to Government Executive. “The CFPB should not back down in protecting consumers from this sort of chicanery.”

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