New Consumer Protection Agency Allows Credit Card Companies to Charge Sign-Up Fees

Monday, April 16, 2012
Is the new Consumer Financial Protection Bureau (CFPB), under attack since the moment of its conception, already in danger of becoming a paper tiger? Congress created CFPB in 2010 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act, to protect consumers from the sort of unfair, deceptive, and abusive practices that banks and other financial companies engaged in and that helped crash the economy in 2007. Nevertheless, the financial industry and its allies in Washington have never stopped trying to kill the agency.
Senate Republicans, who voted against Dodd-Frank by a margin of 38 to 3, refused even to allow a vote on President Barack Obama’s nominee for Director, Richard Cordray, whom Obama then recess-appointed on January 4, 2012. House Republicans, who voted against the bill 173 to 3, have also tried to abolish the agency by refusing to fund it.
In the face of all that hostility, some critics are charging that last week’s decision by CFPB to rescind a regulation limiting credit card sign-up fees is a sign the agency is quitting before the fight has even begun. The 2009 Credit Card Accountability, Responsibility and Disclosure Act caps fees charged by credit card issuers during the first year after an account is opened at 25%  of the account’s initial credit limit. When some banks began evading the law by charging hefty sign-up fees, technically paid “before” the account’s opening, the Federal Reserve Board (which had jurisdiction) interpreted the cap to include fees a consumer paid before opening an account, such as an application fee. In 2011, however, a federal judge in South Dakota (a state popular with credit card companies because it has no usury law) granted a financial industry request to block the expanded rule, saying the Act did not intend to cap upfront fees.
After CFPB announced its rolled-back rule change, a coalition of four consumer groups—the National Consumer Law Center (NCLC), National Council of La Raza, U.S. PIRG and Consumer Action—urged CFPB to “stay strong” against efforts by “predatory lenders” to roll back rules that protect consumers. Noting that sign-up fees hit the poor the hardest, they want the bureau to appeal the federal court injunction against the cap: “Charging $170 for a credit card with available credit of $225 is exactly the sort of abuse that the fee-harvester rule should prohibit,” said Chi Chi Wu, an attorney with the NCLC. “The CFPB should not back down in protecting consumers from this sort of chicanery.”
Those defending the agency, like Bill Bartmann, a financial lawyer, debt-collection executive and financial newsletter publisher who generally supports the agency, termed it “strategic thinking” by Richard Cordray, who, he surmises, is “picking battles, and it’s unrealistic to think you can win them all.”
Comments on the proposed rule are due June 11.
-Matt Bewig
To Learn More:
Consumer Financial Protection Bureau Draws Ire from Allies (by Charles S. Clark, Government Executive)
Consumer Agency Softens Fee Limit (by Daniel Wagner, Associated Press)
Consumer Bureau Declines to Resist Upfront Credit Card Fees (by Tara Siegel Bernard, New York Times)
Truth in Lending (Regulation Z) (Proposed Rule by CFPB, Federal Register) 


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