NEW LEGISLATION

Thrift Charter Conversion

Senate Banking Committee Chairman Alfonse M. D'Amato introduced a bill eliminating the federal thrift charter and forcing federally chartered thrifts to convert to banks. Introduction of the bill made good Sen. D'Amato's promise to move quickly on the thrift charter issue. The New York Republican has said he wants to get the bill through the Senate by Easter.

S 1415 is a copy of the thrift conversion provisions included in HR 2363 drafted by the House Banking Committee.

Reverse Mortgages

Sen. D'Amato also introduced S 1409 reauthorizing the Federal Housing Administration's reverse mortgage program. Established in 1987, the program insures FHA-approved lenders for reverse mortgages to senior citizens. Reverse mortgages allow homeowners to receive monthly payments based on the equity in their homes. The program expired Oct. 1, but the bill would extend it to 2000.

ACTION ON LEGISLATION

Thrift fund rescue

Congress has approved a plan to rescue the Savings Association Insurance Fund. The legislation is part of a larger budget bill, which President Clinton vetoed last week.

The SAIF bailout, which the Clinton administration supports, would capitalize the insurance fund with a one-time charge on thrifts of about 85 basis points. The bulk of annual interest due on thrift bailout bonds would be paid by banks.

House Banking Committee Chairman Jim Leach made his support for the narrow financial fix contingent upon a commitment by Sen. D'Amato, to move quickly on separate legislation converting thrifts into commercial banks.

Bad-debt breaks

Thrifts with bad-debt reserves would be protected from $3 billion in back taxes in a plan drafted by the House Ways and Means Committee Chairman Bill Archer, R-Tex. The proposal, which is included in Congress' larger balanced budget bill, would suspend "recapture" of tax breaks thrifts received for their bad-debt reserves. Currently, thrifts that convert to commercial banks must pay back taxes on the reserves. Under the bill, reserves taken prior to 1988 would be exempt from taxes. Reserves taken in 1988 or later would be subject to tax, but recapture could be delayed for two years if a thrift meets a residential loan test.

The bill is a key to the thrift industry's support of the SAIF rescue.

Regulatory relief/Glass-Steagall

Legislation providing banks with regulatory relief could be approved by the Senate soon. Sen. D'Amato has sent the legislation to the Congressional Budget Office, which must review the bill's impact on the federal budget. If the Senate's schedule allows, the package could be brought to a vote by Christmas.

Rep. Leach remains determined to build support for his combined Glass- Steagall repeal/regulatory reform package. In recent weeks, House Banking Committee staff members have tried to reach a compromise on insurance restrictions that have generated opposition from much of the banking industry.

Bankers are angry because the bill would limit their insurance powers through a five-year freeze on the Comptroller of the Currency. Rep. Leach said he may remove the insurance restriction from the Glass- Steagall/regulatory relief package and attach it to an as-yet-unidentified piece of legislation.

The regulatory relief bill would streamline a number of laws, including Truth-in-Lending. However, most Community Reinvestment Act changes have been stripped from the bill.

Though the bill is watered down from its original version, industry lobbyists say they are eager for approval.

Student Loans

Congress voted to limit the government's share of the student loan market to 10% as part of its balanced budget plan. Last week, President Clinton vetoed the package, primarily because of deep cuts in Medicare and welfare programs, but he is opposed to the cap on government student lending, too.

A compromise is expected eventually and numerous industry representatives estimate that the cap on the government's share of the market could be set as high as 40%.

Killing the direct lending program has been a priority of Economic and Educational Opportunities Committee Chairman William F. Goodling, R-Pa. However, he consented to give the government 10% of the market as part of a larger deal.

The bill also increases fees on financial institutions that make student loans. Lenders would be forced to absorb 5% of the loss on unpaid loans - banks losses are now capped at 2%. The measure also would double, to 100 basis points, origination fees lenders must pay.

