The Consumer Financial Protection Bureau comes out for . . . the banks?
Opponents warned that it would be “Stalinist.” Defenders cast it as a swashbuckling savior of the little people. But now that the Consumer Financial Protection Bureau has finally got off the ground, the reality is a bit less dramatic than either side promised.
Obama’s new watchdog for consumer finance has retreated from rules that would have imposed new restrictions on sign-up fees for credit cards meant for borrowers with spotty credit histories. As my colleague Ylan Mui explained today, Congress attempted to restrict those fees to 25 percent of the card’s first-year limit. But that ban has since been challenged by First Premier Bank in a case before the U.S. District Court in South Dakota.
Having lost to First Premier in a September court ruling*, the CFPB has now proposed lifting the new restrictions and allowing banks to charge more in fees for riskier borrowers. It’s not the last word on the rule: The CFPB will be accepting feedback until June before issuing the final regulations. But it’s an early indication that the bureau isn’t going to reflexively side with consumers in all cases.
“It is a more practical approach, and a more pragmatic one,” says Cam Fine, CEO and head of the Independent Community Bankers Association, which supports many parts of Dodd-Frank but is lobbying the CFPB for some changes. “It’s refreshing that the CFPB seems to understand that when you’re dealing with certain products, those products are high-risk, and therefore the bank needs to be compensated.”
Fine says that he is “so far cautiously optimistic that the CFPB will be responsive to the banking industry, specifically the community banking industry and our concerns about regulatory burden and restrictions.” The CFPB has made a big push to solicit feedback from industry groups, particularly small businesses and smaller financial institutions concerned about the new rules.
Some consumer advocates, for sure, aren’t happy with the latest news. But they’ve praised other early efforts by the bureau: The CFPB has made it clear that they intend to crack down on abusive practices by mortgage servicers, among other non-bank firms in the financial underground.
Its rules on that issue, like most others, are still forthcoming, so it’s still too early to reach many conclusions about the bureau’s direction. Certainly, the CFPB is trying to convince all stakeholders that it’s open-minded. On the latest credit-card fee proposal, “we welcome and want all public feedback,” said Jennifer Howard, an agency spokeswoman.
*Update: The detail about the CFPB going up against First Premier last year was omitted from an earlier version of this post.