ACTION ON LEGISLATION

PrivacyHR 4585

Led by Chairman Phil Gramm, the Senate Banking Committee on July 13 refused to consider an amendment to an unrelated securities bill that would have gone beyond the Gramm-Leach-Bliley Act of 1999 by requiring financial institutions to get explicit customer consent before sharing medical or financial information with affiliates or third parties. Sen. Gramm opposed the tougher privacy protection, which was supported by Sen. Richard C. Shelby, R-Ala., as hastily crafted and potentially producing unintended consequences. A Democratic amendment that sought to protect the privacy of individuals' genetic information was withdrawn for similar reasons.

Sen. Shelby later lost, on a 10-10 vote, his fight for an amendment that would have restricted the buying and selling of Social Security numbers by financial companies. This provision also would have added Social Security numbers to the list of "nonpublic information" under Gramm-Leach-Bliley that may not be shared with third parties unless customers have a chance to block such sharing. Sen. Gramm argued that it was poorly worded and could conflict with last year's financial reform law.

Sen. Gramm agreed to cooperate on bipartisan, more carefully worded amendments that could be offered to the Senate. The Texas Republican said he would support banning the sale of Social Security numbers and requiring lenders to get explicit customer permission before using medical information in deciding whether to grant a loan.

The House Banking Committee approved legislation June 29 on a 26-14 vote that would prevent insurance companies from transferring personally identifiable medical records to bank or other affiliates, or to third parties, unless the customer affirmatively consented, or "opted in." Nor could a bank use such records to decide whether to grant a loan without the applicant's express permission.

Swaps Agreements

S 2697, HR 4541

The House Banking Committee on July 27 approved on a voice vote legislation that would protect virtually all swaps contracts entered into by banks and other financial institutions from new federal regulation and would also provide legal certainty that swaps will remain enforceable agreements.

Under an amendment successfully proposed by the banking committee's chairman, Rep. Jim Leach, R-Iowa, the bill would exempt from Commodity Futures Trading Commission oversight securities products and banking products defined in the Gramm-Leach-Bliley Act of 1999 when either is offered by "banks, broker dealers, insurance companies, or affiliates of any of these institutions." Also, swaps in which both counterparties are people with a net worth of $5 million or businesses with $10 million of assets would be exempted from the Commodities Exchange Act.

A stricter version that would protect fewer bank products was passed by the House Agriculture Committee on June 27 and by the House Commerce Committee on July 26. The Senate Agriculture Committee approved a bill similar to House Agriculture's on June 29, but most observers expect to stand back and see if it can clear the House.

IRAs

HR 1102, HR 4747

The Senate Finance Committee is scheduled to vote Sept. 7 on legislation that would more than double the permissible annual contribution to an individual retirement account.

The bill passed the House 401-25 on July 19, but industry lobbyists fear President Clinton will veto it because it does not include his proposed Retirement Savings Accounts.

The Senate voted 59-39 on July 14 for an amendment similar to the House IRA bill during debate on separate tax legislation, but it was yanked at the last moment for procedural reasons.

Under the House bill, the cap on annual IRA contributions would be raised to $5,000 from $2,000 for taxpayers 50 and older starting next year. For everyone else, the cap would be gradually raised to $5,000 by 2003. Future increases would be tied to inflation. Other provisions would loosen limits on 401(k) and other retirement plans.

Democrats lost, on a 221-200 vote, their attempt to add the President's RSAs, for which federal money would be used to match deposits by average workers. House Minority Leader Richard A. Gephardt and other Democrats said that, without this, the legislation would not do enough to encourage savings by low- and moderate-income people.

Separately, a House Education subcommittee on employer-employee relations backed legislation on a voice vote July 19 that would let employers hire firms to give investment advice to workers who participate in 401(k) and other retirement plans. Industry officials hailed the vote and said it would complement the IRA bill.

Bankruptcy Reform

S 625, HR 833

With Congress scheduled to return in early September and work for only a month longer, the prospects for bankruptcy reform are dimming.