Individual retirement accounts

Banks could soon offer a new "back-loaded" Individual Retirement Account that would allow tax-free withdrawals after retirement. The new investment, dubbed the "American Dream IRA," allows working individuals and homemakers to make taxable $2,000 yearly contributions. Tax-free withdrawals would be allowed after age 59 and a half.

The IRA proposal is part of a budget package prepared by the Senate Finance Committee and the House Ways and Means Committee.

Early withdrawals from the back-loaded IRA would be permitted tax free and without penalty for first-time home purchases, college tuition, and major medical expenses.

The committees also agreed to increase the number of people eligible for traditional IRAs, for which contributions are deductible. Under a proposal drafted by Sen. William V. Roth, R-Del., singles earning $85,000 a year and couples making up to $100,000 would be able to deposit up to $2,000 tax- free.

Lender liability

Legislation clarifying the extent of a lender's liability for cleanup of hazardous chemicals hit snags in both chambers of Congress.

The House Commerce hazardous materials subcommittee is considering the measure, which is tucked into a broader bill, HR 2500, that aims to reform Superfund. However, panel Democrats are delaying completion of the vote for reasons unrelated to lender liability. The House Superfund bill was introduced by Rep. Michael G. Oxley, R-Ohio.

A companion measure, S 1285, sponsored by Sen. Robert C. Smith, R-N.H., has hit similar roadblocks. Because both bills are being held up by provisions that have nothing to do with lender liability, banking lobbyists said there is little chance either will be considered this year. House and Senate regulatory relief measures contain lender liability provisions as well.

SBA Loans

President Clinton signed legislation Oct. 12 rescuing the Small Business Administration's loan guarantee program, which was running out of money.

The legislation decreases the level of loan-guarantee protection offered to lenders. The government will guarantee 75% of loans over $100,000 and 80% of smaller loans.

The measure also increases the SBA fees lenders pay and replaces the current borrowers fee of 2% on the guaranteed portion of most loans with a sliding scale of one-time fees.

PENDING LEGISLATION

Tax-free savings

In April, Sen. Pete V. Domenici, R-N.M., and Sen. Sam Nunn, D-Ga., introduced a tax bill that would exempt from federal income tax net increases in bank accounts, among other investments.

By focusing on new savings, the Unlimited Savings Allowance Tax Act attempts to end a widespread practice in which people fund retirement accounts by moving money from existing accounts, thus gaining the tax advantage without creating new savings.

Smart cards

Exempting stored value cards from the Electronic Funds Transfer Act is the aim of S 1270, introduced by Sen. Robert Bennett, R-Utah. The exemption would absolve issuers of so-called smart cards from responsibility for lost cards and eliminate the need for receipts for purchases with smart cards. The bill is similar to an amendment sponsored by Sen. Richard Shelby, R- Ala., in the Senate Banking Committee's regulatory relief package as well as a provision in the House banking panel's relief bill.

Fair-Credit Reporting

A bill introduced by Sen. Christopher S. Bond, R-Mo., that would revamp credit reporting laws is a mixed bag for lenders.

The measure, S 709, would make compliance easier and less expensive by replacing a patchwork of state credit reporting requirements with a uniform federal statute. The federal preemption would last eight years after the bill is enacted.

However, some industry sources say the preemption would not go far enough, because it does not cover state laws that hold banks liable for mistakes on credit reports.

Crediting payments by postmark

Bank trade groups mobilized last month against legislation that would require creditors to consider a bill paid on the date it was mailed.

In separate letters to Rep. John McHugh, R-N.Y., the measure's sponsor, the American Bankers Association and the Independent Bankers Association of America argued that the Postmark Prompt Payment Act of 1995 would cost lenders a fortune.

HR 1963 would force payment processors to replace high-speed processing equipment in order to read various-size envelopes and capture the postmark, the groups argued. Banking groups are expected to testify at a hearing on the bill early next year.

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