CFPB Finalizes Credit CARD Act Rule

Rule Issued in Response to Federal Court Ruling

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) finalized a revision to a 2011 rule that the Federal Reserve Board (Board) had issued on credit card fees. Today’s final rule is in response to a federal court ruling last year that had granted a preliminary injunction to block a part of the Board’s 2011 rule from taking effect.

At issue in the lawsuit was the total amount of fees that a credit card issuer may require a consumer to pay with respect to a credit card account prior to the opening of the account. The 2009 Credit CARD Act (CARD Act) limited certain fees charged during the first year after the 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 after the account is opened generally cannot exceed $100. In April 2011, the Federal Reserve Board amended its rules implementing the CARD Act to extend this limitation to fees that the consumer must pay prior to opening an account— like, for example, an application fee.

The Board’s amendment was challenged on July 20, 2011 in the U.S. District Court for the District of South Dakota. On September 23, 2011, the Court granted a motion for a preliminary injunction preventing the amendment from taking effect.

Although it did not promulgate the challenged rule, authority to implement the CARD Act transferred to the CFPB after the suit was filed. In order to resolve the litigation, the CFPB issued an April 2012 proposal to amend the rule to be consistent with the court ruling so that it no longer applies to fees charged prior to account opening. Today’s final rule adopts the proposal’s elimination of the cap on fees charged prior to account opening.

The final rule is available here: https://files.consumerfinance.gov/f/201303_cfpb_final-rule_regulation-z-amendment.pdf