Credit card watchdog dozes through daylight robbery
Suppose, the day before your loved ones have you committed to the sort of institution that employs very large "caretakers" and dresses them in white uniforms, you decide to apply for a First Premier Bank credit card. What sort of deal would you find on the bank's website? Here (at least at the time of writing) is what's on offer:
- A credit limit of, perhaps, $300. That's the sum used by the site for its example scenarios.
- An APR of 36.0 percent.
- A first year's annual fee of $75 with no monthly fees.
- In the second and subsequent years, an annual fee of $45, plus monthly fees totaling $75 per year
- A fee for subsequently increasing your credit limit of 25 percent of that increase.
- A cash advance cap of 10 percent of your credit limit for the first 3 months, which may then rise to as much as 50 percent -- if you're a good girl or boy.
- A one-time processing fee of $95 for setting up the account.
Credit card regulation fails
Hang on. What was that last one? A one-time processing fee of $95 for setting up the account? How does that work? Surely the Federal Reserve, implementing the Credit CARD Act of 2009, capped the amount of fees that could be charged during the first year a card account is opened at 25 percent of the credit limit. A $75 annual fee plus a $95 processing fee comes to $170. That's over 56 percent of $300, more than twice the cap.
Regular readers may remember when IndexCreditCards.com first covered this story last October under the headline "Secured credit cards and the Rottweiler tendency." That report contained a quote from Miles Beacom, president and CEO of Premier Bankcard, who, in a press release, explained in his own words what his argument was:
"When the CARD Act was adopted, everyone understood that Congress was concerned about the amount of fees charged against the credit limit at account opening, but Congress did not limit the fees banks could charge prior to opening an account; the new regulation goes beyond what Congress intended."
Judgment in question
In other words, Congress was concerned about how much credit card companies charged in fees at the moment an account was opened, but couldn't have given a hoot about how much was charged in the seconds leading up to the opening of that same account. Yeah, right. That must have been Congress's intention.
IndexCreditCard.com's report went on to marvel at the fact that Beacom had managed to find in "the U.S. District Court for the District of South Dakota…one judge who has the near-unique intellectual capacity to grasp what he's going on about without ROFLing." It continued: "Yep. On Sep. 23, the Honorable Judge Karen Schreier issued a preliminary injunction that prevented the Fed's new rule coming into force on Oct. 1."
Credit card watchdog hits the snooze button
None of this needed to have been all that worrying. That sleek new watchdog with the sharp white teeth, the Consumer Financial Protection Bureau (CFPB), had by then taken over from the sclerotic Fed, which had never knowingly sided with a consumer against a bank. The bureau seemed bound to appeal Judge Schreier's decision.
But no. On April 14, the Christian Science Monitor reported: "The's consumer financial watchdog agency is backing off a plan to limit big upfront fees on credit cards, a move that could hit borrowers with poor credit histories especially hard." The CFPB had caved, and First Premier remains able to relieve desperate, vulnerable consumers (the only ones likely to want one of its cards) of obscene sums.
If you do ever apply for a First Premier card, be grateful to your relatives for committing you soon after to that institution with men in white coats. You'll have needed the rest. Just one more thing: While you're there, please do pass on this blogger's best wishes for a speedy recovery to those of your fellow patients who may be former federal judges, CEOs of credit card companies, and federal regulators. But don't worry if you don't have time to reach out to them all.
Published 04/20/12 (Modified 05/01/12)