Action on Legislation

Economic Stimulus
HR 1
In a 61-to-37 vote Tuesday, the Senate approved a $838 billion economic stimulus that includes a handful of tax- and housing-related provisions that the banking industry supports and executive compensation restrictions it strongly opposes.The Senate adopted three amendments to limit executive compensation at banks receiving Tarp money which the banking industry hopes to scale back when the House and Senate hash out differences between the stimulus bills. The House bill did not include compensation restrictions in its version of the American Recovery and Reinvestment Plan, which passed with a vote of 244 to 188 on Jan. 28.

In a Feb. 6 voice vote the Senate adopted an amendment from Sens. Ron Wyden, D-Ore., and Olympia Snowe, R-Maine, that would require institutions that used "federal bailout" funds to pay employees bonuses in excess of $100,000 to either repay the cash portion within 120 days of the provision's enactment, or face an excise tax of 35% on what is not immediately repaid to the Treasury Department.

A day earlier, an amendment from Senate Banking Committee Chairman Chris Dodd was approved that would require the Treasury secretary to review and empower him to "claw back" any bonus or compensation paid to an executive whose company received Troubled Asset Relief Program dollars on the basis of false earnings reports.

The measure would ban bonuses or any incentive compensation to the 25 highest-paid employees and would give the Treasury secretary power to extend that further.

It would require each Tarp recipient to include on annual proxy statement an advisory shareholder vote on the company's executive cash compensation program.

The measure also requires the board of directors to adopt a companywide policy on luxury expenditures, bans golden parachutes to senior executives, and prohibits a compensation plan that has incentives for employees to take excessive risks that threaten the value of the company.

The Senate also adopted an amendment from Sen. Claire McCaskill, D-Mo., on Feb. 5 that would cap all total executive compensation at Tarp recipient companies at $400,000 a year.

The Senate adopted another amendment from Sen. Dodd on Feb. 6 that seeks to reduce foreclosures. It would require the Treasury Department to spend at least $50 billion in Tarp funds to design and implement a loan modification program.

The amendment would also seek to improve use of the Hope for Homeowners program, which lets lenders reduce a borrower's mortgage principal in exchange for insurance through the Federal Housing Administration.

The stimulus also contains some tax measures the banking industry supports. To spur the housing market, the Senate bill would greatly enhance and liberalize a first-time homebuyer tax credit by doubling the credit, to $15,000, and allowing it for any homebuyer.

The bill also would expand the net operating loss carry-back period from two years to five years for 2008 and 2009, but it would preclude Tarp recipients from using the expansion.

The Senate gave $730 million for Small Business Administration loan programs, including $630 million for reducing the 7(a) and 504 loan program fees. The House bill included $426 million for the SBA loan programs.

Foreclosure and Liquidity
HR 786; HR 787, HR 788
On Feb. 4 the House Financial Services Committee approved a package of bills by Rep. Frank designed to improve bank liquidity and reduce foreclosures; the package could be combined with mortgage bankruptcy reform for consideration in the House soon.

The package included three bills that would broaden the Federal Deposit Insurance Corp.'s powers, make improvements to the Hope for Homeowners program, and protect servicers conducting loan modifications from investor lawsuits.

The committee approved by voice vote a bill that would make permanent the FDIC's temporary increase in deposit insurance coverage to $250,000.

The banking industry has backed the bill, even though the increased coverage would trigger higher premiums by reducing the Deposit Insurance Fund's reserve ratio. To make the cost of higher premiums more manageable, the bill would give the FDIC eight years — or three more than current law — to bring the fund's ratio back to its 1.15% statutory minimum. It also would more than triple the FDIC's borrowing authority with the Treasury Department, to $100 billion.

To provide foreclosure relief, the committee passed by voice vote a bill that would attempt to increase use of the Hope for Homeowners program by reducing the cost for lenders to participate.

The program, which lets lenders reduce a borrower's mortgage in exchange for a government guarantee through the Federal Housing Administration, has proven cumbersome and costly for servicers.

The bill would reduce the required minimum writedowns for servicers to participate to 93% of the home's current market value, from 90%. The bill also would reduce fees associated with the program.

In a Feb. 4 voice vote the committee passed a third Frank bill that is designed to provide protections against investor lawsuits to servicers conducting loan modifications.

Bankruptcy Cramdown
HR 200
The House Judiciary Committee approved a bill that would let bankruptcy judges cram down a borrower's mortgage debt to prevent foreclosure on a party-line vote of 21 to 15 on Jan. 27.

During the vote, Committee Chairman John Conyers, D-Mich., who is sponsoring the bill, easily defeated numerous Republican attempts to kill or weaken it.

