The outcome of Tuesday’s Election Day results could have meaningful implications for the card industry, including affecting the odds of credit card interchange legislation emerging next year, analysts at New York-based equity firm Keefe, Bruyette & Woods said in a report released Monday.
During the next year at least, “given the significant Republican gains that we expect in the Senate plus the change in control in the House which we expect, we think the chance of passing credit-interchange legislation will be very low,” the firm wrote.
Moreover, the political environment in Congress for the card industry should improve after the election, the analysts said.
That would be a relief to card issuers following the bottom-line shocks from the passage of key legislation within the past two years.
One of the most significant of those was the CARD Act, which Congress passed in spring 2009 and went into effect earlier this year. It forces issuers to limit credit card account late fees and restricts their ability to raise cardholders’ interest rates, except when an account is more than 60 days delinquent.
Assuming key leadership changes occur in the House, “we think it is unlikely that the Card Act will be rolled back, but the prospect for additional negative legislation would drop ... considerably,” the analysts wrote.
Also worrisome to card issuers is the Durbin Amendment within the financial-reform bill, which Congress passed last summer and requires the Federal Reserve Board to create regulations that will set policy for establishing “reasonable and proportional” debit card interchange rates, effective in July 2011.
Because Sen. Richard Durbin, D.-Ill., architect of the debit-interchange bill, is not up for election this week, the analysts expect him to continue to block any efforts to “water down” the provision within the Dodd-Frank Act he drafted.
But if the election prompts significant shifts in political leadership, at some point lawmakers may introduce a “technical-corrections” bill that could “tweak” or modify the Durbin Amendment, the analysts predict. They did not say which aspects Congress might alter.
Another financial-reform initiative casting a large shadow over the card industry is the establishment of the Consumer Financial Protection Bureau, which will have broad authority over financial-services products.
The bureau, which is still being formed, remains the “wild card,” the analysts say.
Early indications suggest the bureau initially will focus on disclosure-related topics to ensure cardholders understand card-product terms, but “anything could be up for grabs,” the analysts wrote.
At the least, if Republicans gain a significant number of seats in the House, “we think at the minimum the environment for the card industry in 2011 will be a more favorable one relative to the past couple of years,” the analysts concluded.
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