Senate Panel Backs Services for Poor

WASHINGTON - Siding with the Independent Bankers Association of America, the Senate Banking Committee approved legislation that would require banks to cash government checks and offer low-cost accounts to the poor.

The provision would let people eligible for the services pick the one they want.

In approving the measure on Friday, the panel rejected an alternative backed by the American Bankers Association that would have permitted a bank to decide which of the two services it preferred and to offer only that one.

"Our position is that there should not be anything in the bill" requiring banks to offer new services to the poor, said Edward L. Yingling, chief lobbyist for the ABA.

But once the panel rejected an effort by Sen. Connie Mack, R-Fla., to eliminate the provision altogether, Mr. Yingling said the ABA backed the alternative, which was sponsored by Sen. Christopher S. Bond, R-Mo., and went down to a 12-to-8 defeat.

The action on the consumer amendment came as the Senate panel neared the end of its work on comprehensive banking legislation. By midafternoon it was not certain that the committee could finish the bill before leaving town for the August break, but the number of issues outstanding appeared to have narrowed substantially.

Before taking up the consumer provisions, the panel agreed to give the Federal Deposit Insurance Corp. authority to "haircut," or reduce the principal, of deposits transferred to other institutions in the resolution of a failed bank or thrift.

Limits on Brokered Deposits

The panel also adopted a compromise that limits the ability of banks to accept brokered deposits.

Instead of denying deposit insurance to all brokered deposits, as banking committee Chairman Donald W. Riegle, D-Mich., had proposed, the panel agreed to permit the best-capitalized banks - those in "Zone 1" - to accept brokered deposits. To qualify, they must have one of the top two ratings on the regulators' Camel scale.

FDIC at Head of the Line

Zone 2 banks would be able to accept brokered deposits, provided they receive permission from their regulator every 60 days. The FDIC would gain new authority to regulate deposit brokers.

In addition, the panel agreed that the FDIC would get priority over other creditors in representing the interests of a failed bank in a bankruptcy proceeding.

The panel also rejected an effort supported by the securities industry to strengthen the bill's firewall provisions, which are intended to protect a bank from the risks of its securities affiliate.

But the banking industry lost ground on insurance. The committee accepted a proposal in Sen. Riegle's bill to preempt a Delaware law that permits state-chartered banks to market insurance products nationwide. The panel also approved an amendment sponsored by Sen. Christopher Dodd, D-Conn., that would bar bank-owned insurance companies from states that restrict bank insurance activities.

The action on services for the poor - known as basic or lifeline banking - was part of a broad consumer title included in Sen. Riegle's comprehensive banking bill. Also included in the title is a Truth in Savings Act, which sets uniform disclosure requirements for savings accounts offered by banks and thrifts.

In addition, the section includes the Fair Lending Enforcement Act, which is intended to combat discrimination in the mortgage lending market.

Bone of Contention

The IBAA's position on services for the poor, which reflected a compromise between the trade group and the American Association of Retired Persons, has emerged as a major point of contention with the rival ABA.

The IBAA, which represents smaller banks, argued that Congress was likely to mandate some form of basic banking package regardless of bankers' views. The IBAA claimed its concession to the AARP on that issue won a key ally for the industry in its battle to preserve insurance coverage on multiple accounts.

The ABA said the industry would have won on multiple-account coverage without the help of the senior citizen's lobby, and charged that the IBAA agreement hamstrung efforts to fight government check cashing and lifeline accounts.

"The basic problem we're having today is a number of senators standing up and saying the IBAA supports basic banking," said Mr. Yingling of the ABA.

IBAA Alternative

The IBAA alternative called for the establishment of an account relationship through which a consumer could choose to have either government check cashing privileges or lifeline checking.

Mr. Yingling complained about the expense, saying, "You could have three customers for lifeline checking. The marginal cost of setting up that kind of account would be huge."

The IBAA argued that because either option would be exercised through an account, government checks would be cashed on a "next-day" basis, as permitted under the Expedited Funds Availability Act.

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