The bill does incorporate a few concessions to the banking industry. They were agreed to by Rep. Conyers and Rep. Brad Sherman, D-Calif., before debate on the bill began.

The revisions would let lenders share the appreciation of a home's value with borrowers who discharged mortgage debt in bankruptcy. The shared appreciation would be phased out over four years with lenders getting 80% of the appreciation in year one, declining to 20% by year four.

The House Judiciary bill also was narrowed by incorporating the deal Sen. Dick Durbin, D-Ill., reached with Citigroup Inc. on Jan. 8 to limit eligible mortgages to those originated before the bill's enactment.

The Judiciary Committee bill modified a provision in the Durbin-Citi deal that requires borrowers to try to contact their servicers for a workout before filing for bankruptcy, by extending the minimum period between such steps to 15 days, from 10.

Sen. Durbin has been trying to pressure other lenders to support his deal with Citi and has been trying to attach the provision to a must-pass piece of legislation.

The Obama administration continues to say it supports mortgage bankruptcy reform.

Sen. Evan Bayh, D-Ind., said in an interview Feb. 5 that he hoped to craft a bipartisan compromise, possibly with Sen. Arlen Specter, R-Pa., that would allow bankruptcy cramdowns only for the riskiest mortgages.

He said he supports limiting the bill to existing subprime and alternative-A mortgages and that he supports four or five other limitations.

New Legislation

Credit Cards
HR 627; S 235; S 165; S 392; S 131
On Jan. 22 Rep. Carolyn Maloney, D-N.Y., reintroduced her sweeping credit card reform bill, which passed the House last year but died in the Senate.The legislation is cosponsored in the Senate by Sens. Charles Schumer, D-N.Y., and Mark Udall, D-Colo., who introduced the bill on Jan. 14.

It would essentially give the force of law to, and go beyond, regulations the Federal Reserve Board and other regulators issued in December banning several common credit card practices as unfair or deceptive.

The legislation would require reform to go into effect 90 days after the president signs the bill into law. (Currently the Fed rules do not go into effect until mid-2010.)

Like the regulations, the bill would require card companies to give 45 days' notice before any interest rate change and prevent card companies from increasing interest rates on existing card balances except in special circumstances.

It also would ban double-cycle billing, require payments to be allocated proportionally to balances that have different rates, and lengthen the duration between when bills are mailed and payments are due.

Besides speeding up the timetable, the legislation goes beyond the regulations by requiring card companies to let consumers set their own credit limits, preventing companies from charging "over-the-limit" fees when a cardholder has set a limit, and placing other limitations on fees.

It would also prohibit card companies from knowingly issuing cards to individuals under 18 who are not emancipated minors.

In laying out his agenda on Feb. 3, House Financial Services Committee Chairman Barney Frank said he planned to pass the Maloney card bill again this year.

Sen. Dodd is to hold a hearing on credit cards today and is expected to reintroduce his card bill this week. Several other card bills have proliferated.

Sen. Robert Menendez introduced legislation on Feb. 6 that would also provide special protections for students. The New Jersey Democrat's bill would require consumers under 21 to opt in for card solicitations. It would ban universal default and retroactive interest rate increases. The bill would prevent companies from changing the terms of card agreements and would require "preapproved" offers to be legitimate, firm offers of credit with details on the interest rate, fees, and amount of credit.

New Banking Committee member Sen. Herb Kohl, D-Wis., and Sen. Durbin introduced a bill on Jan. 7 that aims to amend the Truth-in-Lending Act "to prevent credit card issuers from taking unfair advantage of college students and their parents."

The bill would place dramatic restrictions on the terms in which card companies could offer credit to full-time college students under 21. Unless parents shared liability for the card account, the legislation would put restrictions on the amount of credit that card issuers could offer college students under 21. It also would prohibit students from increasing credit limits without parental consent if the parent was liable for the account.

Expected Soon

Regulatory Modernization
Both Rep. Frank and Sen. Dodd have said the Obama administration is eager to have a plan to revamp the financial services regulatory system to bring to the G-20 meeting in April.Though the chairmen have said it is unlikely that a bill would be enacted by such time, they have committed to getting as far as they can to create a systemic risk regulator by that time.

Rep. Frank has favored giving such power to the Fed, but Sen. Dodd has expressed concerns about beefing up the role of the central bank.

The two chairmen have pledged to enhance consumer protection in any regulatory modernization plan and have said they are considering an idea by Elizabeth Warren, the Harvard law professor who chairs the congressionally appointed Tarp oversight panel, to create a financial product safety commission to approve new financial products. Rep. Frank and Sen. Dodd said they plan to address the topic later this year, but the banking industry has concerns about the concept.

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