Pending Legislation Financial Modernization As lawmakers returned Wednesday from their August recess, it remained uncertain whether they will finish financial reform this fall or continue working on it in 2000. The House-Senate conference committee on financial reform, chaired by House Banking Committee Chairman Jim Leach, met for the first time on Aug. 3. The Senate is represented by its 20-member Banking Committee. The House selected 42 members, but 19 will vote only on selected provisions. Senate Banking Committee Chairman Phil Gramm has challenged the composition of the conference committee because the House delegation has more Democrats than Republicans. Rep. Leach refuses to make any changes because, he says, House Republicans have a majority on each section of the bill. But Sen. Gramm responds that Senate rules require a majority of House conferees to sign off on a compromise, which he says could give Democrats to much sway if they possess a majority. The financial reform bill passed the House 343 to 86 on July 1. A similar bill passed the Senate on May 6 on a 54-to-44 vote. Both bills would let banks, securities firms, and insurance companies buy each other, but they differ on powers for bank operating subsidiaries, community reinvestment requirements, privacy, limits on unitary thrifts, and other key areas. The House bill has broader support both among industry lobbyists and the Clinton administration. The White House has threatened to veto the Senate bill, claiming it would weaken the Community Reinvestment Act. The Senate bill would exempt rural banks with less than $100 million of assets from CRA compliance. President Clinton has also objected to the Senate bill because it would give the Federal Reserve Board more authority over financial companies. The House bill more evenly splits oversight between the Fed and the Treasury by letting new financial powers be conducted in holding company units or direct bank subsidiaries. House and Senate leaders met with the heads of the two agencies last month and urged them to compromise. Both bills would bar commercial firms from chartering thrifts. However, under the House bill, commercial companies could buy an existing thrift if the Office of Thrift Supervision and the Federal Reserve Board approved. Bankruptcy Senate Majority Leader Trent Lott is expected to bring bankruptcy reform legislation up for debate by next week. Sens. Charles E. Grassley, R-Iowa, and Robert Torricelli, D-N.J., had asked Republican and Democratic leaders to schedule a vote before Congress recessed Aug. 6 for a month, but tax, spending, and other priority bills - as well as the threat of a messy floor fight - made that impossible. Sens. Grassley and Torricelli are working on a compromise. The Senate Judiciary Committee approved the bill on a 14-to-4 vote on April 27. It would let bankruptcy judges force debtors who could afford to repay either $15,000 or 25% of unsecured credit over five years to file under Chapter 13 of the bankruptcy code. Creditors also could ask judges to force a consumer into Chapter 13. The Senate bill is expected to include many consumer protections favored by the White House and opposed by lenders. The House overwhelmingly approved its bill 313 to 108 on May 5. The House bill, sponsored by Rep. George W. Gekas, R-Pa., would require those with high disposable incomes to repay some unsecured debt in Chapter 13, rather than eliminating it all in Chapter 7. The bill relies on the Internal Revenue Service estimates of living expenses - bolstered with more funds for food, clothing, and education - to determine disposable income. The White House has threatened to veto the House bill, but it passed with a veto-proof majority. Many of the administration's objections also apply to the Senate bill. Tax Legislation The House and Senate on Aug. 5 adopted a tax bill that includes estate and personal capital gains rollbacks that would benefit banks. But President Clinton has vowed to veto the plan to cut taxes by $792 billion over 10 years because, he argued, the money would be better spent beefing up Social Security and Medicare. Under a compromise crafted by House and Senate Republican leaders, the bill would phase out estate and gift taxes. Capital gains tax rates would be cut to 18% from 20% for higher-income people and to 8% from 10% for those with lower incomes. Caps on annual contributions to 401(k) plans would rise to $15,000, from $10,000; individual retirement accounts to $5,000, from $2,000; and education IRAs to $2,000, from $500. The bill would also expand banks' eligibility to be S corporations. Interest earned on bank securities portfolios would be excluded from S corporation limits on passive income. Also, banks that are required by some states to issue special shares for directors would be exempted from S corporation prohibitions on multiple classes of stock. Electronic Disclosures Reps. Marge Roukema, R-N.J., Rick Lazio, R-N.Y., and Jay Inslee, D-Wash., introduced legislation July 27 that would let banks make mortgage and other mandatory federal disclosures over the Internet instead of on paper. Under the Electronic Disclosures Delivery Act of 1999, financial companies could provide on- line notices under fair credit, truth-in-lending, and other consumer protection laws as long as customers give their consent electronically. The content of the disclosures and the legal rights and responsibilities of all parties would be unchanged. Rep. Roukema, the chairwoman of the House Banking subcommittee on financial institutions, plans to hold a hearing in September.

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