State Regulation Roundup

Washington's public policy battles continue to capture the spotlight, but important skirmishes also have been playing out more locally, in state capitals around the country.

Not surprisingly, much of the action has revolved around mortgages, from a successful push in Kansas to raise an interest rate cap on home loans, to a bill in New York that would add more steps to an already lengthy foreclosure process.

Some state initiatives have the support of bank lobbying groups, but others have the industry on high alert. Here are some of the key developments.

* Two states that restrict storefront payday lending are now reconsidering. Behind the potential policy shift are concerns that consumers are flocking to unregulated online payday lenders that don't pay in-state taxes.

In North Carolina, a bill to reverse an outright ban on payday lending is pending, although the measure was dealt a blow when Republican Gov. Pat McCrory raised concerns that low-dollar, high-rate loans could add to, not ease, the financial burdens of cash-strapped families. In Washington state, a bill to expand payday lending—which has been restricted there since 2009—has passed the Senate. Consumer groups oppose both bills.

* Kansas is one of the few states to cap mortgage interest rates. At 1.5 percentage points above Freddie Mac's floating rate, its cap is by far the nation's lowest. Bankers there got a scare last year when the Freddie rate briefly fell so low that they couldn't sell their loans on the secondary market. They mounted a campaign to raise the cap to 3.5 percentage points above the Freddie rate and succeeded. The bill easily passed both houses of the legislature and was awaiting Gov. Sam Brownback's signature this spring.

* As part of a proposed settlement to an antitrust case, Visa and MasterCard have begun allowing merchants to impose surcharges on credit-card transactions. The surcharges have not caught on in any meaningful way, but the prospect of customers being charged extra to use a card has spurred lawmakers in 18 states to introduce legislation that would ban the practice. (Ten states already prohibit it.) The measure has progressed furthest in Utah, where on April 1 Gov. Gary Herbert signed into a law a measure banning surcharges, for transactions under $10,000, for the next year.

* California saw the January expiration of a tax exemption for consumers who had mortgage debt forgiven via a short sale or loan modification. Pending legislation would extend the sunset date to Jan. 1, 2014. The California Bankers Association supports the measure.

* In Minnesota, a bill to prohibit lenders from modifying a borrower's morgage while proceeding with a foreclosure stalled in committee over a host of technical issues, according to the Minnesota Bankers Association. Among the snags was the question of how the bill would square with the Consumer Financial Protection Bureau's proposed rule prohibiting the practice, known as dual tracking.

* In New York, lawmakers proposed a bill that would require attorneys to take several additional steps before initiating home foreclosures—an unwelcome development for bankers in a state where foreclosures sometimes already take as many as 900 days to complete.

The New York Bankers Association says it opposes the measure "because it places onerous, ambiguous and potentially conflicting requirements on plaintiff's counsel, which will only further delay New York's foreclosure process."

* In at least six states, bills were proposed to create, or study the idea of, a state-owned bank modeled after the only one so far, the Bank of North Dakota. In New Hampshire and Montana, legislation died in committee. Bills remain (barely) alive in Illinois, Maryland, New York and North Carolina. Similar bills were proposed in roughly a dozen states last year; all of them ultimately stalled or were defeated.