Several months ago, the new federal agency tasked with protecting consumers from certain lending practices on the part of various financial institutions proposed a rule that would limit some credit card signup fees, but has now backed off that plan.
Earlier this week, the federal consumer financial protection bureau announced that it would seek public comment on its proposed rule to limit all fees associated with a credit card account to be no more than a combined 25 percent of an account's initial credit limit, according to a report from the Associated Press. Currently, these caps apply only to fees charged in the first year the account exists, and one way in which some lenders are skirting the rules is by charging a "processing fee" before the account is open. One bank in South Dakota, for example, charged a $95 processing fee and a $75 annual fee on an account with a $300 credit limit.
The CFPB's proposal - which would have actually been an alteration of an existing rule passed on to it by the Federal Reserve Board - was met with a suit from First Premier, and a judge issued a temporary injunction against the agency's imposing that regulation last September, according to a separate report from American Banker. As such, the CFPB is now backing off the proposed change, and instead is asking for public comment on the matter.
"In order to resolve the litigation, the CFPB is seeking comment on whether it should conform the rule to the court ruling so that it no longer applies to fees charged prior to account opening," said the agency, which will close the comment period on June 11, according to American Banker. "The overall 25 percent cap on certain credit card fees charged during the first year, along with the other specific provisions of the [Credit Card Accountability, Responsibility and Disclosure] Act, would remain in place."
Experts say this move might be a sign that the CFPB is becoming a bit wiser as it goes along, picking and choosing its battles with the financial industry rather than cavalierly going after every fee and interest rate it finds questionable, the report said. And in the end, it's believed that this type of discretion will lead to a better give-and-take between the financial industry and the regulator, which in the end will likely help consumers more than both sides digging in their heels.
The CFPB has been ramping up its efforts to increase consumer protections considerably since Richard Cordray was installed as its top executive earlier this year. Prior to that point, it had been operating in a limited capacity under an interim head. Some lawmakers and many in the financial industry have expressed concerns over what the CFPB might do given the wide regulatory power it wields, but now both sides seem to be getting used to each other after an initial feeling-out process.
