WASHINGTON - The House is expected to vote today on a bill that would cut interest rates on certain student loans in half by slashing private lenders' subsidies.
Under the bill introduced Friday by House Education and Labor Committee Chairman George Miller, D-Calif., lenders' subsidies would be reduced by more than $6 billion to offset the interest rate reduction over five years.
The bill is part of Speaker Nancy Pelosi's priorities for the first 100 hours of House action and is expected to pass easily. The banking industry opposes the bill, arguing it would drive more banks out of the business and ultimately raise costs for students.
The legislation is one of a slew of bills introduced during the past two weeks that would affect the financial services industry. The student lending bill is on the fast track, but the prospects of most of the others are unclear.
The Senate Finance Committee is set to consider legislation today that would create tax relief for small businesses and benefit subchapter S banks with $750 million of tax cuts over 10 years. Subchapter S corporations are small, closely held companies that pass a portion of their earnings on to shareholders in the form of dividends. The number of banks structuring themselves as Subchapter S corporations has been on the rise in recent years and more banks would be allowed to qualify as such corporations under the bill.
The Senate is expected to take up the package when it considers increasing the minimum wage in the next few weeks. Big banks are concerned that the cost of the small-business tax breaks could be offset by repealing tax benefits that they currently enjoy, observers said.
Rep. Spencer Bachus, R-Ala., the top Republican on the House Financial Services Committee, last week reintroduced legislation that would let banks skip filing currency transaction reports for seasoned business customers.
Banks must file such reports for cash transactions above $10,000 and bankers have said such reports are a waste of time, arguing they are of little value to investigators' efforts to stop money-laundering.
The bill, which has 21 co-sponsors including the panel's chairman Rep. Barney Frank, D-Mass., passed the House last year in regulatory relief legislation and later as a stand-alone bill, but died in the Senate.
The outlook for the legislation in the Senate this year is unclear. Sen. Paul Sarbanes, D-Md., who was the bill's key opponent, has retired, and the new chairman, Sen. Chris Dodd, D-Conn., has not staked out a position.
Another bill introduced in the House also has questionable odds in the Senate, where it has been blocked several times.
Rep. Nydia M. Velazquez, D-N.Y., the chairwoman of the House Small Business Committee, who also sits on Financial Services, introduced a bill that would let companies earn interest on business checking accounts.
It would let banks start offering interest on business checking two years after the legislation is enacted but would also let banks immediately increase the number of times a month they sweep business funds from checking to interest-bearing accounts, from six to 24.
A bill the House passed last year would also have granted this authority to industrial loan companies, which currently are prohibited from offering business checking accounts.
"We are glad the Velazquez bill is an improvement over similar legislation passed last Congress," said Paul Merski, the chief economist at Independent Community Bankers of America. "This is not extending that power to ILCs like the previous legislation."
But observers said Sen. Bob Bennett, R-Utah, is likely to oppose such legislation if it excludes ILCs, which are mostly based in his state.
Other bills affecting the industry were introduced in the past two weeks, including one from Rep. Ginny Brown-Waite, R-Fla., that would create a federal reinsurance catastrophe fund for homeowners insurance policies. It would cover all natural disasters except floods, which are not covered in the private market and would be managed through the states.
Late Tuesday the House passed legislation by voice vote sponsored by Rep. Jim Matheson, D-Utah, and cosponsored by Rep. Frank that would lift a cap on reverse mortgages. The Housing and Urban Development Department may insure only 275,000 home equity conversion mortgages, and it is approaching that cap.
The bill would temporarily lift that cap until Feb. 15, but Reps. Matheson and Frank are expected to support legislation that would permanently eliminate the cap.
Rep. Frank also has introduced legislation to raise the FHA mortgage insurance limit on multifamily housing in high-cost areas.
Rep. Paul Gillmor, the ranking Republican member on the House Financial Services Committee's financial institutions subcommittee, introduced legislation last week that would authorize FDIC coverage for 80% of a municipality's deposits above $100,000 and cap coverage at $2 million.
