Action on Legislation Financial Mordernization

President Clinton is expected to sign the financial reform bill today.

Lawmakers, regulators, and administration officials reached a final deal in late October after days of nearly 24-hour negotiating sessions. The House-Senate conference committee approved the bill on Nov. 2. On Nov. 4 the Senate approved it 90 to 8, and the vote in the House was 362 to 57.

The 416-page document eliminates the Glass-Steagall Act of 1933 that separated commercial and investment banking and amends the Bank Holding Company Act of 1956 so bank holding companies may underwrite insurance. Mergers among banks, securities firms, and insurers will be allowed 120 days after enactment to give regulators time to write implementing rules.

The final package emerged after a series of compromises on new bank powers, the Community Reinvestment Act, privacy, and unitary thrift holding companies.

Under the deal, all banks will be allowed to underwrite securities in direct subsidiaries and use them for insurance or securities sales or other low-risk activities. Insurance underwriting and real estate investment and development could be conducted only in a holding company unit. Merchant banking will be confined to holding company units too, but five years after enactment the Treasury Department and the Federal Reserve Board could agree to allow it for bank subsidiaries. Also, banks that want to establish subsidiaries with broad powers will have to issue debt and meet other special criteria. The Treasury and the Fed can veto each other's decisions on new financial powers.

On the CRA, Senate Banking Committee Chairman Phil Gramm and the administration reached an accord that would bar a bank holding company from merging with an insurance or securities firm if any of its banks had less than a "satisfactory" CRA rating in its most recent exam. The company would be barred from additional powers or acquisitions if its banks' CRA ratings dropped below "satisfactory."

Banks and community groups will have to disclose each CRA agreement and report annually on all of them and how the money was spent. Small banks with good CRA records would be examined less frequently. For example, small institutions receiving an "outstanding" rating in their last exam will be examined once every five years unless they apply for mergers or regulators have evidence of a decline in performance.

On privacy, the bill requires financial institutions to have and annually disclose privacy policies and give customers the opportunity to block sharing of confidential data with third parties. Exemptions would be granted for joint marketing arrangements between financial institutions and some other marketing agreements. Customers could not block data sharing among holding company affiliates.

In a victory for House Banking Committee Chairman Jim Leach, nonfinancial companies may not apply for or buy a thrift. Existing unitary thrift holding companies, or applicants for charters before May 4, 1998, are exempt from the ban, but may not be bought by nonfinancial companies. Bankruptcy Reform

The Senate revived bankruptcy reform legislation last week, but it is unclear whether it will approve the legislation because of battles over unrelated amendments and lawmakers' desire to adjourn this week.

Until two weeks ago, the legislation had been considered dead for the year because of a stalemate over Democratic demands to propose a minimum-wage hike and other amendments unrelated to overhauling the bankruptcy system. But Majority Leader Trent Lott and Minority Leader Thomas A. Daschle reached a deal last week that would permit each side to offer three unrelated amendments.

A bipartisan amendment could require credit card companies to warn customers about the cost of making minimum monthly payments and to provide a standard illustrative example. Consumers could call a toll-free number to find out how long it would take to pay off their balances on the basis of the minimum monthly payment.

The Senate on Nov. 9 set aside Democratic amendments to disallow the bankruptcy claims of predatory lenders and to prohibit consumers under age 21 from acquiring a credit card without an adult co-signer or proof of creditworthiness.

The Senate bill was approved by the Judiciary Committee in April. It would let bankruptcy judges force debtors who could afford to pay $15,000 or 25% of unsecured credit over five years to file under Chapter 13 of the bankruptcy code. Creditors could also ask judges to force a consumer into Chapter 13 reorganization, rather than eliminating their debts in Chapter 7. The House passed a stricter version in May on a vote of 313 to 108. President Clinton has threatened a veto. Electronic Commerce

The House on Nov. 9 voted 356 to 66 for legislation that would establish the validity of electronic signatures and contracts. Sponsored by House Commerce Committee Chairman Thomas J. Bliley Jr., it would also permit financial services companies to make mortgage and other disclosures required by consumer protection laws electronically, instead of on paper.

Lawmakers smoothed the way for passage after adopting, on a 418-to-2 vote, an amendment to address consumer protection concerns. Among other things, the amendment would require the consent request for electronic disclosures and records to be "conspicuous and visually separate" so customers know what they are signing. And customers would always have to be able to review, retain, and print records using a computer format agreed to ahead of time.

The Clinton administration opposed the bill as anticonsumer and instead endorsed a scaled-down alternative offered by House Majority Leader Richard A. Gephardt, D-Mo., Rep. John D. Dingell, D-Mich., and others that would not have permitted electronic disclosures. It lost by a wide margin, but Sen. Spencer Abraham, R-Mich., is reportedly considering introducing a similar alternative before adjournment.

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