The Consumer Financial Protection Bureau has proposed an amendment to Regulation Z (Truth in Lending) that would remove fees paid before a credit card account is open from the scope of the 25 percent limit on total fees that may be charged during the first year after account opening.

The existing provision reflects a 2011 revision to Regulation Z made by the Federal Reserve Board which included, in the total fees that may be charged during the first year an account is open, application and similar fees that must be paid before account opening (the 2011 Revision).

The 2011 Revision purported to implement 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 may be charged to a consumer’s account “in the first year after the account is opened” to 25 percent of the account’s initial credit limit. The Fed’s initial Regulation Z revision to implement the CARD Act limitation, which took effect in February 2010, did not include fees paid before account opening in the 25 percent limit. However, in March 2011, the Fed adopted the 2011 Revision that expanded the scope of the 25 percent limit to reach fees paid before account opening.

The 2011 Revision was scheduled to take effect on October 1, 2011, but was postponed when a federal district court judge in South Dakota issued a preliminary injunction at the request of First Premier Bank. The court found the 2011 Revision to be “arbitrary, capricious, and contrary to the Board’s statutory authority.” (For more on the injunction, see our September 28, 2011 legal alert.) On February 3, 2012, the parties filed a Joint Status Report informing the district court that the CFPB planned to issue the current proposal and, if adopted, the CFPB expected the case to become moot.

Published in the Federal Register on April 12, 2012, the proposal would restore the Fed’s initial Regulation Z revision by no longer including fees paid before account opening in the 25 percent limit. In the background discussion accompanying the proposal, the CFPB states that the proposal is intended “to resolve the uncertainty caused by the litigation.” The proposal also includes corresponding amendments to the Official Regulation Z Commentary. Comments on the proposal must be submitted by June 11, 2012.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

The group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or; Practice Leader Jeremy T. Rosenblum at 215.864.8505 or; John L. Culhane, Jr. at 215.864.8535 or; Barbara S. Mishkin at 215.864.8528 or; or Mark J. Furletti at 215.864.8138 or


Copyright © 2012 by Ballard Spahr LLP.
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