Action on Legislation Financial Modernization
Killing financial services reform for 1998, Senate Majority Leader Trent Lott set the bill aside Oct. 9 under heavy opposition from Sens. Phil Gramm, R-Tex., and Richard C. Shelby, R-Ala.
Supporters tried to attach the legislation to a catchall spending bill that congressional leaders and the White House will finish before lawmakers adjourn this week. But the effort was given virtually no chance of success, meaning next year's new Congress will have to start from scratch to restructure the financial industry.
Sens. Gramm and Shelby used procedural tactics to stall the bill because they opposed provisions that banking units of financial holding companies maintain a "satisfactory" Community Reinvestment Act rating in order to affiliate with insurance or securities firms. They also objected to CRA enforcement powers in the bill and the extension of CRA to uninsured wholesale financial institutions affiliated with banks.
Like the House bill approved by a 214-to-213 vote on May 13, the legislation would have let banks, securities, and insurance companies combine. Both versions also would have barred banks from owning commercial businesses, expanded access to the Federal Home Loan Bank System for small banks, and imposed limits on unitary thrift holding companies. Banks favored the Senate Banking version because it would have provided more protection from state laws that interfere with bank sales of insurance. Bankruptcy
Consumer bankruptcy reform stalled in the Senate last week under heavy Democratic opposition and a White House veto threat. Like backers of the financial reform bill, supporters hoped to attach the legislation to the wrap-up spending bill at the end of the session but faced long odds.
The House approved compromise legislation by a 300-to-125 vote Oct. 9. Melding the House and Senate versions would have let court-appointed trustees review each bankruptcy petition and decide within 10 days based on the consumer's income and living expenses whether the debtor should be required to repay some unsecured debts in Chapter 13 or eliminate it in Chapter 7. Creditors also could have forced consumers who earned more than the median income into Chapter 13 if the debtor could afford to repay either 25% of unsecured debt or $5,000 over five years. Consumers would have been able to challenge actions by creditors and trustees before a federal bankruptcy judge.
But the Clinton administration and Sen. Richard J. Durbin, D-Ill., attacked the compromise for determining who could file Chapter 7 as too rigid. They also complained that it weakened consumer protections in the Senate bill sponsored by Sen. Charles E. Grassley, R-Iowa, which was approved by a 97-to-1 vote Sept. 23. The House approved its original bill by a 306-to-118 vote June 10. Student Loans
President Clinton signed the Higher Education Amendments of 1998 into law Oct. 7, softening the recent interest rate cut on new student loans.
An 80-basis-point drop in rates took effect July 1, but the new law provides a 50-basis-point subsidy that is expected to cost the government $1.2 billion over five years. The President had opposed the subsidy but relented so banks would continue making government-guaranteed loans to students.
House and Senate negotiators in late September struck a deal that blended differing versions of the large higher education spending bill which included the subsidy for bankers. The compromise settled a dispute over interest rates on consolidated student loans. Under the deal, the government can continue charging a lower rate when students consolidate their direct government loans until Feb. 1. After that, rates would be the same for government and private lenders. Regulatory Relief
The House approved a regulatory relief bill for banks Oct. 9, but the Senate was not expected to take up the bill before adjournment.
House Banking Chairman Jim Leach convinced Republican committee members to drop a provision that would have exempted banks under $250 million of assets from CRA.
The bill-like the Senate Banking Committee version approved July 30- would have rolled back dozens of minor, outdated rules on banks and thrifts and would have permitted the Federal Reserve Board to pay banks interest on reserves. Both also would have expanded the use of sweep accounts, in effect allowing banks to pay interest on business checking accounts. But the House bill would have barred payment of interest on checking until Oct. 1, 2004, while the date in the Senate Banking Committee's version was Jan. 1, 2001.
Some senators balked over the provisions regarding interest on business checking and the method for funding the Fed's payment of interest on reserves. The Clinton administration last week repeated its opposition to the House bill because of its $800 million price tag over five years. FHA Loans
President Clinton is expected to sign into law a large appropriations bill that would raise the caps on mortgage loans insured by the Department of Housing and Urban Development's FHA program. The spending bill for housing, veterans, and other programs would let the FHA program insure residential mortgages as large as $197,621 in high-cost areas and $109,032 in the cheapest housing markets. The current limits are $170,362 and $86,317, respectively. The Senate approved the compromise legislation by a 96-to-1 tally Oct. 8 after the House voted 409 to 14 in favor on Oct. 6. Privacy
Prospects for legislation that would make it a federal crime to trick banks into divulging private customer data appear to have died.
The House Commerce Committee on Sept. 24 amended the House Banking Committee version approved Aug. 5, which the industry supported. Commerce added provisions for restitution for victims and dropped a requirement that alleged violators must have an "intent to deceive" a financial institution when improperly obtaining information. Senate Banking Committee Chairman Alfonse M. D'Amato had been expected to push through a bill identical to House Banking's but encountered opposition from Democrats.
