A controversial practice that allows major lenders to charge upfront fees to borrowers signing up for new credit cards will not be taken on by the federal agency tasked with protecting consumers from predatory or misleading lending practices.
The federal Consumer Financial Protection Bureau announced on Thursday that it would no longer pursue earlier plans to limit the upfront fees some lenders are now charging to subprime borrowers for opening new credit cards, according to a report from the Associated Press. Some banks had been charging customers a $95 "processing fee," and another $75 in annual fees, for opening a credit card with an overall credit limit of $300.
Experts told the AP that this is a sign that the CFPB may be growing to realize that it cannot fight every crusade and still keep the confidence of lawmakers and the financial industry alike. Bill Bartmann, a financial lawyer and debt-collection executive who publishes a newsletter on financial regulation, told the news agency that this is a sign CFPB chief Richard Cordray acknowledges he can't win every battle.
This backtracking, though uncharacteristic for the burgeoning consumer protection agency, may have come as a result of a lawsuit filed in South Dakota late last year, according to a report from American Banker. The CFPB had originally proposed a revision to an existing Federal Reserve Board plan that would limit combined credit card fees on each new account to no more than 25 percent of its initial credit line. Card issuers sought to stop such a cap, and a judge has since granted a preliminary injunction against it being imposed.
"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."
Businesses coming around to CFPB?
However, this type of diplomacy may behoove the CFPB in the long run, as it may help to show businesses that the agency is willing to play ball if it eventually leads to increased protections for Americans overall, the report said. Already, some experts believe that this type of flexibility is having a positive impact for both the financial industry and consumers in general.
Consumers, however, may also need to do some work on their own to protect their finances. This should include regularly checking their credit reports for any errors that may be unfairly lowering their credit standings. Working with a credit repair company can help to clear up any unfair markings on a report.