The Consumer Financial Protection Bureau on Thursday proposed reversing a ban on exorbitant credit card sign-up fees, frustrating consumer groups and raising questions about the scope of the agency’s authority.
At issue are “fee-harvester cards” that are targeted at consumers with poor credit histories. The cards typically come with low limits, high fees and interest rates of up to 36 percent.
Congress tried to rein in those costs three years ago as part of its sweeping retooling of the credit card industry by capping the fees an issuer can charge at 25 percent of the card’s limit during its first year of use. For example, a card offered by First Premier bank with a $300 credit limit comes with a $75 annual fee — within the boundary set by Congress.
But the card also comes with a $95 processing fee that avoids the law by requiring consumers to pay it up front, before opening the account. In 2010, the Federal Reserve tried to extend the cap to include those charges. First Premier sued, saying the Fed overstepped its authority. In September, the U.S. District Court in South Dakota granted First Premier a preliminary injunction that prevented the rule from taking effect while the legal challenge continued.