When it comes to state legislation, bankers often find themselves playing more defense than offense - and that pattern is expected to continue in the coming year.
Among financial institutions' top priorities at the state level for 2007 will be blocking attempts to cap interchange fees on credit card purchases and keeping Wal-Mart Stores Inc. from opening bank branches in their states if the retail giant obtains an industrial loan charter.
Trade group officials say that bankers in several states also will be looking to abolish regulations imposed by local governments, courts, and nonbank regulators.
Legislative sessions are already under way in two states and set to start in 43 others next month. Four other states' legislatures are to convene in February and March, and Louisiana's will open in late April.
Mathew Street, the American Bankers Association's general counsel on state legislative issues, said that bankers in several states are bracing for legislation relating to interchange fees.
Mr. Street said legislatures in Washington, Tennessee and Kentucky considered bills this year that would have capped interchange fees on credit card purchaes. Though none were passed, he said he expects similar legislation to surface in several states in 2007.
The bills are expected to be championed by retailers who say that interchange fees are simply too high and eat into profits. Bankers argue that they would have a harder time covering their expenses on merchant transactions if fees were capped.
Gilbert T. Schwartz, a partner in Schwartz & Ballen LLP, a Washington law firm, said that banks' income streams from processing merchant transactions would be crimped if such bills were enacted.
"If fee income is reduced, there would be less of an incentive to invest as much money in technological upgrades to process these transactions," Mr. Schwartz said. "As a result, that could have an effect on the amount of credit that banks extend."
Wal-Mart is also on many bank groups' radar screens.
Regulators continue to weigh whether to grant Wal-Mart an industrial loan charter, and the retailer itself insists it has no interest in getting into retail banking, but community bankers are not necessarily taking the company at its word.
This year, five states - Maryland, Virginia, Oklahoma, Iowa, and Missouri - enacted laws that would essentially bar Wal-Mart from opening in-store bank branches in their states. Other states' trade groups are expected to lobby aggressively for similar bans in their states next year.
Some of the states that enacted laws aimed at keeping Wal-Mart out of banking are also expected to revisit the issue in 2007. A July letter from federal regulators to the Conference of State Bank Supervisors said that laws banning industrial loan companies chartered in one state from branching into other states in may run afoul of the 1994 Riegle-Neal Act, which requires states to set branching policy that "applies equally to all banks."
The Maryland law appears to avoid this problem, the regulators added, by banning any industrial loan company from branching on the site of a commercial affiliate - a standard that could be applied to all banks.
Stephen J. Verdier, a lobbyist for the Independent Community Bankers of America, said that bankers in the other states that enacted laws this year will probably lobby their legislatures in 2007 to amend them and those in the remaining states that allow interbranching will lobby for bills similar to Maryland's law.
Most legislatures will be receptive to bankers' concerns, Mr. Verdier predicted.
"The fact that ILCs can be created in just a couple of states" but could entirely remake "the financial system is troubling to legislators in these states," he said.
The Virginia Bankers Association has made amending the new Virginia law one of its top priorities, said general counsel Joseph E. Spruill 3rd.
Daryll Lund, the president and chief executive of the Community Bankers of Wisconsin, said his group is going to lobby for the introduction of legislation that goes beyond the Maryland law by specifying a prohibition on ILC branches within 1.5 mile of their commercial affiliates.
In several states bankers also intend to ask legislatures to reverse policy decisions affecting banks that were not made by regulators or lawmakers. The ABA's Mr. Street said bankers are frustrated with local governments, nonbanking state agencies, and even courts that have made major policy decisions they believe should be solely legislative.
Last year, Montgomery County, Md., adopted an ordinance that declared the charging of excessively high fees on mortgages is discriminatory. Invoking discrimination was a way to get around federal preemption of state and local consumer-protection measures, Mr. Street said.
Though the Montgomery County Circuit Court last month declared the ordinance unconstitutional, bankers groups fear that Montgomery County and other local governments nationwide may try to pass other ordinances that cannot be struck down in court, he said.
In Pennsylvania, the administrative office of the state Supreme Court this year increased the amount of interest that banks must pay on the trust accounts they hold for law firms, Mr. Street noted. Interest paid on such accounts is used to fund Pennsylvania's legal aid organizations, a practice common to many states.
In an effort to increase revenues, the Pennsylvania court ordered that banks pay an interest rate comparable to that on other trust accounts, instead of on interest-bearing checking accounts. Agencies in states such as New Jersey, Ohio, and Massachusetts are considering the same change, said the ABA counsel, and he argued that such changes should only be made by lawmakers.
In Virginia, banks have been saddled with the responsibility of determining whether customers facing garnishment have funds such as Social Security or welfare checks that can be shielded from creditors.
In most states, debtors themselves must prove any exemption, but in 2004, a panel of the Virginia Supreme Court ordered that banks automatically exempt accounts comprising solely of direct-deposited benefit checks. Bankers contend this responsibility is too onerous, and they plan to ask lawmakers to abolish it, said the Virginia Bankers Association's Mr. Spruill.
Elsewhere in the country the Florida Bankers Association plans to lobby next year for a law to make property insurance more affordable for homeowners, said Anthony F. DiMarco, a lobbyist for the group. In the aftermath of hurricanes in 2004 and 2005, some insurers stopped writing policies in Florida, and others raised premiums significantly.
In Massachusetts, bankers plan to lobby its General Court to update the bank robbery law with penalties for robberies committed with unorthodox weapons, said David E. Floreen, a lobbyist for the Massachusetts Bankers Association. The current law only specifies penalties for robberies committed with knives or guns but not, for instance, with hypodermic needles, he said.
In addition to these emerging issues, statehouses are also likely to continue addressing such issues as payday lending, predatory lending, and data security.
The National Conference of State Legislators says 42 states limit the fees charged on payday loans and 37 have anti-predatory-lending laws; observers said they expect states lacking such laws to consider enacting them.
