A federal district court in First Premier Bank v. U.S. Consumer Financial Protection Bureau (D.S.D.) granted a preliminary injunction to First Premier Bank (“Premier”) to block the CFPB’s enforcement of an amendment to Regulation Z, which would narrow the scope of fees credit card companies can impose on the type of cards typically offered to subprime borrowers. The injunction, based in part on the finding that the Federal Reserve Board (“FRB”) had exceeded its authority, prevents the CFPB from enforcing the amendment until a final decision is made in the case.
The Credit Card Act of 2009 limits fees that can be charged to consumers when they open up a credit card account and specifically prohibits credit card operators from imposing fees that exceed more than 25% of the card’s total available credit in the first year. The Regulation Z provision that implements this change applied to fees charged during the first year after the account was opened; however, the amended rule expanded the definition of up-front fees to include fees charged prior to the opening of the account OR during the first year. The amendment was scheduled to take effect October 1.
According to Premier, the amended rule would significantly impact its profit earnings and workforce, so the credit card lender sued the CFPB, which now has the authority under the Dodd-Frank Act to enforce the Truth in Lending Act, to block the amendment. Premier claims the extension of the rule to fees charged prior to the account opening is beyond the reach of the Credit Card Act and the FRB’s authority. In granting the preliminary injunction, the Court agreed, finding that the language of the Act clearly and unambiguously applies only to fees that were charged after the account was opened. Further, the Court stated the purpose of the law is clear— to keep consumers from paying up-front fees that greatly reduce their effective account credit limit. The FRB’s own rulemaking proposal noted this, the Court said, when the FRB observed that the Act was intended to protect consumers from cards that were represented as having a specified credit limit but actually had a much lower effective limit due to imposed fees. The Act did not prevent charging up-front fees as long as the fees were not financed under the account.
The CFPB asserted that the FRB acted properly to fill a gap or statutory silence, but the Court rejected this argument by saying the rule amendment was an attempt to address conduct that was outside the scope of the Credit Card Act. In the Court’s opinion, it noted the proposed amendment would change the purpose of the statute from preventing fees that reduce the available credit under the account to reaching any fee the FRB does not like. The Court maintained that this was “arbitrary, capricious and contrary to the Board’s statutory authority.”