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Advocacy Alert- 02/03/2003

Administrative civil penalties meeting with DFI commissioner

At the request of the DFI Commissioner Donald Meyer, CBA brought together key bankers to meet with the Commissioner and several senior DFI staff members on Thursday, January 23, 2003, in the CBA Sacramento office. Bankers in attendance included Richard P. Smith, Tri-Counties Bank, Steven A. Rosso, Pacific State Bank, Daniel J. Doyle, Central Valley Community Bank, Howard Gould, United Bank of California, James Ryan, Bank of Walnut Creek, Timothy Walbridge, Redlands Centennial Bank and Kent Steinwert, Farmers and Merchants Bank.

The key subject of discussion at the meeting was a legislative proposal by the Commissioner to assess administrative civil penalties for violations of state law or DFI orders. After a thorough discussion of the issues between the bankers, the Commissioner and his staff, it was agreed that the proposal may not be opposed by CBA if it is limited in the following manner:

1. The power to assess penalties must be limited in its' breadth of application to assessments by DFI on the institution not individuals.

2. The scope of the penalty power must be limited to achieve targeted severity. Targeted severity means that penalties may only be assessed for very significant violations of state law or administrative orders that affect safety and soundness or similar substantive concerns. Mere record-keeping violations and other violations of state law or administrative order that do not constitute very significant breaches will not be subject to penalty assessments.

3. There must be parity in state law with federal guidelines so that before a penalty is assessed, the Commissioner must make findings as to the type of conduct that triggered the violation and whether the violation has been remedied.

4. In cases where the findings support imposition of a penalty, separate findings must also be made to determine the gravity of the penalty.

5. Finally and most importantly, the bankers stressed the need for equality in statutory application against all DFI licensees, including credit unions. Conceptual agreement was reached with the Department that the proposal must be re-drafted so that a more equitable application of the administrative penalties could be achieved among all licensees. Restated, all licensees must be subject to the same scope of examination, and enforcement for violations of the same type of statutes.

Another meeting with the department staff will be held in early February to review CBAs' draft amendments to the current proposal consistent with the agreement reached. In addition, the Commissioner agreed to meet with CBA's Bank Advisory Committee in April.

CBA hires Douglas L. White

CBA is pleased to announce the hiring of Douglas L. White to our lobbying staff in Sacramento. Doug comes to us from the State Capitol where he had been working for more than four years in a consulting capacity. Doug has significant experience managing legislative issues and political campaigns for the State Assembly. He is a licensed attorney and will assist our General Counsel, Leland Chan as an additional staff contact to the CBA Legal Affairs Committee. In addition, Doug will staff the CBA Mortgage Lending Committee and Trust State Legislative Subcommittee. As a registered lobbyist for CBA, Doug will be a valuable resource to our membership. We look forward to our continued success in Sacramento with the help of our newest team member. Doug can be reached at either 916/441-7377 ext. 211 or dwhite@calbankers.com.

National Teach Children to Save Day

Every year, the American Bankers Association encourages its members to participate in National Teach Children to Save Day - an educational program that provides schoolchildren (K-12) with materials on how to save money, how interest works and the concept of budgeting. Included in this issue of Monday Courier, is the press release from the ABA offering more information and those to contact if your institution wants to participate. If you would like to participate, but would rather have CBA coordinate your participation, please contact Anissa Yates at 916/441-7377 ext 208 or ayates@calbankers.com.

Deposit insurance bill introduced in both houses

Deposit insurance reform legislation has been introduced in both houses of Congress. Financial Institutions Subcommittee Chairman Spencer Bachus was the lead sponsor on a bill introduced last week that is virtually identical to the one passed by the full House last year. Meanwhile, Senator Tim Johnson, the recently re-elected senator from South Dakota who last year chaired the Senate Financial Institutions Subcommittee, leads a group of five Senators in sponsoring what appears to be the same or very similar to the bill he introduced a year ago (details were not known as this Monday Courier went to press). Two Republican Senators, both from the Midwest, are co-sponsors of the Johnson bill which calls for a deposit ceiling increase of $30,000 just as the House bill does. However Banking Committee Chairman Shelby is opposed to an increase in the ceiling as are the administration, the regulatory agencies and large portions of the industry. The early introduction of these bills strongly suggests that deposit insurance is likely to be addressed by the new Congress relatively soon.

