New Legislation

Regulatory Restructuring
S 566, HR 1705
The Treasury Department unveiled a sweeping plan to restructure the financial services regulatory system on June 17.The plan would merge the Office of Thrift Supervision with the Office of the Comptroller of the Currency, eliminate the thrift charter, give the Federal Reserve Board systemic risk oversight and create a consumer protection agency.

House Financial Services Committee Chairman Barney Frank is expected to move first on creating the consumer protection regulator, which would oversee nonbanks and financial institutions. The Treasury Department offered draft legislation on that part of the plan June 30, and Frank is expected to introduce his own bill soon. He has said he plans a vote on the bill by month's end.

The Treasury bill's Consumer Financial Protection Agency would establish a fee or assessment-based funding mechanism from the banks and other institutions it would supervise, including mortgage lenders and brokers. Additional funding could also come from appropriations.

The agency would be charged with primary consumer protection rule-writing, supervision and enforcement over all financial products, including mortgages, credit and stored-value cards and overdraft programs.

The bill also would let the agency write compensation rules for an employee, agent or contractor of a company that deals with consumers, such as mortgage brokers or bank loan officers.

The agency would be overseen by a five-member board that would include the director of the proposed National Bank Supervisor (successor to the OCC). It would be required to report regularly to Congress on risks to consumers and the success of new products.

The bill explicitly directs the agency to write disclosure standards, including harmonizing mortgage disclosures under the Real Estate Settlement Procedures Act and the Truth-in-Lending Act.

The agency would set federal floors but would let states go further to enact and enforce stronger consumer protections, wiping away the federal preemption currently enjoyed by national banks and thrifts.

On March 10, Sens. Dick Durbin, D-Ill.; Charles Schumer, D-N.Y., and Edward Kennedy, D-Mass., introduced legislation to create a financial product safety commission comprising five members nominated by the president.

The commission would be funded through appropriations and would require other agencies like the Fed with consumer protection powers to consult with the commission. The bill says the toughest consumer protections promulgated by any agency would supersede any others.

On March 25 Reps. William Delahunt, D-Mass., and Brad Miller, D-N.C., introduced companion legislation in the House. The Senate bill has five co-sponsors; the House bill has 21.

Tarp for Housing
HR 3068
Frank introduced the Tarp for Main Street Act on June 26. The bill would reallocate dividends paid by financial institutions that have received Troubled Asset Relief Program dollars to relief for homeowners and neighborhoods suffering from foreclosures.

Under the bill, the Treasury secretary would be directed to transfer and credit $1 billion of these dividends to the Housing Trust Fund. The bill also calls for transferring another $1.5 billion in Tarp dividends to the Housing and Urban Development Department to be doled out to states and local governments for redeveloping abandoned and foreclosed homes. And it would transfer $2 billion to HUD for an emergency homeowners' relief fund. Another $2 billion would go toward setting up a multifamily mortgage resolution program through HUD.

Regulatory Oversight
S 1354, HR 885
Sen. Robert Menendez, D-N.J., introduced the Improved Financial and Commodity Markets Oversight and Accountability Act on June 25.

The bill would strengthen the inspectors general at five financial regulatory agencies: the Securities and Exchange Commission, the Federal Reserve Board, the Commodity Futures Trading Commission, the National Credit Union Administration, and the Pension Benefit Guarantee Corp.

The legislation would require presidential appointment and Senate confirmation of the inspectors general, who are currently appointed by the heads of the agencies they monitor.

The legislation also would clarify the subpoena powers of the inspectors general so that they can properly oversee the financial regulators and would require regulators to respond to identified deficiencies either by taking corrective action or explaining to Congress why they are not acting.

The House passed a similar bill offered by Rep. John Larson, D-Conn., on a voice vote June 8.

Tarp Termination
S 1280, S 1243, HR 2745
Sens. Mark Warner, D-Va., and Bob Corker, R-Tenn., introduced legislation June 22 designed to maximize the government's return on Troubled Asset Relief Program repayments; it also would set a deadline to end the program.

The Tarp Recipient Ownership Trust Act would move any government ownership stakes of more than 20% in private companies into a newly created, limited liability corporation. The trust would pertain to companies like American International Group, Citigroup Inc. and General Motors.

Equity in the trust would be managed by three independent, nonpolitical trustees appointed by the president with the mission of protecting taxpayer interests.

The bill would also require the trust to select boards of directors for the Tarp-assisted institutions made up of people who have succeeded in private business, in order to maximize the return on investments.

The legislation also would direct the trustees to liquidate the government's interests by Dec. 24, 2011, but it lets them come back to Congress with an alternative recommendation if they feel that liquidation is not in the taxpayers' best interest.

