Legislative Update: NEW LEGISLATION

Republican of Louisiana

Last month, Rep. Bill McCollum, R-Fla., unveiled his plan to shore up the Savings Association Insurance Fund. The measure, HR 1769, would make banks shoulder 75% of the annual interest tab on Financing Corp., or Fico, bonds. In return for help on Fico, the bill would reinstate the Federal Deposit Insurance Corp.'s authority to rebate money to banks once the fund climbs above its mandated 1.25% reserve ratio.

The measure would also merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency. And once both bank and thrift insurance funds are fully capitalized, they would be merged as well. Under the bill, one year after the funds are merged, thrifts would be forced to convert to bank charters.

Community Reinvestment Act

Rep. McCollum also introduced HR 1699, which would essentially pare the Community Reinvestment Act to a disclosure form available to customers.

The McCollum bill has been met with protest among community groups, angry about a provision that would restrict the Justice Department's fair- lending investigations to only those cases that are referred by an institutions's primary regulator. The measure would also bar regulators from halting bank mergers, acquisitions, and branch openings because of poor CRA ratings.

Retirement CD

Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y., introduced legislation last month that would strip federal deposit insurance coverage from the controversial Retirement CD.

The investment product resembles a traditional annuity but is insured by the Federal Deposit Insurance Corp. Bankers like the Retirement CD because it generates fee income and provides guaranteed, long-term deposits. However, Sen. D'Amato and other lawmakers don't like the fact that the instrument exposes the deposit insurance system to risk.

Earlier in this Congress, Rep. Marge Roukema, R-N.J., introduced similar legislation, HR 1574, that would simply ban bank sales of the Retirement CD.

Legislative sources said these measures have a good chance of passage but may become moot if the Internal Revenue Service pursues a proposal to yank the tax-deferred status of the Retirement CD.

National Credit Union Administration

The Credit Union Reform and Enhancement Act of 1995, introduced by Sen. D'Amato and Sen. Paul Sarbanes, D-Md., would increase the authority of the National Credit Union Administration over state-chartered organizations.

The measure, S 883, would allow the agency to curtail practices by state credit unions that aren't allowed under federal law, give the NCUA more leeway in seizing state credit unions, and ban federally insured credit unions from investing in nonfederally insured corporate credit unions.

UPDATE ON PENDING LEGISLATION

Financial Industry Modernization

House leaders agreed on a plan to move Rep. Jim Leach's Glass-Steagall bill without amendment, but to tie it to a separate package including regulatory relief and restraints on the Comptroller of the Currency's ability to authorize new bank insurance powers. Bank lobbyists are threatening to oppose both billls as a result. Commerce subcommittees followed the lead of full committee chairman Thomas J. Bliley and passed the Glass-Steagall bill as scheduled this week, and a House Banking subcommitte began deliberations on regulatory relief.

Rodash Moratorium

The President last month signed legislation placing a moratorium on all Rodash-style class actions brought under the Truth-in-Lending Act. The ban will last until Oct. 1. The bill passed the Senate on April 24, after the House approved it on April 4. It was sponsored in the House by Rep. McCollum and Rep. Henry B. Gonzalez, D-Tex., among others.

HR 1380 gives Congress breathing room to deal with Rodash, a case in which a Florida court permitted a debtor to rescind her mortgage, collecting fees and interest she paid to the lender, because of a technical error in the loan documents.

Federal Home Loan Bank System

The administration last month unveiled legislation that would make membership voluntary for both banks and thrifts, while limiting the ability of departing institutions to pull capital out of the system. The proposal thus answers two major concerns: complaints by thrifts that they are compelled to join the system, while banks are free to come and go, and worries over the impact of voluntary membership on the system's capital base.

However, the allocation of the Resolution Funding Corp. bond interest among the 12 Home Loan banks is proving to be the most contentious issue in the quest to modernize the system, since it creates as many winners as losers.

Rep. Richard Baker, R-La., introduced similar legislation, which is scheduled to be voted on in House Banking's capital markets subcommittee on June 28.

SNAPSHOTS

Regulatory Relief

Regulatory relief suffered a setback when House leaders decided to add an amendment to its HR 1362, the House version of the bill, limiting the authority of the Comptroller of the Currency to authorize new bank insurance powers. The Senate version of regulatory relief is S 650.

Insurance Regulation

HR 1317, sponsored by House Commerce Committee Chairman Thomas Bliley and Rules Committee Chairman Gerald Solomon, would give states the right to limit insurance powers for national banks. Bank lobbyists are worried that the measure could be tacked onto Glass-Steagall repeal legislation or the regulatory relief bill.

Tax-Free Savings

On April 25, Sen. Pete V. Domenici, R-N.M., and Sen. Sam Nunn, D-Ga., introduced a tax bill that would exempt from federal income tax net increases in bank accounts, among other investments.

Fair Credit Reporting

A bill introduced by Sen. Christopher S. Bond, R-Mo., that would revamp credit reporting laws presents lenders a mixed bag of pros and cons.

The measure, S 709, would make compliance easier and less expensive by replacing a patchwork of state credit reporting requirements with a uniform federal statute. The federal preemption would last eight years after the bill is enacted.

However, some industry sources say the preemption would not go far enough because it does not cover state laws that hold banks liable for mistakes in credit reports.

FDIC and NCUA Board Membership

Sen. Phil Gramm, R-Tex., is sponsoring legislation that would add a state bank regulator to the Federal Deposit Insurance Corp.'s five-member board.

Sen. Gramm also introduced a bill that would add two members to the National Credit Union Administration Board.

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