WASHINGTON — The Federal Reserve Board appears to have killed congressional appetite to rein in credit card practices — at least for this year.
Though lawmakers continue to say the central bank's proposal to ban unfair and deceptive card practices does not eliminate the need for a bill, there appears to be little forward momentum on legislation.
Senate Banking Committee Chairman Chris Dodd, D-Conn., who vowed three months ago to introduce a bill on the subject, has yet to follow through. And though industry lobbyists had expected a House Financial Services Committee vote on a bill from Rep. Carolyn Maloney, D-N.Y., last month, it never materialized.
Observers said it is highly unlikely a bill will be enacted this year — particularly since completing a housing rescue bill has preoccupied lawmakers' attention — and that the Fed's proposal further complicates the chances for legislation in 2009.
"People can rattle sabers all they want. It seems to me that once you look at what the Fed has proposed, there really isn't a whole lot left to fight about," said Oliver Ireland, a former Fed lawyer who is now a partner at the law firm of Morrison & Foerster. "Unless the Fed, OTS, and NCUA … significantly reverse ground in a pretty big way, you've taken the steam out of the general issuer practices."
Ironically, at the beginning of the year the financial services industry urged Congress to hold off on legislation until the Fed, the Office of Thrift Supervision, and the National Credit Union Administration could finish their proposal. Lawmakers argued there was still room for legislation. Both sides anticipated the agencies would take a cautious approach to reining in card practices.
Instead, the Fed, the OTS, and the NCUA issued a proposal on May 2 that was widely considered one of the most pro-consumer plans regulators have put forward recently, and which was stronger in some areas than contemplated in Congress. It has forced the lawmakers to recalibrate their position.
In the meantime the industry has begun lobbying against the regulatory plan.
"It's difficult to see how a bill can get enacted this year on credit card practices," said Jaret Seiberg, an analyst with Stanford Group Co. "One shouldn't minimize what the Fed is doing. They are addressing some of the most aggressive and egregious practices, and that further diminishes the political imperative to get a bill done in 2008."
That does not mean the issue has gone away entirely. Sen. Dodd is expected to hold a hearing on credit card practices this month, though no date or witnesses have been announced.
House Financial Services Committee Chairman Barney Frank, meanwhile, said June 20 that his panel would hold a vote on Rep. Maloney's bill this summer, but he declined to provide any details, and sources tracking the issue said no plans have been made.
Steven Adamske, a spokesman for Rep. Frank, said Monday, "I don't know what the plans are now given the calendar, and housing has certainly delayed things. He said "we will be commenting on the Fed's proposal."
But many observers said lawmakers are retooling plans in light of the proposal, which went further than legislation currently being contemplated and addressed some of the major issues raised by Rep. Frank. For example, the proposal would severely curtail card companies' ability to raise rates on existing debt unless a cardholder was more than 30 days late. Rep. Maloney's bill focuses more on prohibiting such rate increases for external reasons and providing consumers with a chance to opt out.
The Fed's proposal would also create tougher payment allocation standards than the Maloney bill, since it would require card companies to apply payments to promotional rates (like 0% balance transfer offers) only after nonpromotional rate balances had been paid, while the Maloney bill would require payments to be applied proportionally.
Rep. Maloney could move ahead with her bill as is, but with Democrats pushing a certain level of consumer protection while the Fed is proposing tougher rules, the situation could become awkward, several sources said.
"To be tougher than the Fed, she has to rewrite her legislation," said a lobbyist for a major card issuer.
Some have found Rep. Maloney's public comments confusing. She has taken credit for the Fed's taking a page out of her playbook, which many observers said is justifiable.
She has also complained that the proposal does not do more, such as cracking down on penalty fees, which is not addressed, and she predicted it will be watered down when it is finalized.
But she has also encouraged her bill's co-sponsors to join her in writing the Fed a letter endorsing the proposal and asking that regulators finalize it unchanged.
Though a panel vote on her bill remains possible, its enactment this year is doubtful, sources said. That has prompted some consumer groups to pressure the New York Democrat to make the legislation even tougher for next year.
Kathleen Keest, a senior policy counsel for the Center for Responsible Lending, said that while her group would have liked to see the Fed "go all the way," to curb penalty fees and address student card issues, "they've gone a remarkably long way."
Her group is attempting to have the areas in which the Fed proposal is stronger serve as the basis for reform.
"Given that the effort in Congress has been to bring significant reforms, they would not want their reform bills to be a vehicle to roll back what is in the final Fed rule, so I would hope that they would be flexible about using whatever came out in the Fed rule as a floor and either codify it [in a bill] or go from there," Ms. Keest said.
But the outlook for next year is uncertain, with several possible scenarios playing out.
Lawmakers may try to reinforce the proposal in statute, or seek legislation to fill in the gaps to address fees and student card issues, among others.
Other bills that address topics like bankruptcy reform or interchange fees could also gain traction and become vehicles for card reform.
Democrats are expected to pick up a larger majority in both chambers, which could make passage of legislation easier, but as the committees are aligned currently, Tom Carper of Delaware and Tim Johnson of South Dakota — Senate Banking Committee Democrats whose states have strong card industries — are seen as standing in the way of passage there.
The matter of student cards may be dealt with in other ways, as well. New York State Attorney General Andrew Cuomo is investigating colleges' relationships with credit card companies and their marketing approaches with students.
At Rep. Maloney's recent subcommittee hearing, Benjamin Lawsky, Mr. Cuomo's deputy counselor and special assistant, said his office was trying to get colleges and issuers to agree to best practices and that it planned to release findings of its investigation soon.