Maybe it was all the infectious “hope and change” rhetoric that’s been going these days, but we actually believed that the Consumer Financial Protection Bureau was going to stand up to the banks to make credit cards safer for the average American. Boy, do we feel stupid.
This week, the CFPB officially announced that it was backing down on its fight to limit the fees credit card issuers can charge consumers before opening an account. Actually, “backing down” is too generous a term. It’s more like CFPB members shot us all in the foot, donned red coats and announced they were fighting for the British. Totally reversing its previous position, the bureau that is tasked with protecting consumers from the ravages of the financial sector is now officially proposing that instead of strengthening Regulation Z (the only piece of legislation that limits the fees card companies can charge applicants), the government should remove it entirely.
An amendment to the CARD Act in 2009, Regulation Z limits the fees that card issuers can charge their customers to 25% of their card’s spending limit in the first year. It was passed last April, when the Federal Reserve learned that a little bank in South Dakota was messing with its credit card customers in the same way the crooked lawyer-turned-guardian messed with Lisbeth in “The Girl With The Dragon Tattoo.” A litany of customer complaints revealed that Sioux Falls-based First Premier Bank was pre-loading its “rebuilding credit” credit cards with a $95 application processing fee and a $75 annual fee, even though the card only carried a $300 limit.
In response to the ruling, First Premier Bank filed a lawsuit against the Fed and the CFPB last July. The bank felt that the government had overstepped its bounds in limiting the bank’s ability to swindle sub-prime borrowers. According to the bank’s sob story, the ruling – or the concurrent bad press – resulted in an 80% drop in credit card application fees, which forced the bank’s president to close a branch and lay off more than 300 employees. Unfortunately for America, the judge bought it and ruled in First Premier’s favor, effectively freezing the new amendment.
Which brings us to the present day. Instead of following through on its commitment to protect American consumers, the CFPB has thrown in the towel. Banks will now decide the fees they charge before a new line of credit is opened. According to a CFPB spokesman and a few industry experts, the move isn’t so much proof of cowardice as it is a strategic retreat. In his research notes, Brian Gardner – an analyst for Keefe, Bruyette and Woods, a securities broker and full-service investment bank – said, “We do not view the proposal as a significant indicator of future softening by the CFPB towards credit card issuers.”
Finance lawyer Bill Bartmann, who publishes a widely read newsletter on financial regulation, told NPR that CFPB Director Richard Cordroy “is picking battles, and it’s unrealistic to think you can win them all.”
We’re still not sold, though. We totally understand the that it’s up to the consumer to read all the fine print before applying and that no one is forcing anybody to open a line of credit with First Premier. But come on now. This is about a totally awful product being pushed by an organization that deliberately takes advantage of consumers who don’t know any better.
The CFPB could have done more. They should have done more. But instead of using the power of the Fed to stand up to a federal court in South Dakota, they crumpled in a way that makes them look like agents of the industry they’re supposed to be protecting us from. And until they explain to the country what we’ve gained by letting such predatory lending practices continue, that’s all we have to say on the matter.