Bankruptcy Reform

S. 220, H.R. 333

Sen. Charles E. Grassley, R-Iowa, and Rep. George W. Gekas, R-Pa., on Jan. 30 and Jan. 31, respectively, introduced legislation to overhaul bankruptcy laws.

The measures, highly sought by the financial services industry, are substantively identical to a compromise bill the House and Senate passed by large majorities last year. That legislation died in December when President Clinton left it unsigned. Lawmakers had adjourned for the year and thus were unable to try to override his pocket veto.

House and Senate Republican leaders want to put the legislation, which is expected to be endorsed by President Bush, on a fast track. Majority Leader Trent Lott said the Senate could begin debate as early as next week.

However, efforts in the Senate to bypass committee action and bring the bill directly to the floor this week were quashed when Democrats insisted the bill go through the standard committee review.

As a result, the Senate Judiciary Committee was scheduled to hold a hearing on the legislation today, though the panel is not expected to revise it. The House Judiciary Committee held a hearing on the legislation Wednesday and was scheduled to hold a second today. Committee votes could come within days.

The measure also has been referred to the House Financial Services Committee, but Chairman Michael Oxley has not said whether he will schedule hearings. It was not clear when the House would consider the legislation.

Mirroring the compromise that the Senate adopted Dec. 7 and the House passed Oct. 12, the new legislation is intended to relieve creditors from having to shoulder most of the filers’ debt by creating a means test that would require those with higher incomes to repay more.

The means test would push more bankruptcy filers into Chapter 13 payment plans — which require most or all debt to be repaid — instead of having their debts wiped away under Chapter 7 of the Bankruptcy Code. For example, judges could force debtors into Chapter 13 if they could afford to repay the lesser of $10,000 or 25% of unsecured debt over five years.

The legislation also would amend the Truth-in-Lending Act by requiring that credit card issuers not only prominently display warnings on statements about the long-term costs of making minimum payments but also include a toll-free number that cardholders could call to learn how many months it would take to repay a certain balance with the minimum monthly payment.

It also would require that credit card solicitations disclose when a low introductory rate ends and what the subsequent rate will be.

Estate Tax

Bill number not yet assigned

House lawmakers on Jan. 31 introduced legislation to eliminate estate taxes.

The Death Tax Elimination Act of 2001, sponsored by Reps. Jennifer Dunn, R-Wash., and John Tanner, D-Tenn., would cut the 55% maximum inheritance tax by five percentage points immediately and by five more points in each of the next 10 years. The bill would exempt from estate taxes the first $1.3 million of assets; the current exemption is $675,000.

Congress passed a similar bill last August, but President Clinton vetoed it, and there were not enough votes to override the veto. Prospects for enactment are brighter this year. President Bush this week proposed eliminating the estate tax over 10 years as part of his $1.6 trillion tax-cut plan, but he is expected to consider imposing capital gains taxes on inherited assets as a compromise with opponents of repeal.

The bill is expected to go to a House vote this spring, but Rep. Dunn said that she is uncertain whether it will be included in a broader tax bill or stand on its own.

In the Senate, broad tax relief legislation that includes a repeal of the estate tax is expected.


S. 30

Maryland Sen. Paul S. Sarbanes, the ranking Democrat on the Senate Banking Committee, introduced legislation on Jan. 22 that would further restrict the way financial services companies may use customer financial data.

Substantively identical to privacy legislation the Clinton administration proposed last year, the Financial Information Privacy Protection Act would go beyond the Gramm-Leach-Bliley Act’s protections, which require financial companies to give customers a chance to block, or “opt out” of, data sharing with third parties. The latter protections are to take effect July 1.

The Sarbanes bill, cosponsored initially by seven other Senate Democrats, would require financial companies to get explicit permission from customers — an “opt-in” — before sharing medical or detailed spending information with either an affiliate or an unaffiliated third party. In addition, financial companies would have to give customers a chance to opt out of data sharing with affiliates and third parties.

The bill also would give customers the right to see the information about them that financial companies plan to share and to correct any error. However, the bill would let companies charge customers for access to such information.

Rep. John LaFalce, the ranking Democrat on the House Financial Services Committee, plans to introduce legislation shortly that would go beyond the Sarbanes bill in governing the use of health and medical information, a spokeswoman for the New York lawmaker said.

Industry lobbyists said it is difficult to predict the prospects for privacy legislation, which is expected to be opposed by Senate Banking Chairman Phil Gramm. The Texas Republican has advocated waiting until the Gramm-Leach-Bliley privacy provisions take effect before considering additional privacy protections.

Also, privacy hawk Richard Shelby, a Senate Banking member, has indicated that, unlike last year, he will not push hard for financial privacy legislation. Instead, the Alabama Republican plans to focus on strengthening Internet privacy protections.

Interest on Business Checking

S. 229

Sen. Chuck Hagel, R-Neb., reintroduced legislation on Jan. 31 that would let banks pay interest on business checking accounts as early as 2003.

Banks and thrifts would be able to offer the interest-bearing products two years after the bill’s enactment. In the interim, the legislation would increase to 24 per month, from six, the number of times banks could “sweep” funds overnight from non-interest-bearing commercial checking accounts into interest-bearing accounts.

The legislation also would authorize the government to pay interest on reserves that banks and thrifts are required to deposit with the Federal Reserve.

The measure is nearly identical to one that easily cleared the House and Senate Banking committees last year, then stalled in the Senate. It has the strong backing of the small-business and farm lobbies, but banking industry opinion is divided on interest-bearing business checking.

Deposit Insurance

S. 128, S. 227

Sen. Tim Johnson, D-S.D., introduced legislation on Jan. 23 that would double deposit insurance coverage to $200,000 per account.

The Meeting America’s Investment Needs in Small Towns Act would index coverage to 1980, when the limit on insured deposits was raised to $100,000 from $40,000. Afterward, deposit insurance would be indexed every three years to the consumer price index to keep up with inflation.

Supporters say the measure should help increase deposits in rural community banks, since rural people often have only one bank in their area.

The bill, referred to the Senate Banking Committee, of which Sen. Johnson is a member, has six co-sponsors, including fellow committee member Chuck Hagel, R-Neb.

Sen. Johnson introduced similar legislation last session, but it never made it out of the Banking Committee.

Separately, Sen. Robert Torricelli, D-N.J., introduced a bill on Jan. 31 that would give municipal deposits 100% federal insurance coverage.

In-state public deposits currently are insured for up to $200,000, and out-of-state municipal deposits are guaranteed up to $100,000. According to the Federal Deposit Insurance Corp., most banks are required under state laws to collateralize municipal deposits, and this worsens banks’ administrative burden.

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