Action on Legislation

The House-Senate conference committee on financial reform, chaired by Rep. Jim Leach, met for the first time on Aug. 3. Little work is planned until September, when Congress returns from its summer recess. Negotiations are expected to carry into the fall, and some key lawmakers have braced lobbyists for the possibility that bargaining could spill into next year.

At the Aug. 3 meeting, Senate Banking Committee Chairman Phil Gramm listed his top priorities: powers for bank operating subsidiaries, privacy, unitary thrifts, community reinvestment requirements, bank securities powers, and federal licensing of insurance agents.

The Senate is represented by its 20-member Banking Committee. The House selected 42 members, but 19 will only vote on selected provisions.

The financial reform bill passed the House 343 to 86 on July 1. A similar bill passed the Senate on May 6 on a 54-to-44 vote. Both bills would let banks, securities firms, and insurance companies buy each other, but they differ in the key areas highlighted by Sen. Gramm.

The House bill has broader support both among industry lobbyists and the Clinton administration. The White House has threatened to veto the Senate bill, claiming it would weaken the Community Reinvestment Act. The Senate bill would exempt banks with less than $100 million of assets from CRA compliance.

President Clinton has also objected to the Senate bill because it would give the Federal Reserve Board more authority over financial companies. The House bill more evenly splits oversight between the Fed and the Treasury Department.

Both bills would bar commercial firms from chartering thrifts. However, under the House bill, commercial companies could buy an existing thrift if the Office of Thrift Supervision and the Federal Reserve Board approved. Year-2000 Problem

President Clinton on July 20 signed legislation to curb frivolous year-2000 lawsuits.

Lawmakers on July 1 approved the legislation on a 404-to-24 vote in the House and an 81-to-18 vote in the Senate. The compromise bill provides fewer protections from litigation than either Sen. John McCain or Rep. Thomas M. Davis 3d sought in their original bills, but concessions were necessary to get President Clinton and many Democrats on board.

The bill would give companies up to 90 days to fix a year-2000 problem before an injured party could sue. It would also cap punitive damages for small businesses, steer large class actions into federal court, and encourage mediation and other alternatives to litigation.

The bill includes a provision that would give a homeowner with year-2000 problems a one-month reprieve from foreclosure, provided the homeowner notified his servicer in writing. Tax Legislation

The House and Senate on Aug. 5 adopted a tax bill that includes estate and personal capital gains rollbacks that would benefit banks.

But President Clinton has vowed to veto the plan to cut taxes by $792 billion over 10 years because, he argued, the money would be better spent beefing up Social Security and Medicare.

Under a compromise crafted by House and Senate Republican leaders, the bill would phase out estate and gift taxes. Capital gains tax rates would be cut to 18% from 20% for higher-income people and to 8% from 10% for those with lower incomes.

Caps on annual contributions to 401(k) plans would rise to $15,000, from $10,000; individual retirement accounts to $5,000, from $2,000; and education IRAs to $2,000, from $500.

The bill would also expand banks' eligibility to be S corporations. Interest earned on bank securities portfolios would be excluded from S corporation limits on passive income. Also, banks that are required by some states to issue special shares for directors would be exempted from S corporation prohibitions on multiple classes of stock. SBA Loans

The House approved bills Aug. 2 that would raise the caps on small-business loans backed by the federal government and penalize borrowers who repay early.

The primary bill, authored by Rep. James Talent, R-Mo., would let the Small Business Administration guarantee as much as $1 million of loans made through its 7a program. The current limit is $750,000. It would also establish a $2 million maximum for each 7a loan. A second bill would raise, to $1 million, the highest guarantee allowable under a separate SBA program for real estate development loans, with some exceptions.

Some borrowers who repay long-term 7a loans early would be charged fees of 1% to 5% under the primary bill. The fees would be levied on borrowers who repay more than 25% of a loan within three years. Pending Legislation

Senate Majority Leader Trent Lott last week earmarked bankruptcy reform as one of at least a half dozen bills he may bring up for consideration in September. Sens. Charles E. Grassley, R-Iowa, and Robert Torricelli, D-N.J., had asked Republican and Democratic leaders to schedule a vote before Congress recessed Aug. 6 for a month, but tax, spending, and other priority bills -- as well as the threat of a messy floor fight -- made that impossible.

The Senate Judiciary Committee approved the bill on a 14-to-4 vote on April 27. It would let bankruptcy judges force debtors who could afford to repay either $15,000 or 25% of unsecured credit over five years to file under Chapter 13 of the bankruptcy code. Creditors also could ask judges to force a consumer into Chapter 13. The Senate bill is expected to include many consumer protections favored by the White House and opposed by lenders.

The House overwhelmingly approved its bill 313 to 108 on May 5. The House bill, sponsored by Rep. George W. Gekas, R-Pa., would require those with high disposable incomes to repay some unsecured debt in Chapter 13, rather than eliminating it all in Chapter 7.

The bill relies on the Internal Revenue Service estimates of living expenses -- bolstered with more funds for food, clothing, and education -- to determine disposable income. The White House has threatened to veto the House bill, but it passed with a veto-proof majority. Many of the administration's objections also apply to the Senate bill.

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