Action on Legislation

Financial Modernization

In an embarrassing defeat, House Republican leaders March 31 withdrew legislation that would restructure the financial services industry.

They abandoned a procedural plan to link the financial reform bill with legislation easing credit union membership rules after succumbing to heavy opposition from the banking industry, Democrats, the Clinton administration, and Republican defectors.

House Republican Conference Chairman John A. Boehner, the point man on financial reform, vowed to bring the bill back for a vote in early May. The Ohio Republican admitted that the leadership's strategy to use the popular credit union bill to attract votes to the controversial reform legislation backfired. House Speaker Newt Gingrich had pushed hard for the two bills to be linked and approved before Congress left April 2 for its two-week Easter recess.

As lawmakers gear up to revise the bill, House Banking Committee Chairman Jim Leach already has said he will propose dropping some restrictions on bank operating subsidiaries and offer other pro-bank provisions.

The bill that made it to the House floor would have let banking, insurance, and securities firms merge and banned new thrift holding companies that were not in existence or requested by March 31.

Credit Unions

In a landslide 411-to-8 vote, the House approved legislation April 1 that would undo the banking industry's recent Supreme Court victory by letting occupation-based credit unions serve an unlimited number of small companies.

Under the bill, occupation-based credit unions could add members from companies with no more than 3,000 employees. These groups would have to be located within "reasonable proximity" to the credit union. Only people from a member's "immediate family or household" could join through a member.

Credit union regulators would be required to promulgate rules that impose capital and other supervisory requirements on credit unions and make them serve members of "modest means." It also freezes current National Credit Union Administration limits on business lending for one year pending further study.

The Senate Banking Committee expects to vote on its own credit union bill the week of April 27, using the House bill as its starting point.

Banks and thrifts oppose the House bill's limits on membership expansion as too loose and its bank-like regulation as too weak, complaining that they give credit union regulators too much discretion. They also want large credit unions to be taxed.

House Banking Committee Chairman Jim Leach and Rep. John J. LaFalce, the committee's top Democrat, steered the bill through the committee on March 26, warding off amendments to tighten commercial lending restrictions on credit unions and other changes.


A Senate Judiciary subcommittee passed a bill April 2 that would require higher-income consumers to repay some unsecured debt.

The bill would allow creditors to ask a judge to force consumers in bankruptcy to repay some unsecured debts, provided they prove debtors are abusing the bankruptcy system. The bill, which was introduced by Sen. Charles E. Grassley, R-Iowa, defines abuse as any attempt to eliminate all debts in Chapter 7 filings when the filer could afford to repay at least 20% of unsecured debt over five years.

An amendment by Sen. Richard J. Durbin would prevent creditors from asking for repayment if the debtor earns less than 100% of the national median income. Court-appointed bankruptcy trustees still could ask courts to order repayments.

The full Judiciary Committee is expected to vote on the legislation in late April.

Meanwhile, the House Judiciary subcommittee is expected to vote April 24 on a pro-creditor bankruptcy reform bill introduced by Rep. George W. Gekas, R-Pa. A full committee vote is scheduled for April 29.

Lenders prefer Rep. Gekas' bill because it would use a formula to determine if debtors could eliminate all their unsecured credit in Chapter 7. They say that approach is simpler and would spark fewer lawsuits.

Student Loans

The Senate Labor and Human Resources Committee unanimously approved legislation April 1 that would cut the rate lenders may charge on government-guaranteed student loans. The plan, included as part of a spending bill for higher education, is identical with one passed March 19 by Rep. William F. Goodling's House Education Committee.

The legislation would cut the five-year average interest rate on these loans to 7%, from 7.8%. The reduction was already scheduled to take effect July 1 under a provision of a 1993 law.

To appease lenders, however, the bills would supplement interest payments so the effective rate banks would receive would be 7.5%.

Bankers object to the rates as too low. The Clinton administration also opposes the legislation because the Treasury Department contends the $300 million subsidy for banks is unnecessary. Pending Legislation Regulatory Relief

The Senate Banking Committee is expected this spring to approve legislation written by Sen. Connie Mack, R-Fla., and Sen. Richard Shelby, R-Ala., that would roll back more than 40 bank regulations. Bankers welcome proposals to streamline rules on establishing bank holding companies and to eliminate a requirement that thrifts keep at least 4% of capital for demand deposits and borrowings that are payable in one year. The bill would let banks offer interest-bearing business checking accounts and let the Federal Reserve Board pay interest on required reserves. But the Clinton administration opposes payment on reserves as too costly. Sen. Paul S. Sarbanes, the committee's ranking Democrat, also opposes provisions in the bill to remove anti-tying restrictions to prevent banks from forcing borrowers to purchase nonbanking products.

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