Here’s the first real disappointment from the Consumer Financial Protection Bureau.
The Obama administration’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 Consumer Financial Protection Bureau acknowledged Thursday that its proposal would increase costs for some cardholders and allow banks to charge more in fees [...]
Banks aren’t allowed to charge fees totaling more than 25 percent of a person’s credit limit in the first year that the account exists. But there’s no limit to the fees they can charge before the card is activated.
Under a rule proposed last year, those upfront fees would have counted toward the 25 percent cap. The CFPB is retreating from that idea after a federal court in South Dakota prevented it from taking effect.
Obviously there’s a legal aspect to this, and the court ruling in (credit card industry-friendly) South Dakota. And experts quoted in this article described it as “strategic thinking” by CFPB, and an example of them choosing their battles wisely.
But there is an existing court case, so the battle would rise or fall there. CFPB could have just let that process play out. I don’t understand the view that regulators should exist not to antagonize the industries they regulate. Implicit in that view is the idea that banks don’t currently do everything humanly possible to avoid regulation. Because the regulators cozy up to them, they’ve soothed the savage beast. I don’t buy that at all. If CFPB wants to protect new borrowers from upfront fees that could range beyond 25% of their credit limits, they shouldn’t weigh whether more lobbyists will take a run at them later.
The other justification is that the banks have to be able to make money so they can increase lending to those who would otherwise get locked out of the marketplace for credit cards or mortgages or car loans. This undermines the entire purpose of the CFPB. Their job is not to preserve profits for industry, or allow a little bit of stealing to convey benefits on those being robbed. Their job is supposed to be to protect consumers, period, full stop.
Under the new rule, banks can charge significant processing and activation fees on new cards, with the cap only applied afterwards. This walks back a rule proposed by the Federal Reserve, not exactly crusaders on behalf of the American consumer. And these new fees will get specifically targeted at subprime borrowers with bad credit scores, the kind that the industry wants to feast on. Now we know why; they can run up all kinds of fees and prey upon people with low financial literacy.
CFPB published their proposed rule in the Federal Register; AP had to dig it out. They would not comment beyond a press release. They know better than to be proud of this, at least.
The jury’s still out on CFPB, and they’ve done a lot of good so far as well. But this is a troubling sign.