Consumer Financial Protection Bureau Retreats from Cards with High Fees

The consumer financial supervisor of the Obama administration would like to cancel a restriction on initial fees on credit cards, which brought about disapproval that it could be difficult for borrowers with bad credit.

The Consumer Financial Protection Bureau is retreating from limits on fee-harvester cards. The issuing bank of these cards charge borrowers a very high fee prior to receiving the cards with low credit lines.

The bureau said that its decision was a result of a court ruling. It said that the fee limit seems to be excluded by plain and ambiguous words in the related law. Prior to making the last decision, protests and criticisms can be filed until June 11.

Congress passed a credit card law which consists of a condition saying non-penalty fees should not be greater than 25 percent of the credit limit throughout the first year once the account is opened. This is applicable to fees every year and fees during application.

High fees were charged by First Premier Bank and Premier Bankcard as a provision of getting the cards.

Issuing banks offer fee-harvester cards so that borrowers with poor credit can make the credit scores higher. However, consumer groups believe that the cards are made to get overdraft and huge charges.

The two banks sued the Federal Reserve because of its ruling that the initial fees be taken in the fee cap during the first year. They allege that the Fed went beyond its power, which might damage to the banks.

The Consumer Financial Protection Bureau said that the policy change would bring about higher cost for cardholders and more profits for card issuers.

A staff attorney from Consumer Union, Lauren Bowne, said that the cards are supposed to help borrowers with poor credit or zero credit improve their credit scores. However, it has caused higher fees and penalties for the cardholders.

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