Action on Legislation

Credit Cards
HR 627; S 414; S 235; S 165; S 392; S 131
The House Financial Services financial institutions subcommittee approved a bill from Rep. Carolyn Maloney, D-N.Y., to rein in abusive card practices by voice vote April 2.The full committee is expected to take up the measure and pass it quickly when lawmakers return from recess the week of April 20.

Maloney adopted several technical changes to her bill to make it closer to rules that were issued by the Federal Reserve Board and other regulators last year but do not go into effect until mid-2010.

During the vote, the subcommittee also adopted an amendment by Rep. Luis Gutierrez, D-Ill., the panel's chairman, which would delay the bill's implementation until one year after enactment, or June 30, 2010, whichever comes first.

Like the Fed rules, the bill would ban double-cycle billing and prohibit issuers from increasing rates on existing balances with a few exceptions, like when a promotional rate expired.

The financial institutions subcommittee voted shortly after the Senate Banking Committee approved similar legislation.

Senate Banking Chairman Chris Dodd's bill passed March 31 on a vote of 12 to 11, with Republicans and one Democrat — Sen. Tim Johnson of South Dakota — voting against it.

This was the first time card reform was approved by the Banking Committee, but observers said it would need further changes to stand a chance in the full Senate.

During the vote, the committee approved an amendment by two Republicans, Sens. Mike Crapo of Idaho and Bob Corker of Tennessee, that would increase the borrowing authority of the Federal Deposit Insurance Corp. and the National Credit Union Administration. The measure is seen as a crucial way to reduce premiums and has wide bipartisan support.

The committee also approved other changes, including one from Dodd to delay the bill's effective date to nine months after enactment. Other amendments would require parental consent to increase credit lines for young borrowers, ban most fees on gift and prepaid cards and promote financial literacy.

The Dodd and Maloney bills go further than the Fed's rules in some areas. Both would put restrictions on card access for young borrowers and require card companies to consider a payment mailed seven days before its due date as being on time, regardless of when it arrived.

Dodd's bill would put limitations on borrowers under 21 from obtaining cards unless they can provide proof of their ability to repay the credit, pass a credit counseling course or have a parent or guardian co-sign.

Maloney's bill would ban borrowers under 18 from obtaining credit cards unless they are emancipated minors.

Compensation Restrictions
HR 1664; HR 1586
The House approved the Pay for Performance Act on April 1 by a 247-171 vote.

The bill by Reps. Alan Grayson, D-Fla., and Jim Himes, D-Conn., would repeal a clause in the economic stimulus law that kept intact pre-Feb. 11 employment contracts at companies benefiting from the Troubled Asset Relief Program. The controversial clause allowed American International Group Inc. to pay out $165 million last month, mostly in retention bonuses, which drew public outrage.

The bill would require companies receiving Tarp capital to tie pay to performance, essentially abolishing retention awards. It would also require the Treasury secretary, in conjunction with federal regulators, to ban what it considered excessive or unreasonable compensation at such companies.

The AIG bonuses incited the House to jump into action last month. Bills responding to the payouts literally popped up overnight.

On March 19 the House passed a bill by Ways and Means Committee Chairman Charles Rangel, D-N.Y., that would retrieve bonuses paid to most Tarp recipients. The bill, which passed 328 to 93, would apply a 90% tax rate to bonuses paid by companies that received $5 billion or more of Tarp funds.

New Legislation

Insurance Reform
HR 1880
Seizing on the fury over AIG's enormous federal costs, Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., introduced insurance reform legislation April 2 designed to drum up momentum for federal insurance oversight.The National Insurance Consumer Protection Act would establish a national system of regulation and supervision for nationally registered insurers, agencies and producers, including agents and brokers, to monitor the systemic risk to the economy from the insurance market, enhance consumer protection and choice and reduce inefficient regulatory complexity that puts U.S. firms at a competitive disadvantage.

States would remain in charge of regulating state-licensed insurers, agencies and producers.

Under the bill, a single nationwide telephone number would connect consumers experiencing problems with their insurer to their local, federal or state insurance regulator.

The Treasury Department would establish an independent Office of National Insurance, which would have a physical office and staff in every state. Its commissioner would be appointed by the president for five-year terms, subject to Senate confirmation.

The national insurance commissioner would issue charters for life, property/casualty and reinsurance providers. The underwriting of life and property/casualty insurance would be separated, but a holding company would be permitted to own both a national life insurer and a national property/casualty insurer.

The bill would require the federal and state regulators to monitor the insurance sector for "systemic threats" to the economy and coordinate with a systemic risk regulator, likely to be created by Congress.

