June 25 (Bloomberg) -- U.S. banks are fighting the Obama administration plan to create a consumer agency for financial services as they seek to protect fees, such as credit-card penalties that have almost doubled to $19 billion in five years.

Fees imposed by banks accounted for 53 percent of industry income in 2008, up from 35 percent in 1995, according to R.K. Hammer Investment Bankers, a credit-card advisory firm. JPMorgan Chase & Co., the second-largest U.S. bank by assets, said such revenue doubled in the first quarter. A U.S. Consumer Financial Protection Agency also may add costs by expanding scrutiny.

The supervisor “would be an additional, parallel regulatory system representing a major burden, a potentially punitive approach, and significant indefinable regulatory risk,” Alex Pollock, a fellow at the Washington-based American Enterprise Institute, testified yesterday at a House Financial Services Committee hearing on the proposal.

Obama’s plan for an independent agency in the overhaul of financial regulation has won endorsement from Senate Banking Committee Chairman Christopher Dodd and Financial Services Chairman Barney Frank, who will write the legislation. Frank yesterday said the agency is needed because regulators focused on banks’ financial health may downplay consumer complaints.

Support from Dodd and Frank sets “long odds for the industry,” said Oliver Ireland, a partner in the financial services practice group at Washington’s Morrison & Foerster LLP.

Banking trade groups such as the American Bankers Association said Obama’s “highly controversial” agency will raise costs for responsible consumers and mandate the types of products banks and financial institutions should offer. ABA President Edward Yingling yesterday testified the agency will “saddle consumers and providers with a new regime of fees.”

‘Plain Vanilla’

The agency will have the power to write rules strengthening consumer protections, supervise and police a bank’s compliance and force institutions to offer “plain vanilla” products that are easy for consumers to understand. The Federal Reserve and other regulators would cede consumer oversight to the agency.

“We’re concerned about the potential impact on the ability to innovate, on competition and on efficiency,” said James Mahoney, director of public policy at Charlotte, North Carolina- based Bank of America Corp., the largest U.S. bank by assets.

U.S. banks have reported gains in fees in the first quarter. Bank of America’s fee income rose 50 percent to $11.7 billion from the year-earlier period, helped by purchases of Countrywide Financial Corp. and Merrill Lynch & Co., the company said in its quarterly report. Service charges on credit cards rose to $2.5 billion from $2.4 billion.

Credit-Card Fees

JPMorgan Chase said revenue from fees related to lending and deposits more than doubled to $948 million from the previous year. The New York-based company’s credit-card income also doubled to $367 million from $174 million. JPMorgan is raising some balance-transfer fees on credit cards to 5 percent, the highest among the largest banks, citing increasing regulations and costs to comply with new U.S. curbs on the industry.

The industry’s credit-card fees for late payments generated $19 billion in 2008, almost double the $10.7 billion from late, over-the-limit and insufficient-funds fees in 2003, data from Thousand Oaks, California-based R.K. Hammer showed.

Citigroup Inc., JPMorgan Chase and Bank of America had about 287.3 million credit-cards accounts at the end of 2008, or 58 percent of the cards issued by the 50 biggest issuers, according to the Nilson Report, an industry newsletter.

Banks may have benefited from dispersed consumer protection activities among the Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Office of Thrift Supervision, which are required to ensure the institutions they oversee remain healthy and solvent.

Obama’s proposal said the Fed’s recent consumer rules were “quite late in coming” and regulators needed 18 months to tackle subprime mortgages. Guidance was adopted in June 2007 to combat abuses in the loans, many written in 2005 and 2006.

The OCC, which supervises 1,650 national banks including Citicorp Inc.’s Citibank, took five public enforcement actions from 2005 to 2008 for unfair and deceptive practices, according to the agency’s Web site.

-- With assistance from David Mildenberg in Charlotte, North Carolina. Editors: Steve Geimann, Gregory Mott

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: June 25, 2009 00:01 EDT