Consumer agency softens fee limit

By DANIEL WAGNER
AP Business Writer

WASHINGTON (AP) — The Obama administration's consumer financial watchdog agency is backing off a plan to limit big upfront fees on credit cards, a move that could hit borrowers with poor credit histories especially hard.

The Consumer Financial Protection Bureau acknowledged Thursday that its proposal would increase costs for some cardholders and allow banks to charge more in fees.

The CFPB was set up after the financial crisis to protect consumers from loans and cards with hidden fees or other traps. Thursday's decision shows the difficult line the young agency must walk, allowing banks to make enough money so that they can continue to offer loans and cards while protecting consumers from fees that it considers abusive or deceptive.

Bill Bartmann, a financial lawyer and debt-collection executive who generally supports the agency, called it "strategic thinking" on the part of Richard Cordray, the agency's director.

"He's picking battles, and it's unrealistic to think you can win them all,'' said Bartmann, who publishes a widely read newsletter on financial regulation.

Fee limits are of particular concern to borrowers with weak credit, including so-called subprime borrowers, and the companies that seek to lend to them.

Subprime borrowers tend to face much higher fees because lending to them carries more risk. Banks fear the agency will block too many fees, effectively preventing millions of Americans from establishing stronger credit so that they can qualify for mortgages or auto loans.

Consumer groups decried the CFPB's decision. But several independent experts called it a positive signal that the agency prevent it from gaining power. They argued that it would reduce consumer choice, in part because fee limits would discourage banks from offering some services.

By tipping the rule in favor of banks, the agency is showing that it takes both businesses and consumers into account when setting policy, said Mark Williams, a former examiner for the Federal Reserve who teaches finance at Boston University.

"Just a year ago, the view was that this agency was going to be devastating for business," inventing costly and unnecessary consumer protections, Williams said. He said Thursday's action shows that the agency "could be very effective for consumers and also bridge the needs of business to make profits." The CFPB's revised proposal was published quietly in the Federal Register, the daily digest in which federal agencies make routine announcements. The CFPB is accepting public comment on the matter until June.

The CFPB declined comment beyond a press release that summarized the proposal. It acknowledged the potential effects in its Federal Register notice.