A separate systemic risk regulator could force an insurance company to adopt a national charter under the bill. The national insurance commissioner would be able to put a national insurer into receivership for rehabilitation or liquidation for a number of circumstances, including insolvency.

Mortgage Reform
HR 1728
House Financial Services Committee Chairman Barney Frank, D-Mass., introduced the Mortgage Reform and Anti-Predatory Lending Act on March 26 with two North Carolina Democrats, Reps. Brad Miller and Mel Watt.

The bill would ban lenders from giving loans that a borrower cannot afford and from refinancing a mortgage without providing a net tangible benefit to the borrower.

The legislation is similar to a bill that passed the House in the last Congress but stalled in the Senate. However, the new bill has tougher standards and stricter liabilities. It would ban brokers or bank loan officers originating a loan from receiving yield-spread premiums or any other compensation that rewards them for steering borrowers into higher-cost loans.

Originators would need to assess a borrower's ability to repay a loan at the fully indexed and fully amortized rate according to verified and documented information, including the consumer's credit history, current and expected income, the debt-to-income ratio and other financial resources.

To encourage a return to more traditional lending, the bill would provide protection from liability for making qualified 30-year fixed-rate prime mortgages. Qualified mortgages could not have negative amortization or interest-only features and would have to be fully documented. They would need to have an annual percentage rate that does not exceed average rates by more than 1.5 percentage points for a first lien or 3.5 percentage points for subordinate liens.

Such loans are presumed to meet the ability to repay and net tangible benefit standards, but they are not protected from legal challenges.

The bill would create liability throughout the mortgage chain.

Original creditors would have to hold on to at least 5% of the risk of the loan when selling it into securitization. An originator that violates the law would be liable for actual damages or three times the broker fees plus costs, including legal fees, whichever is greater.

A borrower whose loans failed to meet the bill's affordability standards would be able to force the securitizer to rewrite the loan through modification or refinancing within 90 days of the borrower's request.

If the securitizer does not make such adjustment within that time, the borrower would be able to rescind the loan and have the securitizer cover attorney fees.

Liability would end at the securitizer that packages the loan, stopping short of the end investor or trust.

The bill includes a host of other mortgage protections. It would limit prepayment penalties, ban creditors from financing single-premium credit insurance and require specific disclosures for loans that include negative amortization features.

In addition, the bill would sweep a wider scope of loans under the Home Ownership and Equity Protection Act's "high-cost" loan triggers and enhance the consumer protections for such loans.

It would also ban practices that increase the risk of foreclosure; beef up appraisal independence, education and licensing requirements; set up a licensing and registration system for all mortgage originators and add servicing requirements.

Regulatory Modernization
S 664, HR 1754
Sen. Susan Collins, R-Maine, introduced the Financial System Stabilization and Reform Act on March 23 to overhaul the financial system, and Rep. Mike Castle, R-Del., introduced a companion bill March 26 in the House.

The bills would create an independent Financial Stability Council, made up of representatives from existing federal financial regulators, to serve as a "systemic risk monitor," strengthen oversight and accountability and bring more trust through modernized financial regulation and transparency.

The council would maintain comprehensive oversight of all systemic risks to the financial system, and it would have the power to prevent or mitigate those risks. It would also have the authority to close regulatory "black holes" that pose a systemic risk when products or activities fall outside the current authority of federal financial regulators.

In addition, the council would have the authority to adopt rules that ensure financial institutions do not grow "too big to fail" by imposing capital requirements, raising risk premiums or requiring a larger percentage of debt be held as long-term debt.

The bills would also require oversight of credit default swaps and impose safety-and-soundness requirements on new investment banks by requiring them to organize under the Bank Holding Company Act.

To consolidate and reduce the number of banking regulators, the bills would merge the Office of Thrift Supervision and Office of the Comptroller of the Currency.

Frank is expected to offer his own regulatory restructuring bill based in part on recommendations from the Obama administration.

The Treasury has proposed giving the FDIC resolution powers to unwind systemically important firms, like insurance companies and bank holding companies.

The plan calls for a broad reform of financial oversight, including the creation of a systemic risk regulator, higher capital levels for systemically risky firms and stronger regulation of hedge funds and derivatives.

Complaint Hot Line
HR 1455
Maloney and Rep. Paul Kanjorski, D-Pa., introduced a bill March 12 that would require the federal banking agencies to create a single consumer complaint hot line through the Federal Financial Institutions Examination Council Act.

The toll-free line would direct complaints to the proper federal or state agency.

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