Mount Rushmore Comes to Bernanke
South Dakota isn’t a big state. In fact, there are 46 other states with more people than South Dakota. But for years, the state’s favorable state banking laws has made it a magnet for national banks like Citigroup with high-interest bearing credit cards.
That’s why South Dakota officials were up in arms last December when they learned the Federal Reserve was poised to adopt a regulation that would make it more difficult for banks to issue high-interest credit cards to consumers with shaky credit histories. The state’s government feared that the regulation might imperil the jobs of some 5,000 state residents that work in the so-called subprime credit card business.
So South Dakota’s elected officials kicked it into high-gear, putting on an impressive lobbying effort to persuade the Fed to change its mind. Over a weeklong stretch in mid-December, South Dakota’s entire congressional delegation got more face time with Federal Reserve Chairman Ben Bernanke than the top executives of Citigroup and Bank of America.
Beginning on Dec. 10, Bernanke fielded a series of half-hour phone calls from South Dakota’s two US senators and the state’s lone member of the House of Representatives. The state’s full-court press culminated on Dec. 16 with a phone call with Bernanke, Democratic Sen. Tim Johnson, Republican Sen. John Thune and Republican Gov. Michael Rounds.
But despite all that lobbying, the South Dakota delegation didn’t get what it was looking for from the Fed. On Dec. 18, the Fed approved the measure putting limits on subprime credit cards, along with other regulations designed to protect consumers from “unexpected interest charges.” In enacting the series of regulations, Bernanke said: “These protections will allow consumers to access credit on terms that are fair and more easily understood.’’ The new rules are slated to take effect in July 2010.
Rounds said he’s disappointed by the Fed’s action, but added the state’s delegation got a fair hearing from Bernanke. “These jobs are on the line now,’’ said Rounds.
The dates and times of the meetings between Bernanke and South Dakota officials were provided to BusinessWeek’s Unstructured Finance blog by Kenneth Thomas, a finance lecturer at the Wharton School of Business. For nearly a decade now, he has been submitting Freedom of Information requests for the daily schedule of the Fed chairman. The schedule doesn’t reveal much, expect for the names of the various people the chairman meets with on a given day.
But the diary is proving to be a useful road map for trying to figure out the inner workings of the Fed, especially during the still unfolding financial crisis. Thomas said the lobbying by the South Dakota delegation, however, stands out. He can’t recall another time when so many officials from the same state have managed to get the ear of the Fed’s chairman.
“Occasionally you will see a governor come in, or a senator,’’ said Thomas. “But I’ve never seen a full state contingent.’’