On Wednesday, a bipartisan group of 60 U.S. senators voted against a provision that would have imposed a 15 percent interest rate cap on credit card fees. To some critics the rejection of the cap is likely to be seen as just one more piece of evidence proving that, as Senator Dick Durbin, D-Ill., so memorably noted two weeks ago, that banks “are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
Debate continued Thursday in the Senate on a credit card reform bill that the White House is pushing to get enacted by Memorial Day. And while it is not exactly a shocker that an amendment proposed by Vermont’s Bernie Sanders (who really is a socialist), would go down to defeat, other amendments to the bill aimed at helping consumers and small businesses are also facing uphill battles. As I write these words, Senator Kit Bond, R-Mo., is pushing an amendment he is co-sponsoring with Durbin that would allow retailers to give discounts to customers who use cash or debit cards.
But as the Wall Street Journal observes, “Heavy pressure from banks could force lawmakers to shelve the measure Thursday to avoid sinking the broader bill.”
I’m with Durbin, as is, I think, a large swath of the general public. How is it even possible that the banking industry could exert “heavy pressure” after having been bailed out by Congress to the tune of so many hundreds of billions? It is preposterous.
That said, the broader Senate bill, even without the Bond-Durbin or Sanders amendments, is still a good bill, tougher than the already-passed House version or new Federal Reserve rules that will kick in in July 2010.
From The New York Times:
The bill still contains provisions that would prohibit companies from raising interest rates on existing balances unless a card holder was 60 days behind, and then would require the rate to be restored to its previous level if payments were on time for six months. Consumers would have to be notified of rate increases 45 days in advance. Companies would not be allowed to charge late fees if they were late in processing a payment.
But let’s wait and see if those details survive, or if indeed, the Senate gets its act together and actually votes in a timely fashion. Because the banking industry hates the entire bill. You can get a good feel for its point of view from a Dow Jones article that reads as if dictated by lobbyists.
Here’s how Aparajita Saha-Bubna’s story starts:
Proposed credit-card legislation would put the brakes on the ability of issuers to raise interest rates and impose late fees — the very tools used by card companies to offset rising losses in the current economic slump.
The rules being debated in the Senate would not only deprive card issuers of crucial ammunition but also would threaten to crimp industry growth. One way companies may respond — raise costs for financially sound consumers. The legislation would also probably make card companies cut back on lending to less-creditworthy borrowers.
And it gets worse. Amazingly, the article doesn’t quote a single advocate of the bill.
The Washington Post reports that the White House is working “feverishly” to pass the bill, and that President Obama ordered “his top economic aides… make an aggressive, 24-hour push for passage” of the bill. How it all comes out will be an important test of the White House’s true willingness to combat banking lobbyists.
And we need that test, because bigger ones are coming. The long overdue proposals for derivatives regulation announced Wednesday by Treasury Secretary Timothy Geithner are sure to encounter hefty pushback from the same banks looking to water down credit card reform. For a very simple reason — the new rules will make derivatives trading less profitable.
It seems funny to write that sentence, given how many trillions of dollars the banks stand to lose from bad derivatives bets. But amazingly, it still holds true. To just give one example, a proposal by SEC chair Mary Schapiro that would give “give anyone with an Internet connection access to trading data” on over-the-counter derivatives” is likely to substantially reduce the profit margins for the sellers of such derivatives. Transparency — good for the buyer, but not so great for the seller.
Derivatives regulation, just like credit card reform, will put downward pressure on banking profits, presumably for the benefit of consumers and the larger economy. At least that’s the theory. But despite a lot of talk in Congress and the White House, we have yet to see much in truly consumer-friendly legislative action. And the blame for that rests squarely with the U.S. Senate.