Yesterday, the Republicans swept back into power. Based on the returns this morning the Republicans have gained more than 60 seats in the House giving them the majority there. The GOP got at least six more seats in the Senate which doesn’t give them a majority but certainly increased their power to block legislation. CNN puts the House at 239 R vs. 183 D and the Senate at 51 D v 47 R. According to Reuters, Senator Dick Durbin says that no significant legislation will pass without Republican input.
What does this more business-friendly Congress mean for the payments card industry?
Wanting to clobber the card industry seems to be one of the few things this highly polarized Congress can agree on. For the last year credit card issuers have been walloped by the 2009 Credit Card Accountability Responsibility and Disclosure Act. That legislation further knocked the wind out of issuers who were already struggling with the inability of cardholders to repay their credit card loans as a result of the financial crisis. It has made it harder for issuers to make money from credit cards and forced them to cut back lending.
Where did the Republicans stand on this massive regulation of the markets?
The Senate bill passed 90-5 with only 4 Republican members of the Senate opposed (a South Dakota Democrat also voted against). The House Republicans looked a bit more favorably on the card industry: 69 Republicans voted No while 106 voted Yes. The Bill passed the House on a vote of 357 to 70. The map below from GovTracker on the CARD Act House Vote shows the political opposition to the card industry.
Then there’s Durbin Amendment which imposes cost-based price regulation on banks that provide debit cards to their account holders. It is likely to wipe out a large fraction of the revenues that banks receive from the merchants that have agreed to accept these cards for payment by their customers. Almost half the Senate Republicans—17—signed up for this. By contrast only three Republicans joined in the passage of the Dodd-Frank financial reform legislation. (There was no formal vote on the Durbin Amendment in the House.) Hands reached across the aisle to set up the Federal Reserve Board as a price regulator for the cards industry.
I was first struck by the bi-partisan hostility to the payments card industry when I was thumbing through a copy of FOX News commentator Dick Morris’ book Fleeced: How Barack Obama, Media Mockery of Terrorist Threats, Liberals Who Want To Kill Talk Radio, The Do-Nothing Congress, Companies That Help Iran, And Washington Lobbyists For Foreign Governments Are Scamming Us…And What To Do About It. As the title suggests it is a rant about liberals in Washington. Then almost out of nowhere appears a screed against the card industry. Morris’ complaint is that Congress didn’t go far enough with the CARD Act. On his blog he says,
The widely heralded credit card reform legislation making its way through Congress is a sellout to the credit card companies. Obama has proposed and Congress has passed a series of minor reforms that deal with the fringes of the problem – late billings, retroactive interest rate hikes, misapplication of payments and such – but fail to reform the most basic offense of the companies: their usury.
Then in listening to some of the other commentators on Fox I realized that many of them were also in favor of sticking it to the card industry. At least when Jon Stewart goes after the card industry it is expected and really funny.
So the card industry has done what terrorism, global warming, immigration reform, and gay rights haven’t been able to do. It has managed to to bring left and right, North and South, red and blue, the young and old, blondes and brunettes, and who knows what other random combinations together in DC.
Some of the bipartisan hostility to the card industry is well deserved. The payments card industry has managed to irritate cardholders with practices that seem and sometimes are downright sneaky. And it has taken merchants for granted even though they account for one of their major stakeholders and a lot of their revenue.
But the card industry is tremendously important for the well-being of the economy. It makes buying and selling things a lot easier which is why consumers and merchants have both embraced it and it helps juice the economy through credit. There are a lot worse industries. When it came to the financial collapse the payments industry held up remarkably well in the face of the crisis in part because of very sound business practices.
Unfortunately, the payments card industry doesn’t make much of a case for itself. There is little thought leadership that explains how the payments card industry creates jobs, greases the wheels of commerce, helps people in financial distress, or solves a myriad of problems that real Americans face every day. The result is that the industry has become a bi-partisan punching bag.
Meanwhile these populist-driven regulations are causing an awful lot of collateral damage to the people they are supposed to be helping. People in financial straits are having a harder time getting credit and paying more for it because of the CARD Act. Banks aren’t going to have any choice but to raise prices or cut services to customers in the wake of the Durbin slash in interchange fees. Consumers aren’t going to see any of those cost saving to merchants any time soon. The Consumer Financial Protection Board which is finding its legs could further restrict credit and increase in costs to consumers.
The payment card industry needs to make the case for itself. If it doesn’t, no one else will. In this case, bringing the Republicans and Democrats in warm embrace was not such a good thing.