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The CFPB and “fee-harvester” cards. Did they get this one right after all?

The CFPB has been widely criticized lately over its decision to back off on its plan to curtail the so-called “fee-harvester” cards.  As the following article explains, the Credit CARD Act of 2009 forbids banks from charging fees that total more than 25% of your credit limit during the first year that the account exists.  However, a loophole permits limitless fees before the card is activated.  These cards offer low limits, high fees and interest rates of up to 36%.  And they are being offered to the people with bad credit.

http://www.foxbusiness.com/personal-finance/2012/04/23/why-cfpb-was-right-to-walk-away-from-fee-harvester-battle/

A Federal Court in South Dakota recently issued an injunction preventing this rule from taking effect.  The CFPB has now reversed its thinking and, at least for now, won’t push the ban on these pre-activation fees.  As the author of this article points out, this might have been the right choice.  Particularly, he notes that the fastest way to get into debt is to be given access to cash.  His hope is that these high upfront fees will dissuade a great number of impoverished people with poor credit from signing up for them in the first place.

Perhaps this decision will keep a good amount of people out of credit card debt.  I know that is one less potential client for this debt settlement law firm, but we always like to hear about people making sound financial decisions.

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Kevin Fallon McCarthy is the McCarthy Law PLC’s managing attorney and an experienced Phoenix debt attorney. Mr. McCarthy has also worked as general counsel for a large corporation. He has corporate counsel experience in human resource matters, general corporate governance, and union class action litigation.