7(a) funding advances

The Senate has appropriated funds sufficient to reinstate the previous $1 million loan ceiling under the Sec. 7(a) small business lending program. The Senate language was a part of the omnibus spending bill which passed late last week. The legislation is also contained in the House version of the omnibus appropriations bill which has not yet been scheduled for House action. A companion piece of legislation that would change the methodology by which losses under the programs are officially estimated is also expected to be acted upon by the House soon.

OTS pre-empts Georgia Fair Lending Act; authority upheld by California Appeals Court

OTS, which has the broadest pre-emption powers of all the regulatory agencies, last week pre-empted the Georgia Fair Lending Act. The Georgia law, which went into effect at the first of the year, was considered to be the most onerous state law in the country. Some national lenders have suspended their Georgia lending programs and some ratings agencies refused to rate mortgage securities backed by loans covered by the Georgia law. The reason: Subsequent holders of loans found to be in violation of the Georgia law are fully liable, under its provisions, for stiff fines and penalties imposed by the law for violations. The OTS action means that loans originated by federal thrifts in Georgia will not be covered by the law. Interestingly, OTS recently issued a final regulation that it will no longer preempt pre-payment penalties imposed by state chartered lenders in violation of state law under the Parity Act. Thus OTS is using its broad powers carefully and with discretion.

Meanwhile, OTS won a major court fight in the California Court of Appeals in San Francisco, in which Attorney General Lockyer joined a plaintiff in appealing OTS' pre-emption authority with respect to a California law that limits fees on loan payoff statements to $60. OTS ruled that federally chartered thrifts did not have to comply with the law even though it had no specific regulation on the subject of loan settlement payoff statements. The dispute involved a $10 fee for faxing a payoff statement. Many federal courts have upheld OTS preemption authority.

Federal pre-emption is bitterly opposed by consumer rights advocates and particularly state attorneys general. Later this year the industry will need to win an extension of the preemption provisions contained in the Federal Credit Reporting Act which are scheduled to sunset at the end of 2003. That law prevents states from imposing limitations or conditions on communications between lenders and credit reporting agencies.

Baca joins House Financial Services Committee; Cox leaves

Rep. Joe Baca, a moderate, second-term Democrat from San Bernardino, has been named to the House Financial Services Committee while veteran Republican, Chris Cox has left the committee in order to join and chair the new Home Land Securities Committee. There will still be 7 Californians on the committee, but now four will be Democrats while three are Republicans.

BIF could sustain 2.2 percent growth in insured deposits in Q4

FDIC reported last week that the BIF fund had grown to $32.1 billion at the end of 2002. Deposit figures are not yet known, but the announcement indicated that the fund would accommodate a 2.2% growth in insured deposits and still remain above the required1.25% ratio. Average fourth quarter growth over the past 10 years has been around 1.2%. But the next critical time for the industry will be first quarter 2003 figures, the numbers that the FDIC board will be looking at when it decides what to do about premiums in the second half of 2003, probably in early May. Declining interest rates and recent trends bode well for the industry for the time being.

Grassroots Update - Legislative Meetings

The following meetings have been scheduled between CBA members and their elected officials. If you would like more information on these meetings, or would like to participate in any of the meetings, please contact Mary Boruff at (916) 441-7377, ext. 207. If you are not available, please consider sending an officer from your bank.

* Freshman legislator
** Meeting rescheduled – new time
*** Meeting rescheduled – new date/time