A lawsuit recently filed by First Premier Bank against the Federal Reserve Board and the Consumer Financial Protection Bureau challenges the Fed’s 2011 revision of Regulation Z (Truth in Lending) to include, in the limit on total fees that may be charged during the first year a credit card account is open, application and similar fees that must be paid before opening (the 2011 Revision).
Having filed its complaint on July 20, 2011, in the U.S. District Court for the District of South Dakota, First Premier filed a motion for a preliminary injunction on August 5, 2011, to stay the October 1, 2011, effective date of the 2011 Revision pending completion of judicial review. Chief Judge Karen E. Schreier entered an order scheduling a hearing on the injunction motion for September 1, 2011.
The 2011 Revision implements a provision of the Credit CARD Act of 2009 that limited the fees (other than late fees, over-the-limit fees, and returned payment fees) that can be charged to a consumer’s account “in the first year during which the account is opened” to 25 percent of the account’s initial credit limit. The Fed’s initial Reg. Z revision to implement the Credit CARD Act limitation, which became effective in February 2010, did not include fees paid before account opening in the 25 percent limit. However, in March 2011, the Fed published further revisions to Reg. Z. Those revisions included the 2011 Revision, which expanded the scope of the 25 percent limit to reach fees paid before account opening.
According to the complaint, First Premier offers cards to customers who do not qualify for traditional credit card products and charges up-front, pre-account opening processing fees ranging from $25 to $95. The complaint, which invokes the judicial review process under the Administrative Procedure Act, alleges that the 2011 Revision is invalid because it conflicts with the Credit CARD Act’s plain language.
In its memorandum in support of its preliminary injunction motion, First Premier argues that this conflict renders the 2011 Revision ineligible for Chevron deference. It also claims that, unless the 2011 Revision’s effective date is stayed, it will be forced to terminate its credit card program. The unrecoverable economic loss such a shutdown threatens to cause, First Premier argues, constitutes irreparable harm justifying a preliminary injunction.