Credit-Card Bill Progressing, But ‘Cramdown' Is Doubtful

Two consumer-oriented pieces of legislation opposed by the financial services industry appear to be headed for radically different fates in Congress.

A credit card reform bill with enhanced consumer protections is progressing fairly smoothly, while a so-called cramdown bill—which would let homeowners use bankruptcy court as a an alternative to the foreclosure process—appears unlikely to become law, according to business and Congressional sources.

The difference may be as simple as the level of pubic support from the White House at a time when relations between the administration and the financial services industry are deteriorating amid tension over TARP money, bank stress tests and executive pay.

“There will be a credit card bill,” predicts one well-placed industry source. “It makes sense. Everybody in America understands the issue. If you had to pick a legislative fight, with this you win.”

“The cramdown is a much tougher one to do, which is part of what is going into the thinking,” says veteran banking analyst Bert Ely of Ely & Co. “There’s a lot of people who don’t have a mortgage. Credit cards are more of a populist issue.”

For the second time in a week Wednesday, the Obama administration made credit card reform a high profile event, throwing its considerable support behind the legislation, whose provisions include greater transparency and disclosure, protections against fees and penalties and limits on rate increase in particular cases.

Treasury Secretary Timothy Geithner Wednesday met with members of congress, consumer groups and others supporting credit card reform. The Treasury Secretary and the president himself met with credit card industry executives at the White House a week ago.

Right now, the credit card legislation—whose sponsors include key committee chairs Sen. Christopher Dodd (D-Conn.), Rep. Barney Frank (D-Mass.), and Carolyn Maloney (D-NY)—appears headed for approval on both sides of the Congress and then a compromise version.

The House votes on its version Thursday, when it is expected to pass with a sizable majority, including a respectable number of Republicans. The Senate may take up the bill as early as next week.

Sen. Richard Durbin’s (D-Ill.) cramdown proposal is taking a less conventional route and faces significantly more headwinds.

The Senate majority whip mas managed to get vote on the measure Thursday—as an amendment to a major piece of housing legislation,—having struggled to get a stand-alone bill out of the Senate Judiciary Committee. In contrast, the House earlier this year, passed a watered-down version, which is said to have greater appeal.

Though credit card reform appears to have wide appeal within Congress, the House and Senate versions vary enough that some compromise is expected.

Dodd’s version of the legislation,“The Credit Card Accountability, Responsibility and Disclosure Act," is considered tougher on business than the Maloney-Frank house version, known as the “Credit Cardholder’s Bill of Rights Act", which has many similarities to new Federal Reserve rules that take effect in July 2010.

Differences aside, the credit card legislation has also become something of a high profile and symbolic battle between Democrats and big banks amid the broader drama of the government’s extensive efforts to prop up the financial services industry.

“What you're seeing is a lot of political grandstanding,” says veteran banking analysts Bert Ely of Ely & Co. “This a battle that has been going on for years, with ebbs and flows. Some see this an opportune time to take it up again.”

Like previously imposed limits on executive compensation, the credit card measures are being pushed on the banks partly on the grounds that they have benefited from taxpayer support through the TARP program.

“So many people are hurting and many of the firms have received TARP money," says Rep. Brad Sherman (D-Calif.), a senior member of the House Financial Services Committee.

Similar legislation has failed before, but Sherman likes the chances this time around.

“The only reasons you wouldn’t have a strong bill become law is the 60-vote requirement in the Senate,” says Sherman, who also supports cramdown but it realistic about its chances and wary of its potential negative impact on interest rates. “The TARP money could be one of several factors that add up 60 [votes]," he added.

Another factor, as was the case with the crackdown on executive compensation, is strong public support.

Senate Majority Leader Harry Reid (D-Nev.) Monday said the legislation “will not be real easy to do, but polling numbers indicate that almost 90 percent of the American people want us to do something with credit cards, so it is something we have to do.”

Business opposition also happens to be less virulent than with the cramdown legislation, even if both measures present some of the same concerns.

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“The challenge with cramdown and credit cards is to protect the consumer but avoid negative consequences to the market, by restricting credit or raising the cost of credit,” said Scott Talbott, SVP for The Financial Services Roundtable, reflecting a general industry view.

Kathleen Day of the Center for Responsible Lending, says, “there seems to be a lot of momentum for that [credit card legislation] because everyone has a bad story about a credit card company,” but she is quick to add “bankruptcy is not dead yet.”

Consumer advocates like Day, as well as some on Capitol Hill, remain hopeful.

“It’s not a matter of one of the other," said one Senate aide, close to the legislative process. “There will be changes to the industry and the industry recognizes that. It’s not about how much; it’s about how they should change.”

That may be, but with relations between the government and industry strained, it may come down to the President picking his horse then resorting to the bully pulpit to get it through the Senate.

"Yes,” says Sherman. “It is good policy, good politics and a good use of the President's time.” For more stories from CNBC, go to

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