Action on Legislation

Credit Cards
HR 3639, S 1833, S 1927
The House passed legislation 331 to 92 on Nov. 4 that would require companies to immediately implement the credit card reform due to take effect in February.

The legislation is intended to keep pressure on banks to stop raising interest rates in the interim.

The bill by Rep. Carolyn Maloney and House Financial Services Committee Chairman Barney Frank would expedite sweeping credit card reform that was signed into law by President Obama in May.

It bans a slew of credit card practices and makes it significantly tougher for card companies to raise rates.

It bans double-cycle billing and universal default, limits fees and lengthens the payment period.

The bill the House passed would give some reprieve to small credit card issuers and gift card providers by letting them stay on track for the law's Feb. 22 implementation.

Senate Banking Committee Chairman Chris Dodd introduced a bill on Oct. 26 that would bar card companies from raising rates before the new law takes effect.

Sen. Mark Udall, D-Colo., introduced a companion bill to Maloney's on Oct. 21.

It is unclear whether the Senate will follow suit, but no vote is immediately planned on either bill.

Consumer Agency
HR 3126
The House Financial Services Committee approved a bill 39 to 29 on Oct. 22 that would create a consumer financial protection agency.

The Frank bill won support from one Republican, Rep. Mike Castle of Delaware, and was opposed by two Democrats: Reps. Travis Childers of Mississippi and Walt Minnick of Idaho.

The bill would strip the Federal Reserve Board of its power to write consumer protection rules and give that authority to an independent agency led by a director appointed by the president and confirmed by the Senate.

The agency's governance must be hashed out with the House Energy and Commerce Committee, which approved the same bill 33 to 19 on Oct. 29 but altered it to provide for a five-member commission to run the agency.

Frank has said that "going from a single executive able to act promptly and efficiently to a five-member commission with staggered terms will weaken the capacity of the agency to provide consumer protection."

In order to ease passage of the bill in the banking committee, some tweaks were made.

The House Financial Services Committee adopted an amendment from Rep. Brad Miller, D-N.C., that would let community banks and small credit unions continue to have their primary regulator enforce consumer protections but would give the consumer agency backstop authority and the power to intervene.

The consumer agency would enforce consumer protection laws like the Home Mortgage Disclosure Act and the Truth in Lending Act and be tasked with regulating banks and nonbank lenders, including check cashers, payday lenders and mortgage brokers.

But several niche industries were carved out, including auto dealers; manufactured-home brokers; realty agents; lawyers; accountants; mutual funds, and credit, title and mortgage insurance.

One of the bill's most controversial aspects is that it would let states enforce the consumer agency's standards and write and enforce even tougher laws. The bill's initial version would have wiped out federal preemption by applying such state standards to national banks.

But the panel approved an amendment from Rep. Mel Watt, D-N.C., that tries to restore the Office of the Comptroller of the Currency's preemption power to its level from before the agency issued its 2004 blanket preemption rules.

The measure would let the OCC preempt state standards on a case-by-case basis when they substantially interfere with the business of national banking. The banking industry is expected to keep pushing to broaden this standard, saying it does not go far enough to guarantee a smooth continuation of their operations.

New Legislation

Regulatory Reform
Dodd introduced a comprehensive bill on Nov. 10 that would reform the regulatory structure — and it goes well beyond similar measures in the House.

The most striking difference is the level of power the bill would entrust to the central bank.

Dodd's draft Restoring American Financial Stability Act would strip all banking supervisory power from the Federal Reserve Board, leaving it with a narrow mission centered on monetary policy, serving as lender of last resort and overseeing the payments system.

Frank's bill would keep the Fed as a banking supervisor and give it additional power over systemic risk. The Dodd bill would consolidate the Fed's supervision of state member banks and bank holding companies in a new, consolidated banking regulator to be called the Financial Institutions Regulatory Administration, or FIRA.

The Federal Deposit Insurance Corp.'s state banking supervision would also be put into the new bank administrator, leaving it to run the Deposit Insurance Fund and with enhanced authority to resolve systemically significant companies.

The single bank administrator would also swallow up the OCC and the Office of Thrift Supervision while eradicating the thrift charter.

It would be led by a five-member board headed by an independent chairman who would be appointed by the president and confirmed by the Senate. The rest of the board would include a vice chairman representing state banking expertise, two independent directors, and the heads of the Fed and FDIC.

