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CUNA: CFPB Lacks Authority to Regulate Credit Card Application Fees

On June 11, Credit Union National Association (CUNA) Deputy General Counsel Mary Dunn filed another comment letter with the Consumer Financial Protection Bureau (CFPB), this one on whether the CFPB has authority under the Truth-in Lending Act (TILA) to apply the 25 percent limitation to fees assessed by lenders prior to the opening of a credit card account.

According to CUNA, the CFPB does not have authority under TILA to impose limits on fees prior to account opening. “Nonetheless, CUNA is concerned that the proposal would open the door to additional fees for consumers from unscrupulous credit card issuers seeking to maximize profits,” the letter states.

Congress amended the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act, which is part of TILA) to, among other things, prohibit lenders from charging fees on a credit card account in the first year that exceed in the aggregate 25 percent of the account’s initial credit line. In January 2010, the Federal Reserve Board (Board) implemented this provision. It limited the total amount of fees that a credit card issuer may charge to 25 percent of the credit limit in effect when the credit card account is opened. This limitation applies only during the first year after account opening. However, in April 2011, the Board expanded the 25 percent limitation to include fees a consumer may be charged “prior to account opening.”

Before the expanded limitation became effective, a bank brought suit against the Board claiming the agency lacked the authority to amend Regulation Z to apply the 25 percent limit to be paid before the account is opened.
The CFPB, which is now charged with implementing TILA, proposed to amend Regulation Z to provide that the 25 percent limitation on credit card fees again applies only after a credit card account has been opened, for the first year of the account. “This action, we believe, is consistent with TILA,” Dunn said.

CUNA’s letter also stated that the unfortunate result of the CFPB’s proposal, if adopted, would be to subject consumers to potentially abusive fees from non-credit union lenders. “If the CFPB has sufficient, well-defined authority under another statutory provision to avoid such a result, a separate proposal addressing reasonable fees that could be applied prior to account opening under that authority should be issued and public comments solicited on it,” CUNA stated.