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Advocacy Alert- 02/04/2002

State legislative priorities summarized

CBA’s Government Affairs staff has prepared comprehensive issue briefs on the legislative issues it has determined to be of high priority this legislative session. Below are “executive summary” talking points on each issue. Please note that the final strategy on the credit union expansion issue is being finalized and will be summarized in future issues of Advocacy Alert.

Financial Privacy

• SB 773 (Speier) was defeated on the Assembly Floor by a coalition of moderate Democrats and Republicans who recognized the economic danger of the poorly-crafted bill.
  
• Economic research shows that an opt-in privacy regime would cost California billions of dollars a year.
  
• SB 773 is unnecessary. If the concern is the clarity of GLBA notices, SB 773 does not address that issue. The mandatory notice contained in SB 773 is confusing at best. Rather than further confuse consumers we should allow the numerous privacy bills that have been passed to be implemented and refined.

Update: Assembly Members Nation and Oropeza are working on an alternate bill to SB 773 (not yet in print), which by all accounts will be a more balanced and reasonable approach to information sharing. CBA has formed a Privacy Task Force from its Board of Directors and has helped generate meaningful research on the privacy issue which is being distributed to decision-makers and members of the media as appropriate.

Financial Elder Abuse

• CBA has been instrumental in defeating legislation that required banks to report suspected cases of financial elder abuse.
  
• AB 109 (Alquist) was favorably amended to create a pilot program in three California counties (San Francisco, Santa Clara and Lake) to develop training procedures for financial institutions that want to implement a program for reporting suspected elder abuse.
  
• If AB 109 cannot be enacted due to state fiscal constraints, it is not clear that further legislation is necessary at this time.

Update: CBA, through its newly created Legal Affairs Sub-Committee, is working with non-profits that specialize in combating elder financial abuse to develop training materials for CBA member institutions that want to implement financial elder abuse reporting programs in their branches. Additionally, CBA is working with federal regulators on the details of providing CRA credit for those institutions who implement financial elder abuse programs.

House, Senate committees outline deposit reform bills Ceilings would rise, premiums would resume, and some past premiums would be credited

The House and Senate committees have set forth the outlines of a deposit reform bill they are drafting, and generally speaking, the bills follow the recommendations of the FDIC. Both would call for merging deposit insurance funds, the primary recommendation of the FDIC, but notwithstanding opposition from the regulators, both would also provide immediate increases in the regular insurance ceiling, perhaps by as much as $30,000.

The bills would double the amount of insurance presently applicable to retirement savings accounts including 401 (k) accounts, and the House bill, unlike the Senate bill, would provide overall insurance on municipal accounts up to the amount of an institution’s total equity capital. The municipal deposit decision was a surprise, and fierce opposition from the Treasury, the regulators and some banks can be expected.

As recommended, the 1.25 percent designated reserve ratio would disappear as would the cliff premium of 23 - basis points. Instead, FDIC would be authorized to set the DRR between ranges of 1 and 1.5 percent and to set risk-based premiums (provided no additional reporting burdens would be imposed) necessary to meet and maintain the designated ratio. As an offset, the committees are following a suggestion by incoming FDIC Chairman Powell to provide an offset against future premiums assessed against Camel l and 2 rated banks based on premiums they paid between 1989 and 1996, but the offset credit would be limited to a fixed number of years — perhaps five.

The credit concept is also intended as a solution to the so-called free rider issue, because those paying few if any premiums during the 1989 to 1996 period would receive no offsets. A phase-out of the credit would presumably hurt slow growers, whose credit would generally last longer than faster growers if it were allowed to run out fully. The duration of the credit is sure to be a hotly debated topic as the bills proceed to markup.

Release of this outline suggests that both committees intend to make deposit insurance a priority item this year. But odds of a bill are probably no better than 50 - 50. The key will be the extent to which extraneous items (read: consumer protection provisions which would add to banker compliance headaches and costs) can be kept out of the bill.

Fed toughens, expands HMDA reporting requirements, acknowledges compliance costs could rise “significantly”

The Fed, which has been under considerable pressure to do more to combat discrimination, has approved a final rule that will, increase “substantially” the reporting requirements on mortgage lenders, both with respect to the number of loans subject to the requirements and the information that must be collected. It would also broaden the number and types of institutions that are required to report. The rule will not be effective until next year, and would apply to reports that are due in March of 2004.

For the first time, lenders would be required to indicate whether a loan is subject to the Home Ownership and Equity Protection Act (HOPEA) and reporting will be required whether the loan is secured by a junior or senior lien and if loan is on manufactured housing.

In addition to a substantial increase in the number and types of loans subject to reporting, the final regulations will expand on what type of information must be reported. The Fed dropped a requirement to which the industry objected strenuously, that APR’s be reported generally, but the Fed does plan to require disclosure of loans that exceed specified spreads over comparable Treasuries. The spread will be the subject of a separate rule making process on which public comment will be solicited. The Fed is expected to propose disclosure of APR’s that exceed comparable Treasury maturities by 3 percent, in the case of first mortgages, and 5 percent in the case of junior liens.

The Fed will also take comments on a proposal to require collection of data on the race, ethnicity and gender of telephone applicants for the first time. The definition of an application would be expanded to include denials under home buyer pre-approval programs, and it will be the lender’s option whether to report on pre-approval requests that are approved, but not accepted, by an applicant.

FHFB asks withdrawal of multiple-district applications

The Federal Housing Finance Board (FHFB) has asked that four regional home loan banks withdraw their applications to approve as members institutions that already belong to another bank. New FHFB Chairman John Korsmo indicated that the agency would begin processing the four petitions once the comment period ends in March, but expressed a clear preference to deal with the issue in its entirety and not to deal with these petitions. Actually, withdrawal of the petitions might facilitate the development of a policy on the overall issue of whether banks and thrifts ought to be able to belong to more than one home loan bank because it would enable the agency to have conversations with both regional banks and with the industry because there would be no applications or regulatory proposals pending.

There have been differing interpretations of Korsmo’s request. At first blush, it would appear to be a setback for the applicants (the New York, Dallas, Chicago and Atlanta banks). But in fact, FHFB has already indicated that any approvals would be very limited. The agency (and much of the industry) would prefer that the issue be dealt with comprehensively, and would prefer to get on with that task.