Action Legislation

Financial Modernization

Efforts to pass financial reform legislation will resume when Congress returns in January. Time ran out on Banking Committee Chairman Jim Leach and Commerce Committee Chairman Thomas Bliley, who tried to settle differences between their two bills but ran out of time.

Major differences between the two bills include the amount of nonfinancial business that bank holding companies would be permitted to own, limits on bank operating subsidiaries, and restrictions on bank securities sales.

Bankers oppose both plans. Among their reasons: States would have too much power over bank insurance operations, and securities and insurance companies that acquire banks would be exempt from strict supervision by the Federal Reserve.

S&Ls oppose the proposals because they would eliminate the federal thrift charter.

Private Mortgage Insurance

The Senate on Nov. 9 approved legislation that would require lenders to automatically cancel private mortgage insurance when a borrower's equity in a home reaches 22%. Also, borrowers would be allowed to demand that mortgage insurance be terminated when equity reaches 20%, as long as they kept up with payments in the preceding two years. It also would require lenders to make annual disclosures showing how much a borrower would have to pay on the loan to avoid mortgage insurance.

The committee's approval came after seven months' of negotiations between Senate Banking Committee Chairman Alfonse M. D'Amato and Sen. Lauch Faircloth.

The House passed legislation in April that would automatically cancel insurance when equity reaches 25%. The next step: A House/Senate conference committee will try to craft a compromise bill.

Resolution Trust Corp. Oversight

The Senate Banking Committee on Oct. 23 also passed legislation to abolish the Thrift Depositor Protection Oversight Board. The Treasury Department had asked Congress to eliminate the board, estimating that the move would save $250,000 annually.

The board's chief function of overseeing the Resolution Trust Corp. was eliminated in 1995 when the RTC was abolished. Other responsibilities- oversight of the Resolution Funding Corp. and membership on the Affordable Housing Advisory Board-would be transferred to Treasury.

The House passed identical legislation on Sept. 23. Pending Legislation

Business Checking Accounts/Sterile Reserves

Sen. Chuck Hagel introduced legislation Oct. 3 that would let banks pay interest on business checking accounts. The measure is intended to help small banks compete with large institutions, many of which already offer businesses sophisticated "sweep" money market accounts.

The legislation also would require the Federal Reserve banks to pay interest on required reserves.

Rep. Jack Metcalf, R-Wash., has introduced identical legislation in the House.

Debit Cards

Sen. D'Amato introduced legislation on Sept. 23 that would cap consumer liability for stolen debit cards at $50. His proposal also would require debit card solicitations to disclose that the cards can be used without a personal identification number. Issuers also would be prohibited from mailing unsolicited debit cards and would be required to investigate fraud claims within five days.

Similar legislation has been introduced by Reps. Henry Gonzalez, D-Tex., and Charles Schumer, D-N.Y.

Bankruptcy

Judges would have authority to force high-income borrowers to repay, rather than cancel, their debts under legislation introduced Oct. 21 by Sen. Charles Grassley, R-Iowa.

Current law permits judges to intervene only when they suspect "substantial abuse" and it bars lenders from challenging any filing.

The legislation is the second "needs-based" bankruptcy proposal pending on Capitol Hill. A plan by Reps. Bill McCollum, R-Fla., and Rick Boucher, D-Va., would prevent consumers from eliminating unsecured debts under Chapter 7 bankruptcy if they could afford to repay at least 20%.

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