Consumers with Bad Credit Face High Credit Card Charges

Consumers with Bad Credit Face High Credit Card Charges

Based on a statement from Obama administration’s consumer financial supervisor, consumers in the United States with bad credit will have high initial charges on their credit cards. Earlier this week, the Consumer Financial Protection Bureau, or CFPB, said that there will be no restrictions on credit card fees, which are charged by the card issuers.

The statement was made after a court ruling barred the said restrictions. The decision overturns the government’s efforts to limit what the credit card issuers might do that can cause harm to borrowers.

Following the financial crisis, a credit card law was passed by the government that says non-penalty credit card fees should not be above 25% of the credit limit throughout the first year once the account is opened. This is applicable to annual fees and application fees.

A few credit card companies started giving out fee-harvester cards after the implementation of the law. Issuers of fee-harvester cards make consumers pay a large before they issue cards with very low credit lines.

Consequently, a provision was included to the credit card law by the Federal Reserve that put a restriction on initial credit card fees. However, there was a lawsuit filed by companies to revoke the restriction. The Fed was charged for going beyond its authority and the court granted their suit, thus, the limitation was withdrawn by CFPB.

Since CFPB backed off from the restriction on credit card fees, the cardholders with bad credit are required to pay high initial charges, which are considered debt traps by consumer groups.

The cards are supposed to help consumers with poor credit or zero credit improve their credit report. Instead, the excessive credit card fees and penalties caused more debt for cardholders.

Comments and protests can be filed until June 11 before CFPB makes a final decision on whether or not to back off from the credit card fee restrictions.

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Filed under: bad credit • Credit • credit cards • Credit Score

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