WASHINGTON — Congress returns from a weeklong recess today with plans to move forward on a slew of financial services issues, including an overhaul of student lending, a crackdown on card practices, and expansion of the Farm Credit System's lending authority.
Efforts to make federal financial regulators more consumer-focused and to bolster mortgage standards are also on track for hearings this month.
Of the financial issues in the mix, student lending reform stands the best chance of quick enactment, industry lobbyists and analysts agree. House and Senate lawmakers plan to pass legislation cutting lender subsidies in federal programs and send a compromise bill to President Bush before recessing for the month of August.
"They want to have the student lending bills on the House and Senate floors respectively before the end of the month," said Brian Gardner, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
The House could vote as soon as this week on legislation that passed the House Education Committee last month that would trim lender profits on Federal Family Education loans by roughly $19 billion. The bill would cut lender subsidies by 55 basis points and reduce the government's default coverage 3 percentage points, to 95%.
The Senate is considering voting next week on similar legislation the Senate Education Committee passed June 20. That bill would cut lender profits by about $18 billion. It would cut subsidies by 50 basis points and reduce the government's default coverage to 97%.
Though student lenders adamantly oppose the cuts, they privately agree that the legislation could have been worse.
"The lenders are going to fight to try and block it, and they'll never tell you this … but it's about as good as they could have expected," said Mr. Gardner, noting that a proposal Senate Education Committee Chairman Edward Kennedy floated this year called for slashing lender profits by $22 billion. "A lot of people were expecting worse."
Lawmakers also are eyeing legislation to clean up lenders' relationships with colleges and improve disclosures to students. Senate Banking Committee Chairman Chris Dodd has said he is writing a bill that would tighten standards for the market-rate private loans students typically take after they have exhausted cheaper federal options. The Connecticut Democrat plans to offer that bill on the Senate floor as an amendment to the other bills promoting ethics standards in student lending.
Banking industry representatives said the requirements could result in heightened regulatory scrutiny.
Edward Yingling, the president of the American Bankers Association, said he hopes lawmakers will recognize distinctions between the federal program, which a few large lenders dominate, and private student loans, which some banks might offer without a formalized program.
"You have a lot of banks that do what are in effect college loans, but they are not really in the college loan business," he said. "You want to make sure they don't get caught up in a very heavy regulatory burden... We want to make sure as the Congress goes forward … that it is really targeted to their specific concerns and not painting it with too broad a brush."
Sen. Dodd has said that his bill would include underwriting standards that would bar lenders from using information like a college's default rate to assign students a higher interest rate.
John Dean, a special counsel for the Consumer Bankers Association, said that even though lenders are wary of the bill, they do not think Sen. Dodd intends to upend their practices.
"We have not yet seen the legislative language, and the devil may be in the details here, but I don't think Dodd is going to prohibit those criteria. What he is going to do is to make sure that there is not a disparate impact," he said.
Credit cards are also high on lawmakers' priority list. Rep. Carolyn Maloney, the House Financial Services financial institutions subcommittee chairwoman, plans to bring major card issuers and consumer groups together for a roundtable this month.
The New York Democrat has cited concerns with several practices, including universal default and double-cycle billing, and she has said she would like industry input to develop a "gold standard" set of best practices companies could adopt voluntarily.
But several sources said they expect panel leaders, including Rep. Maloney and House Financial Services Chairman Barney Frank, to pursue more than just voluntary changes.
"It's now looking increasing likely that we're going to see meaningful legislative proposals in both houses," said Travis Plunkett, the legislative director for the Consumer Federation of America. "I think the purpose of her summit … is to see whether there are self-regulatory changes the industry can make now to help consumers. But I think she's methodically laying the groundwork for a legislative remedy where credit card companies don't change their behavior."
But Mr. Yingling said that there is little incentive for the industry to continue to agree to give up practices on its own if Congress has already decided to seek legislative reform.
"It's all very vague at this point," he said. "One issue is do we go forward with this process and then get legislation, too? Well then … where does this process lead us? If it's ultimately going to lead to legislation, it's a different conversation. … From our perspective, it would be much better if it could be dealt with without legislation."
Other financial matters will be taken up by the House and Senate Agriculture Committees. Both panels are planning to vote on farm bills this month that would include provisions to expand the Farm Credit System's lending authority.
The House Agriculture credit subcommittee approved a bill in May that would let the system's lenders make home loans in communities with a population of up to 6,000; the current limit is 2,500. The bill also would let the lenders expand business lending beyond farms and ranches to projects related to renewable energy.
Bankers oppose any expansion of the system's lending, saying it would be unfair competition for banks. But Kenneth Auer, the president of the system's trade group, the Farm Credit Council, said that more than 500 organizations, including several farmers' groups, support increased competition so farmers can get better loan rates and terms.
Banking lobbyists said that they expect the Farm Credit System to continue pushing for legislation closer to its Horizon's Project proposal, which would let the system make mortgages in towns with a population of up to 50,000 and offer commercial loans to any agriculture-related business.
"The Farm Credit System wants what they wanted from the beginning," said Ike Jones, a lobbyist with the Independent Community Bankers of America. "We hope throughout the legislative process to either restrict it further or eliminate it, and there's lots of stops along the way between now and final passage."
The House Financial Services Committee is planning to hold another hearing on how to make federal financial regulators more consumer-oriented. This time the panel will hear testimony from banking representatives and consumer advocates.
At a hearing with regulators on the topic last month, Rep. Frank proposed giving the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. the power to write rules defining unfair and deceptive practices. Currently only the Federal Reserve Board and the Office of Thrift Supervision have such power for financial institutions.
He has also criticized the Fed and other regulators for not doing enough to fix problems in the subprime mortgage market. Lobbyists said they expect the House Financial Services Committee to hold a hearing this month on predatory lending, but it was unclear what its focus would be.
Josh Nassar, a lobbyist with the Center for Responsible Lending, said that financial regulators are not designed to protect consumers, and that he hopes lawmakers will consider giving the Federal Trade Commission more power to write consumer protection rules for financial institutions.
"Congress should consider giving more authority to the FTC in light of the Fed's inactivity," Mr. Nassar said.
