WASHINGTON — When the Federal Reserve Board adopted tough new restrictions on credit card practices two weeks ago, many in the financial services industry were hopeful that Congress would focus on other financial services priorities.
But lawmakers still appear interested in pushing for significant card reform. Leaders of both banking committees have pledged legislation next year to rein in practices, and the Judiciary committees are actively exploring ways to restrict interchange fees.
Legislation on both fronts faces an uphill battle given the more pressing issues facing Congress and the key Democrats who could block reform, but some lawmakers are doing their best to make the issue a priority.
"Despite the Fed's massive rule changes, credit card issues will remain a hot legislative item next year," said Scott Talbott, the head lobbyist at the Financial Services Roundtable.
The Fed rules weakened — but did not stop — the legislative drive to reform card practices. Exactly what form it will take, however, remains unclear.
(This article is the second of three on the 2009 legislative outlook for the financial services sector. Tuesday's article focused on efforts to stem foreclosures, and Friday's will examine efforts to restructure the regulatory system.)
Rep. Carolyn Maloney, the chairwoman of the House financial institutions subcommittee, has said she wants a bill that puts many of the Fed's restrictions into law and includes a faster implementation timeline. (The Fed's rules do not take effect until July 2010.)
"Congress should act sooner to protect American consumers by giving credit card protections the permanence and force of law," she said.
The New York Democrat has also pointed to places where the Fed rules fell short. Her bill would let cardholders set their own credit limits, prohibit the marketing of cards to minors, let consumers reject a card before activation without harming their credit score, and require issuers to give regulators more data.
The bill would also legislate Fed rules such as the ban on universal default and double-cycle billing.
The House has already approved Rep. Maloney's bill once, by 312 to 112 in September, and with bigger majorities in Congress next year, Democrats would easily have enough votes to pass a bill — at least in the House.
"It would not surprise me to see a bill pass the House Financial Services Committee and even the House again," said Brian Gardner, a policy analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
The Senate remains harder to gauge, however. Even with greater control of that chamber, Democrats lack a filibuster-proof majority. And at least two Democrats on the Senate Banking Committee — Tom Carper of Delaware and Tim Johnson of South Dakota — would probably oppose tough restrictions on credit card companies.
"There are still members of the committee, key Democrats from states where card companies are significant employers and key parts of the local economy, and we think those votes would be tough to get," Mr. Gardner said.
But tough legislation has backing outside the banking panel. Sen. Carl Levin, D-Mich., the chairman of the Permanent Subcommittee on Investigations, has held several hearings on card practices and said the Fed rules are insufficient.
"The Fed's new regulations reining in the credit card industry are a good first step, but they don't prevent a number of unfair, deceptive, and predatory practices that saddle many American families with crushing debt," Sen. Levin said in a press release this month.
His subcommittee is investigating card debt collection practices and has requested the nonpartisan Government Accountability Office to study the issue. His staff is also examining concerns about the tightening of credit availability, industry sources said.
Also likely to raise its head again is an effort to regulate interchange fees, which banks and the card networks staunchly oppose.
Sen. Dick Durbin of Illinois, the assistant majority leader, and Rep. John Conyers of Michigan, the House Judiciary Committee chairman, are expected to reintroduce legislation addressing interchange fees.
"It remains a threat," said Mr. Talbott.
Congress took its furthest step toward intervention last July when the House judiciary panel supported an interchange fee bill on a 19-to-16 vote.
Though this step worried banks, the amended bill was left with little teeth, and lawmakers had voted so rapidly on so many changes that they were left at odds over the legislation's purpose.
Though the bill had been intended to give retailers negotiating power on interchange fees, a provision creating a three-judge panel to resolve disputes when interchange negotiations broke down was dropped in committee.
Despite the confusion over how to handle interchange, merchant groups have engaged lawmakers on the issue, claiming they have little bargaining power to negotiate the fees, which they say unfairly drive up the cost of doing business.
Merchants have launched fiery ad campaigns targeting key congressional districts to capture the attention of powerful lawmakers and are expected to continue those efforts next year.
"Interchange is an interesting issue. It's less partisan than others; it's retailers fighting the card companies," said Mr. Gardner.
Still, given other priorities and the issue's complexity, enacting a bill could be tough.
"I suspect we'll definitely be talking about interchange legislation, but I think given what happened with the House Judiciary Committee, the committee indicated it's not an easy issue to reconcile, … I suspect it's not something we will see reach enactment," Mr. Gardner said.