Sen. Orrin Hatch, R-Utah, introduced the Stop Tarp Asset Recycling Act on June 11 with Sen. Blanche Lincoln, D-Ark. It would require repayments of obligations and proceeds from the sale of assets under Tarp to go directly into the Treasury to reduce the public debt.

Rep. Jeb Hensarling, R-Tex., introduced a bill June 8 geared toward Tarp repayments.

The Tarp Repayment and Termination Act would let insured depository institutions that got Tarp money immediately repay all such assistance if their primary regulator determines the company would be well capitalized after repayment.

The bill would also let holding companies repay Tarp money if the Treasury secretary and the primary regulator were able to determine the company could continue to lend to creditworthy borrowers and businesses, to maintain adequate capital levels and to serve as a source of financial and managerial strength.

Credit Access
HRES 553
Reps. Maxine Waters, D-Calif., and Luis Gutierrez, D-Ill., introduced a nonbinding resolution June 17 intended to urge the Treasury and the Federal Reserve to enhance consumer and business access to credit.

The bill would call for improving credit access by using provisions of the Federal Reserve Act and the Emergency Economic Stabilization Act and by reserving access to liquidity programs for those financial institutions that have maintained or increased lending activities since the depth of the economic crisis in October 2008.

The "sense of the Congress" resolution asserts that foreclosures average 6,600 per day, the unemployment rate keeps rising and roughly 145 million Americans have credit cards, with the average household carrying more than $8,000 in credit card debt.

Systemic Risk Premiums
HR 2897
Reps. Gutierrez, the chairman of the House Financial Services Committee's financial institutions subcommittee, and Paul Kanjorski, the chairman of the committee's capital markets subcommittee, introduced sweeping legislation June 16 that would fundamentally reshape how the Federal Deposit Insurance Corp. imposes assessments.

The bill would generally model premium calculations on the method used for a special assessment recently levied by the FDIC that was based on institutions' assets, not domestic deposits.

The legislation would depart from the FDIC's traditional way of basing premiums on deposits by requiring assessments to reflect risk. It would also levy a systemic risk premium at least once a year on companies deemed systemic risks by the FDIC, the Federal Reserve and the Treasury.

In addition, the bill would make permanent the recent increase in the deposit insurance limit of $250,000 per account.

Gutierrez said the bill is aimed at ending the "too big to fail" presumption and that he hopes to roll it into the Financial Services panel's regulatory restructuring plan.

Pending Legislation

Interchange
HR 2695, HR 2382
Senate Majority Whip Dick Durbin reintroduced a bill June 9 designed to give merchants more control over interchange fees.The Credit Card Fair Fee Act is largely similar to one the Illinois Democrat offered last year. It would remove antitrust hurdles to letting merchants enter collective bargaining agreements with banks when negotiating interchange rates. It would also let a three-judge panel appointed by the Department of Justice and the Federal Trade Commission settle disputes.

House Judiciary Committee Chairman John Conyers also reintroduced a similar bill June 4. His bill, which is also called the Credit Card Fair Fee Act, incorporates changes his committee made during voting on the bill in the last Congress. It, too, removes antitrust hurdles for merchants wishing to negotiate rates collectively, but it lacks the three-judge panel and would exempt credit unions with assets of less than $1 billion.

Rate Cap
S 257
Still pending before the Senate Judiciary Committee is a bill that would use the Bankruptcy Code to set a rate cap on consumer credit.

The bill has been on the panel's agenda for weeks, but a vote on the measure is likely to be put off at least two weeks while the committee hears witnesses on the nomination of Judge Sonia Sotomayor to the Supreme Court.

Eventually the committee is expected to take up the rate cap bill, known as the Consumer Credit Fairness Act, sponsored by Sen. Sheldon Whitehouse.

The bill would effectively cap the annual percentage rate on any consumer loan, including fees, at 18.5%. It also would weaken some key components of the 2005 bankruptcy reform law to make it easier for consumers to discharge their debt when it hits that trigger.

Fed Audit
HR 1207; S 604
A bill to increase transparency of the Fed — introduced by Rep. Ron Paul, R-Tex., on Feb. 26 in the House and by Sen. Bernie Sanders, I-Vt., in the Senate on March 16 — continues to draw support.

Several House members signed on to Paul's bill in June as co-sponsors, bringing the tally to 245. Three Republican Banking Committee members — Sens. Mike Crapo of Idaho, Jim DeMint of South Carolina and David Vitter of Louisiana — signed on to Sanders' bill in June.

The bill calls for a full audit of the board of governors and the Federal Reserve banks to be completed by the Comptroller General before the end of 2010, with a complete report to Congress within 90 days.

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