Summary
The article is about the wrangling in Congress to enact a so-called "Consumer Protection Agency." But it carries a threat to bankers. If they don't stop trying to block a CPA, Congress will enact piecemeal bills that will prevent card issuers from being able to reprice in response to the CARD Act and will regulate interchange pricing downward.
Analysis
Support in Congress for a CPA is soft and not improving. The position of the banking industry is holding sway. To turn things around to favor the new agency, its Democratic supporters are trying to force banker acquiesence with threats against the bankcard industry, which is struggling to return to solvency. Bills to move up the effective date of the CARD Act and to reduce interchange fees, if enacted, would undoubtedly reduce card issuer revenues in the billions. That in turn would cause issuers to adopt tougher credit standards that would significantly reduce account approvals and credit lines, which in turn would reduce consumer spending to the detriment of merchants. Which of these legislative scenarios, if any, will quickly pass through Congress? Can the bank trade associations carry the day? What do the merchants really want? What's the "pro-consumer" argument for each of them? Or will all of them harm consumers instead? Is it possible that the push to move the CARD Act date forward is to help pass health reform legislation? Is the CARD Act a threat to such legislation or the means to tarnish the health care industry?
Duncan MacDonald consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
