Bank Reform Dies in Senate; House OKs Bankruptcy Bill

Chances of an overhaul of 65-year-old laws governing the financial industry died in Congress on Friday, while legislation to change bankruptcy laws to make it tougher for people to erase their debts cleared the House. However, the Senate neared year-end adjournment without voting on the bankruptcy measure.

The banking overhaul bill, supported by a wide array of banks, brokerages and insurance firms, died on the Senate floor as lawmakers were unable to resolve a dispute over fair-lending laws and a turf battle between the Federal Reserve Board and the Treasury Department.

“It’s dead,” Sen. Phil Gramm (R-Texas) said. His sentiments were echoed by Senate Democratic staff members and by lobbyists.

Brokerages, insurers and some of the nation’s largest banks earlier this year had reached an unprecedented agreement on reforms that would allow more crossover onto each others’ turfs.

But consumer groups have been opposed to the reforms, fearing that even bigger financial conglomerates would result, charging high fees and stripping away consumer privacy.

Despite the efforts of congressional leaders over the last few days to reach a compromise, Gramm had threatened a filibuster over his concerns the bill would impose burdensome community lending requirements on major financial firms.

Meanwhile, racing toward the end of Congress’ session, the House voted 300 to 125, with Democrats split and Republicans in solid support, of legislation to overhaul bankruptcy laws. But the White House renewed its threat to veto the bill.

Alarmed by the rising tide of personal bankruptcies in a strong economy, lawmakers in both houses have been pushing for a crackdown on perceived abuses of Bankruptcy Court protection.

The number of Americans filing personal bankruptcies last year neared 1.4 million, up more than 300% since 1980.

“Congress is sending a strong message that no one should be allowed to act irresponsibly and simply wash their hands of the consequences, leaving others to pay the price,” said House Majority Leader Dick Armey (R-Texas). “If the president vetoes this bill, he is endorsing irresponsibility.”

Credit card giants Visa and MasterCard and retail groups have lobbied intensely for stringent legislation.

The companies say their losses from forgiven debts have forced them to raise interest rates for consumers who borrow responsibly.

Democratic opponents have denounced the measure as a sellout to credit card companies--and the banks that control them. They say it would plunge financially strapped individuals into debt for the rest of their lives.

They insist that the credit card networks share the blame for mounting debt by aggressively mailing millions of solicitations to hook consumers.

In the Senate, GOP backers of the legislation have taken a more temperate approach than their House counterparts to making debtors shoulder responsibility.

Talks between White House officials and Senate backers to seek a compromise President Clinton would sign broke down Friday morning.