President Clinton has twice threatened to veto the legislation, but White House economic adviser Gene Sperling and Senate Majority Leader Trent Lott have reportedly held talks on it. No details of a compromise have surfaced, however.

The President's latest volley came in a June 29 letter to House and Senate leaders. He said the most recent version was "seriously flawed" because it would not explicitly prevent attackers of abortion clinics or those who intimidate patients of such facilities from filing for bankruptcy to escape court penalties. He also complained that it would weaken consumer protections from abusive check collection practices and that it would not override state laws letting wealthy people escape creditors by buying expensive homes that cannot be seized.

Some lobbyists said the veto threat would doom the legislation this year; others suggested it was political posturing.

Negotiations among House and Senate lawmakers have been led by the staffs of sponsors Sen. Charles E. Grassley and Rep. George W. Gekas. Many details remain sketchy, but sources said that banks and other financial institutions with less than $250 million of assets would be exempted from a requirement to provide a toll-free number for credit card customers who want to know how long it would take to pay off their balances at the minimum monthly rate.

The Senate approved its bankruptcy reform bill Feb. 2 on an 83-to-14 vote. In May 1999, on a vote of 313 to 108, the House passed a stricter version. The bills generally would make it harder to eliminate debts under Chapter 7 of the bankruptcy code and instead force those who could afford to repay to do so under Chapter 13.

Estate Taxes

HR 8

The Senate adopted legislation on July 14 that would eliminate the federal estate tax within a decade.

The 59-39 vote on the Death Tax Elimination Act fell short of the two-thirds majority required to override President Clinton's threatened veto. The bill would gradually cut the inheritance tax each year from its current maximum rate of 55% until it was gone in 2010. The House passed a similar bill June 9. The estimated cost would be $750 billion by the time the tax is fully phased out.

The estate tax has become a presidential campaign issue, underscored by George W. Bush's vow to eliminate it in his nomination acceptance speech at the Republican National Convention on Aug. 3.

PENDING LEGISLATION

Interest on Business Checking

HR 4067, S 576

The fate of legislation that would let banks pay interest on business checking remains unclear.

Dealing it a blow, Sen. Richard C. Shelby, R-Ala., did not propose an expected amendment - during a Senate Banking Committee vote July 13 on securities legislation - that would have let banks pay interest on business checking accounts starting in late 2002. He instead focused unsuccessfully on privacy amendments.

A regulatory relief bill that includes a provision for paying interest on business checking has been stalled by Sen. Richard H. Bryan, D-Nev., who wants to tack on a privacy-related amendment. Meanwhile, Sen. Shelby and Sen. Charles E. Schumer, D-N.Y., have battled over whether to postpone the bill's effective date to give small banks more time to prepare.

The House on April 11 approved legislation introduced by Banking Committee Chairman Leach and Rep. Jack Metcalf, R-Wash., that would let banks pay interest on business checking accounts three years after its enactment. To appease bankers who oppose making these payments, the effective date was set two years later than in an earlier proposal.

The House and Senate bills would expand sweep accounts in the interim. The bills would increase the number of withdrawals that corporate customers could make per month from sweep, or money market deposit, accounts to 24, from six.

Deposit Insurance

S 2798, HR 4603, HR 4467, S 2589

Rep. Marge Roukema, R-N.J., chairman of the House Banking subcommittee on financial institutions, has canceled plans for hearings on deposit insurance reform in September because the Federal Deposit Insurance Corp. does not plan to issue final recommendations until early next year.

She had supported raising deposit insurance coverage but backpedaled in late June after Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Lawrence H. Summers testified on Capitol Hill against increasing coverage to $200,000 per account. She said then that she would hold a hearing on the issue in September but has since decided to wait until next year because Congress is scheduled to adjourn in early October.

Some lawmakers have offered alternatives. Sen. Wayne Allard, R-Colo., introduced legislation on June 27 that would index the coverage limit every three years to account for inflation, starting from Jan. 1, 2001.Rep. Charles A. Gonzalez, D-Tex., introduced legislation on June 8 that would require banking regulators to study the viability of doubling deposit insurance coverage to $200,000.

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