WASHINGTON — Bankers received mixed news Thursday from Capitol Hill, as the House voted 357 to 70 to approve a sweeping credit card reform bill, while the Senate rejected a measure that would have let judges modify mortgages in bankruptcy.
Though the Senate was also close to approving a measure to help the banking industry by allowing the Federal Deposit Insurance Corp. to extend its borrowing authority, the rhetoric in both chambers was often caustic, showing how much lenders are under siege.
"I sat down two years ago with the banking industry and said we've got to do something," said Sen. Richard Durbin, whose mortgage bankruptcy bill was rejected by a vote of 51 to 45. "Why is it in this country, in America, that we can find hundreds of billions of taxpayers' dollars … to come to the rescue of bad banking decisions, rotten investments, mortgages that were fraudulent on their face, and can't summon the political will to do something about 8 million families in America that are going to face foreclosure?"
Though mortgage lenders may have scored a coup Thursday when the Illinois Democrat failed to find sufficient support for a measure that would let judges cram down mortgage debt, the major banking companies — JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. — which had participated in negotiations for weeks on the bill, earned no good will.
Despite coming close to a deal, the negotiations fell apart, and Durbin pilloried the industry for it in his remarks on the Senate floor. "I can't tell you how many of these bankers have walked away," he said. "The big banks — JPMorgan Chase … they were at the table until last week, until they decided, 'No, we're going to walk away, too. We're not interested in this negotiation.' Wells Fargo, Bank of America — the list goes on and on. If any of these names are sounding familiar, it is because they are surviving today because they have taxpayers' dollars."
Scott Talbott, a senior vice president at the Financial Services Roundtable, responded, "It is easy to demagogue the industry right now."
Brian Gardner, an analyst with KBW Inc. said that even though lending-related reforms remain a target for lawmakers, the votes Thursday showed that the industry's clout, though clearly weakened by fallout from the financial crisis, is not altogether gone.
"The fact that Senate Democrats couldn't get a cramdown bill through suggests that the banking industry is not flat on its back politically, and that members of Congress are not going to just automatically sign on to populist legislation," he said.
Consumer advocates expressed disgust at the bankruptcy provision's defeat. "There is something seriously wrong when … Congress is not willing to help close to 2 million homeowners facing foreclosure because of abusive and irresponsible lending in the economy," said David Berenbaum, the executive vice president of the National Community Reinvestment Coalition.
Mike Calhoun, the president of the Center for Responsible Lending, appeared more disappointed with the vote on bankruptcy reform than the approval of card legislation, which his group has also championed. "There is still no stick to make the banks, who literally received trillions of dollars in aid and guarantees, from acting to finally bring about the loan modifications they have been promising for two years now," he said.
Though the Senate rejected the bankruptcy provision, it continued to debate an underlying housing bill that would make improvements to the Hope for Homeowners program and increase the FDIC's borrowing authority to $100 billion from the Treasury Department. The bill, which is expected to pass sometime next week, would allow the agency to borrow as much as $500 billion in certain circumstances. It would also increase the deposit insurance limit to $250,000 for another four years. That limit is due to revert to $100,000 at yearend.
The banking industry has pushed for the FDIC bill, because agency officials have pledged to cut a planned 20-basis-point premium by at least half if it gets more borrowing power.
Despite the defeat of cramdown legislation, bankers took a big hit on card legislation.
The House bill, sponsored by Rep. Carolyn Maloney, D-N.Y., passed with broad bipartisan support, including more than 100 Republicans, and was amended to include several provisions to toughen its standards.
During the vote, the House adopted a slew of amendments sought by the White House.
One amendment, passed by a vote of 284 to 149, would require cardholders to get customers' permission before charging them over-the-limit fees. Another, which passed 276 to 154, would limit college student card accounts to $500 or 20% of the student's annual income, whichever is higher.
Other amendments sought by the White House were adopted by voice vote. They would require teaser promotional rates to be offered for at least six months and would require payments to be applied to the highest-rate balances first. The Senate is expected to vote on its credit card bill this month.