A federal judge in Sioux Falls, South Dakota, has issued a preliminary injunction to postpone and enjoin the effective date of a recent amendment to Federal Reserve Board Regulation Z.
The case was brought by credit card issuer First Premier Bank and its subsidiary Premier Bankcard, LLC (collectively First Premier) against the Bureau of Consumer Financial Protection (which now has enforcement authority over plaintiffs for violations of Regulation Z) and Treasury Secretary Timothy Geithner. First Premier alleged that the Federal Reserve Board exceeded its rulemaking authority under the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the Credit CARD Act) in promulgating a final rule amending part of Regulation Z (12 C.F.R. § 226.52) on March 18, 2011.
The Credit CARD Act (15 U.S.C. § 1637(n)) and amendments to Regulation Z promulgated in 2010 limited certain fees (other than late payment fees, over-limit fees and NSF fees) charged on a credit card account during the first year after opening the account to no more than 25% of the initial credit limit for the account. However, the Federal Reserve Board’s final rule promulgated on March 18, 2011, published on April 25, 2011, and which had been scheduled to become effective October 1, 2011, expanded that prohibition to include fees charged before credit card accounts are opened. First Premier offers a credit card product which charges consumers up-front fees prior to account opening which range from $25 to $95 per account, and such fees would, in some cases, violate the March 18, 2011 final rule.
The District Court agreed with First Premier that the Federal Reserve Board’s March 18, 2011 final rule exceeded the Board’s rulemaking authority, and the Court indefinitely postponed the effective date of that rule and enjoined its enforcement.