Although the Senate Banking Committee has voted to adopt comprehensive credit card reforms, the close margin cast doubt on its odds for enactment.
The 12 to 11 vote on March 31 included no Republicans, and one Democrat, Sen. Tim Johnson of South Dakota, voted against it.
To enact the bill, observers said, Senate Banking Committee Chairman Chris Dodd would need to temper it significantly.
"The vote in the committee is a sign of weakness, not a sign of strength," says Brian Gardner, an analyst with Keefe, Bruyette & Woods Inc. "The bipartisan vote was against it. ... I'm not sure how much Senator Dodd is willing to negotiate on this and compromise. I suspect the longer this process goes along, the less likely legislation becomes law."
Dodd emphasized after the vote that he was willing to cut a deal.
"My inclination is always to try and come to some agreement when we can," the Connecticut Democrat told reporters after the hearing. "This is going to be difficult. I knew that. ... Unless you bring it up and push it, you never get people to sit down."
If Johnson's vote is any indication, however, passage in the Senate could be a heavy lift.
Dodd needs at least 60 votes to guarantee passage, and he will need the help of nearly all Democrats and at least a few Republicans.
But Johnson said it was a mistake to push a bill before new rules from the Federal Reserve Board and other regulators go into effect next year.
The bill would "harm the credit card consumers, not help," he said. "At a time when Americans are already seeing their credit card interest rates rise and their credit limits decrease, this legislation could mean that even fewer consumers get credit and lines of credit are greatly reduced."
Dodd's bill would go further than the card regulations finalized by the Federal Reserve Board and other regulators, which would define several common practices like double-cycle billing and universal default as unfair or deceptive. It also goes further than a bill by Rep. Carolyn Maloney, D-N.Y., which the House Financial Services financial institutions subcommittee was expected to take up in late April. Her bill, which cleared the House last year, would expand upon the Fed's card rules and speed up the implementation of reforms to 90 days after enactment.
The regulators' rules would not go into effect until mid-2010, and Fed officials have said that it would be practically impossible for card issuers to update their systems in less than 18 months.
But Dodd's bill would take effect immediately and includes provisions designed to protect college students from card debt. It would require issuers to ensure that borrowers under 21 have the ability to repay, have a parent co-sign or pass a credit-counseling course.
Unlike the Fed proposal, Dodd's bill also would add several fee restrictions. It would ban charging interest on fees, prohibit fees to pay bills and restrict over-the-limit charges.
Consumer groups have argued that the bill is long overdue. The banking industry, though, has vowed to keep fighting the legislation.
"Any time you apply such rigid parameters as those contained in this bill to an industry as competitive as credit cards, you're going to disproportionately burden the smaller players in the market," says Jason Kratovil, a vice president of government relations with the Independent Community Bankers of America. "Community bankers want to offer cards but are going to find it difficult in such a restrictive environment."
Johnson is not the only Democrat opposing the bill. Sen. Tom Carper, a former member of the Banking Committee, says the measure raises concerns about cutting off credit from consumers. Observers say Democratic opposition could doom the bill's chances. "The fact Johnson voted no is probably the end of it as far as its prospects in the full Senate are concerned," according to one industry lobbyist, who did not want to be named. "That it comes against the backdrop of unanimous Republican opposition, that's what seals the deal."
Still, Sen. Richard Shelby of Alabama, the panel's lead Republican, expressed a willingness to support the measure if Dodd made some changes.