The Consumer Financial Protection Bureau (CFPB) failed a big test last week. An article published in The New Your Times, Consumer Bureau Declines to Resist Upfront Credit Card Fees, discusses the decision and offers commentary from those who are opposed to the decision.
The article also shares what the CFPB said about why…….oh WAIT! I was mistaken – upon a closer read of the article, I discovered that “the bureau declined to say why it took this course.” Now that’s pretty strange! Why would the CFPB decline to offer any reasons for not doing what it is supposed to do, i.e., standing up for the rights of consumers?
Here’s the scoop – some credit card issuers were charging upfront processing and application fees before an account was even opened. An example of this practice was highlighted in the article as follows:
“But some consumer advocates said they still believe that the fees are egregious enough to warrant more of a fight. They said First Premier began charging a $95 processing fee before the card account was opened, as well as a $75 annual fee. Yet the credit limit on the card was $300.”
So really, the limit on the card became $130. Thanks a lot, First Premier.
The bank justified charging the fees because it said it would “suffer irreparable harm” if they were not allowed to impose them. I don’t buy it. It was also suggested that they should be allowed to charge the fees because it is offering credit to people who are risky borrowers in the hopes that they will be able to rebuild their credit histories. So, in essence, they see themselves as the “saviors of the not-so-credit-worthy.” And I guess there is a price to be saved.
Since I started working in the credit union industry, I have always been proud of the fact that credit unions are genuinely interested in helping people rebuild their credit worthiness and have the courage to take the calculated risk of offering credit to those who would not be able to get it elsewhere. This has become especially true over the last couple of years when so many people, through no fault of their own, have seen their credit shattered because of circumstances beyond their control. (Note: I am not referring to the people who just don’t pay their bills or are irresponsible borrowers. This is about the people who have lost their jobs and homes – people who want to pay their bills but cannot because they have little or no income.)
Truth be told, I was excited when I first heard about the CFPB. It seemed that there would finally be someone watching out for the well-being of consumers. I still believe in the CFPB’s mission. But I was absolutely incensed when I read this article. This was a perfect opportunity for the Bureau to stand against the greed and say that while they are happy that some credit card issuers are offering credit to those who don’t have stellar histories, they cannot support these same issuers charging exorbitant fees before the accounts are even opened. In fact, they could have gone even further and reminded us that charging these fees to the people who are least likely to have the ability to pay them is counter-productive and evades common sense.
But they didn’t do that. The Times article reports that some consumer advocates believe that the Bureau is “picking its battles” and trying to show that it is “not unfriendly to business.” But their refusal to challenge these predatory and greedy practices is a huge disappointment. Let’s hope that they reverse course on this before it is too late and more card issuers decide that these fees are a good idea and will save them from “irreparable harm.”