Action on Legislation

Financial Modernization

Senate Banking Committee Chairman Alfonse M. D'Amato abruptly postponed the committee's Sept. 3 vote on financial reform legislation for as many as two weeks.

The primary roadblock was a proposed amendment by Sens. Phil Gramm and Richard C. Shelby that would have eliminated a requirement in the House bill that banking units of financial holding companies maintain a "satisfactory" Community Reinvestment Act rating or face divestiture. It also would have nixed the extension of the CRA to uninsured wholesale financial institutions and a requirement that banks offer low-cost checking accounts.

The delay reduces the already slim chance that the full Senate can approve the complex bill before adjournment in October.

Ironically, banking trade groups have softened their opposition because negotiations between New York banks and insurance officials produced favorable changes to provisions governing bank sales of insurance. They also are counting on more limits on unitary thrifts, expanded access to Federal Home Loan banks for small banks, and elimination of the mandate for affordable accounts.

But those pro-bank changes are likely to anger insurance agents, the thrift industry, and consumer advocates.

Other obstacles remain. In an Aug. 7 letter to Sen. D'Amato, White House Chief of Staff Erskine B. Bowles said the President would veto the bill unless restrictions on bank operating subsidiaries are removed.

Legislation that would allow mergers among banking, securities, and insurance firms passed the House by one vote on May 13. Bankruptcy

The Senate was poised late Wednesday to vote whether to limit debate on bankruptcy reform legislation. A positive vote would all but ensure the measure is approved this month. If proponents of bankruptcy reform legislation fail to limit Senate debate, the measure likely will be bogged down by unrelated contentious issues such as a hike in the minimum wage.

Both House and Senate legislation would make it tougher for consumers to eliminate unsecured debts in bankruptcy. Sponsored by Sen. Charles E. Grassley, the Senate version would give judges more authority to force debtors to repay at least some unsecured borrowing in Chapter 13 bankruptcy filings rather than discharging these debts in Chapter 7. The House version, which was passed on a 306-to-118 vote June 10, instead would use a formula based on income and living expenses. Pending Legislation

On Sept. 18 a House Education subcommittee will hold an oversight hearing to explore what rate lenders should be allowed to charge on consolidated student loans.

Bankers back a House provision in a higher-education spending bill that would prevent the Education Department from charging a new lower interest rate when former students consolidate their government-backed loans. Under a 1993 law, students borrowing after July 1 pay 80 basis points less but it is unclear whether consolidated loans carry the new, lower rate.

The House and Senate have both agreed to soften the blow of the rate cut on new student loans. The House on May 6 voted 414 to 4 to give lenders a 50-basis-point subsidy. The Senate approved its version July 9 on a 96-to-1 vote. If enacted, the subsidy would take effect Oct. 1 after a temporary subsidy expires. President Clinton opposes the subsidy and congressional negotiators still must reconcile differences in the two versions of the bill, but provisions for a permanent subsidy are expected to survive.

House and Senate panels approved regulatory relief for banks before the August recess, but a controversial provision in the House version has thrown the legislation's prospects into doubt. Regulatory Relief

The House Banking Committee's financial institutions subcommittee approved a broad bill on Aug. 4 on a 15-to-7 vote. Among other things, it would let banks pay interest on corporate checking, authorize the Federal Reserve Board to pay interest on required reserves, ease capital requirements for mortgage servicing rights, and eliminate a requirement that the Federal Deposit Insurance Corp. establish a special reserve for the thrift fund.

The Senate Banking Committee approved legislation by a voice vote July 30 that included these same provisions.

But the House Banking subcommittee, backed by Chairwoman Marge Roukema, R-N.J., angered Democrats by approving 11 to 8 an amendment that would exempt banks with less than $250 million of assets from the Community Reinvestment Act. Banking Committee Chairman Jim Leach said the bill "has no chance of becoming law" because the provision would draw a presidential veto. The committee will decide how to proceed when Congress reconvenes in September, he said. FHA Loans

The House voted July 29 to let the Department of Housing and Urban Development's FHA program insure mortgage loans as high as $197,620 in high-cost areas and $109,032 in the cheapest housing markets. The Senate approved similar increases on July 17. The measures are contained in the appropriations bills for HUD, which President Clinton has threatened to veto for unrelated reasons. However, a compromise is expected. House negotiators still have to be appointed, and a conference committee scheduled. New Legislation Privacy Bills

Senate Banking Committee Chairman Alfonse M. D'Amato introduced legislation Sept. 2 that would make it a federal crime to trick a bank into divulging private customer data. It would impose a five-year prison sentence and a $250,000 fine on individual violators and a $500,000 fine for corporations. The fines would be doubled if a pattern of $100,000 over a year is determined. He said Senate Banking would take up the legislation soon.

The bill is a companion to legislation sponsored by Rep. Jim Leach, which the House Banking Committee approved Aug. 5. The bills would not subject financial institutions to any penalties or regulations.

Separately, the Senate passed legislation July 30 that would make "identity theft," or stealing Social Security numbers and other personal data, a federal crime. Under the bill sponsored by Sen. Jon L. Kyl, R- Ariz., it would also be illegal to use such stolen information to open financial accounts or establish credit under the victim's name. Similar legislation has been introduced in the House by Rep. John B. Shadegg, R- Ariz.

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