Following through on a promise made last fall, Sen. Carl Levin introduced sweeping credit card legislation Tuesday that would outlaw several common fees and interest rate tactics.
Analysts, lobbyists, and other industry observers agreed that the Michigan Democrat's bill faces long odds — especially with Senate Banking Committee Chairman Chris Dodd likely to take his own, less aggressive approach.
But Sen. Levin is a powerful force with a potent bully pulpit as chairman of the Senate Permanent Subcommittee on Investigations.
"I do tend to think that bills that sort of frame a worst-case legislative tack really do have importance and particularly in this case," said Charles Gabriel, a senior vice president at Prudential Equity Group.
"The introduction of Mr. Levin's bill might give Mr. Dodd that much more leverage to compel the industry to do things voluntarily to change behavior — and then if he feels compelled to pass legislation, to work with the industry to come up with some good, responsible legislation," Mr. Gabriel said.
In a statement issued Tuesday, Sen. Dodd, D-Conn., reiterated his position that credit cards "are a valuable and important tool to help consumers build more financially secure and prosperous lives." But he added, "I am committed to looking at any and all ways — including introducing legislation — to ensure that consumers are adequately protected from unfair credit card practices."
Sen. Levin could end-run Sen. Dodd by attaching his bill or pieces of it to other legislation, sources said. "I think this probably signals Levin is tired of waiting," said a credit card lobbyist, who would not speak on the record out of fear of angering lawmakers. "Dodd is not going to be able to ignore … [Sen. Levin's bill], I suppose. Based on how the Senate operates, Levin can show up on the Senate floor basically anytime he wants and cut and paste one of probably 10 or 12 ready-made amendments that are in this bill."
The bill, which is co-sponsored by Sen. Claire McCaskill, D-Mo., would prohibit lenders from charging interest when credit card debts are paid on time or in full. It would also bar interest rate hikes on outstanding debt and cap penalty interest rate hikes at 7%. Interest could not be charged on accumulated fees and over-limit fees would be restricted. Lenders could not charge a fee to pay bills online or by phone.
Floyd Stoner, the head lobbyist for the American Bankers Association, said aspects of the bill amount to "price controls" and would infringe on business operations.
But at a March 7 hearing held by his subcommittee, Sen. Levin called such provisions abusive, and in a release Tuesday he said Congress cannot wait for the industry to fix the problems.
"I'm afraid these practices have become too entrenched and too profitable to the credit card companies for the companies to change them on their own," Sen. Levin said in the release. "Congress needs to enact pro-consumer legislation to put an end to these unfair practices."
So far, House Financial Services Chairman Barney Frank, D-Mass., has not put credit card reform high on his list of priorities, but the financial institutions subcommittee chairwoman, Rep. Carolyn Maloney, is scheduled to hold her second credit card hearing with regulators on June 7.