The Dodd bill also would establish a systemic risk council headed by a presidential appointee to safeguard the financial system as a whole.

The bill would establish a systemic risk agency that would have rulemaking authority but no supervision power. It would have nine members, governed by an independent chairman and including the heads of the Fed, Treasury, FDIC, FIRA, the consumer protection agency, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The council would be staffed by a group of economists, accountants, lawyers, former supervisors and other specialists. It would have the power to break up systemically risky companies, force them to increase their capital and limit their growth.

It would recalculate deposit insurance premiums to include assets as a way to insure against risk posed by larger companies.

It would also require institutions to issue long-term hybrid debt securities to set up capital reserves to be tapped during an emergency.

Frank has argued that there is no surefire way to protect the dual banking system unless there is more than one banking supervisor, and he has defended the FDIC's oversight of state nonmember banks.

The Dodd bill would establish a consumer financial protection agency that would erode any form of federal preemption, allowing states to set and enforce tougher consumer protection standards against national and state banks.

Dodd's bill would focus resources on companies that pose the biggest risk to consumers, including mortgage bankers, brokers, finance companies and the largest institutions. For mortgage securitizations, the Dodd bill would require originators to retain 10% of the risk. Frank has included a similar provision in his bill.

The consumer agency would be led by a five-member board, including the chairman of the new consolidated banking regulator and led by an independent director.

The legislation would require large, complex companies to draft emergency plans should the company go insolvent.

The plans would have to detail the companies' orderly shutdown. Penalties for failing to provide "funeral plans" could include higher capital requirements, further restrictions on growth and activity and forced divestment of risky activities.

The FDIC's resolution powers would be enhanced to target any systemically risky firm. The costs for their dismantling would be paid from assessments after the collapse on institutions with more than $10 billion of assets.

Systemic Risk
HR 3996
Frank introduced the Financial Stability Improvement Act on Oct. 27 after detailed negotiations with the Treasury Department. It would make federal regulators identify, and advise action to curtail systemic risk but give the Fed the power to act.

The bill also would expand the FDIC's resolution powers to unwind systemically significant companies.

The House Financial Services Committee began debating the bill last week and plans to continue when the House reconvenes next week.

Frank has said the legislation will take several days to amend before a final vote can be called on it.

A key area that is expected to change is the mechanism for funding resolutions of systemically risky companies.

Frank is in talks with the FDIC about requiring institutions to pay premiums up-front to pool into a fund before a failure occurs rather than charging assessments after a company has been shut down.

The Treasury has pushed back, arguing that setting up an up-front insurance fund creates moral hazard, but supporters have argued that it is much harder to collect after the fact.

The panel approved a few amendments on Nov. 6, including one from Rep. Dennis Moore, D-Kan., that would end the "qualified receiver" option so that failed companies could only be put into receivership, not conservatorship.

The panel also approved an amendment from Frank that would remove a provision to let the Fed veto supervisory determination by a primary regulator.

Overdraft Limits
HR 3904, S 1799
Dodd introduced a bill on Oct. 19 that would require banks to give their customers the chance to opt in to overdraft protection before they could be charged an overdraft fee.

Frank and Maloney introduced a similar bill on Oct. 22.

Both bills would prohibit the manipulation of check clearance or other reordering of transactions to maximize fees.

The bills would cap the number of fees at one per month or six per year. They would require that the size of fees be in proportion to the transaction's operational cost.

The legislation would also require that consumers be warned when automated teller machine transactions could overdraw their accounts and be given the option to cancel the transaction.

The bills would also require the Government Accountability Office to weigh the feasibility of offering such service at the point of sale.

The legislation remains a threat to the banking industry. Credit card legislation passed the Senate overwhelmingly this year, and industry representatives worry that, if overdraft bills start moving, they could fly through, too.

The bills are also designed to put pressure on the Federal Reserve Board as it crafts its own plan to rein in such fees. The central bank is weighing whether banks must offer consumers a chance to opt out of overdraft protection or must first get their permission before enrolling them in such programs.

The House Financial Services Committee held a hearing on overdraft fees on Oct. 30.

It is planning to hold a vote shortly after lawmakers return from the Veterans Day recess. A tentative vote scheduled for last week was pushed back because of scheduling issues.

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