Credit Card Legislation Battle Looms : * Finance: A House vote may take place next week. The Administration opposes the moves.

By ROBERT A. ROSENBLATT

Nov. 15, 1991 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

A surprise move to put a ceiling on credit card interest rates gained momentum in Congress on Thursday, and the House killed a major bank reform bill for the second time in 10 days.

House Speaker Tom Foley (D-Wash.) said there is a “high likelihood” that the House will vote on the credit card issue next week. The Senate overwhelmingly adopted a 14% interest rate ceiling Wednesday night as an unexpected amendment to a major bill providing financial aid to the insurance fund.

A ceiling on credit card charges “certainly has the effect of helping people in the middle-class, middle-income brackets, who are faced with very high interest rates on credit cards when interest rates are declining generally in other areas of credit,” Foley told reporters at a Thursday news conference.

The Bush Administration, caught off guard by Congress’ sudden enthusiasm for placing a cap on credit card rates, promised a determined fight to strip the amendment from the final banking legislation.

Treasury Secretary Nicholas F. Brady said Thursday, “We should let the marketplace determine the rates, not inflexible legislation that . . . could reduce credit (available) to Americans by $100 billion.” The Administration “strongly supports lower credit card rates” but just as firmly believes that government should not set the rates, he said. A formal ceiling could “eliminate one-third to two-thirds of outstanding credit cards, is regressive and would benefit the more fortunate at the expense of the less fortunate,” Brady said.

The proposed legislation also prompted an outcry from banks and other credit card issuers, and led to a selloff of stock in companies with ties to the credit card business.

Analysts said investors fear that the legislation would lead to a sharp drop in issuance and use of the cards. Among companies hurt was MBNA, whose stock fell $5.50 to $31.25, and Advanta, which tumbled $8 to $30.50.

Pete Hart, the president of MasterCard International, which has issued 90 million cards in the United States, said in an interview that member firms in the credit card program make a profit of $1.90 after taxes for every $100 in credit card charges. A 14% ceiling would cut their income by $4.80, wiping out profits and putting the institutions issuing the cards “under water,” he warned.

Banks would be forced to “impose very strict controls, with a lot less credit to the marketplace at large,” Hart said. Firms would be much more restrictive in distributing credit cards, eliminating many current customers, he warned.

The average rate on credit cards has “hovered between 18.7% and 18.9% this year, with seven of the 10 largest credit card issuers now charging identical rates of 19.8%,” said Rep. Frank Annunzio (D-Ill.), who is sponsoring legislation in the House identical to the amendment adopted by the Senate.

“Americans are fed up with paying these high rates because banks have lost money on loans to Third World countries or (on) leveraged buyouts,” said Annunzio, who is chairman of the financial institutions subcommittee of the House Banking Committee. “It is legalized loan sharking. It is putting a plastic pistol to the head of credit card customers and extorting money.”

Annunzio failed to get the unanimous consent needed under House rules to attach the amendment to the bank reform bill Thursday but will offer it next week as a separate piece of legislation.

The cost of money to banks has dropped sharply this year as the Federal Reserve system repeatedly reduced the interest rate it charges for loans to banks. The Fed’s discount rate is 4.5%, the lowest in 18 years.

The Senate action would set the ceiling at four percentage points above the level charged by the Internal Revenue Service for underpayment of taxes. The IRS rate now is 10%, and the credit card ceiling would therefore be 14%.

Meanwhile, the House again defeated a major bank reform bill. The vote was 227 to 191 to reject a measure allowing banks to move across state lines and providing $70 billion in borrowing for the federal deposit insurance fund.

The rejection almost certainly kills any chance for significant expansion of bank powers this year. The House will probably pass a very limited bill, providing $70 billion in borrowing authority for the federal insurance fund, which guarantees deposits up to $100,000 and will run out of money by year-end. The bill is also expected to give regulators expanded powers to intervene early when a bank suffers financial problems.

The defeated bill was opposed by much of the banking industry because it had amendments favored by the insurance industry to strip the banks of some of their current powers to market insurance, and by the real estate industry to bar banks from entering the business of real estate and brokerage.

The bill is “a jalopy,” complained Rep. Charles Schumer (D-N.Y.).

“I had a jalopy in college,” he said. “It had a piece from a ’56 Chevy and one from a ’56 Ford. It moved, but it didn’t run very well.”

Credit Tips

Here are some sources of information on credit card rates, fees and grace periods:

Consumer Credit Card Rating Service

P.O. Box 5219

Santa Monica, Calif. 90409

(310) 392-7720

Bank Rate Monitor

P.O. Box 088888

North Palm Beach, Fla. 33408

(407) 627-7330