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Advocacy Alert- 03/17/2003

Media Training for Senior Leadership

CBA is offering no-cost, one-on-one media training to 10 executives on a first-come, first-served basis. Media training prepares executives to effectively respond to media inquiries, which helps strengthen the industry's presence with the media on important issues. Anissa Yates, CBA's VP of Communications, will travel to train executives in their offices during the month of April. Individual training sessions will take approximately three hours, groups (limited to four, please) will take approximately four-and-a-half hours. All participants will be expected to complete about an hour of preparatory work prior to media training. To schedule your media training or for more details, please contact Anissa Yates at ayates@calbankers.com or 916-441-7377, ext. 208.

CBA helps secure ombudsman, other changes with Farm Credit Administration (FCA)

CBA has been working with the FCA to identify and stop the making of unauthorized subsidized loans by lending cooperatives within the FCA system. FCA lending institutions are authorized by federal legislation to provide below-market loans for agricultural purposes, but non-farm loans may be made only at market terms. CBA has become aware of instances in California in which local FCA offices (production credit associations or PCAs) made loans at below market terms for strictly commercial purposes, thus directly competing with private sector commercial lenders. We produced evidence of such unauthorized lending and presented it to the FCA in Washington in a series of formal letters, and these activities are now being investigated.

Last week the FCA Chairman, Mr. Michael Reyna, informed CBA that the agency is in the process of preparing a report of alleged unauthorized lending within the system and the remedial actions it is taking and will take, and will provide the report to CBA upon its completion. Mr. Reyna also noted that the FCA just created a new position, Office of the Ombudsman, that is charged with acting as a liaison for the public on such matters as the one CBA raised. The director is Carl A. Clinefelter, and the address is: Office of the Ombudsman, 1501 Farm Credit Drive, McLean, VA 22102-5090.

If you are aware of any questionable lending made by FCA institutions, please contact Bob Longatti of the CBA (559-322-7095) or the FCA Ombudsman's office directly with a copy or notice to CBA. Also, let us know about your experience in dealing with the new office.

Credit unions call CBA "hypocritical"

For those not engaged in the issue of credit union parity, you may become more interested after reading about the California Credit Union League's (CCUL) latest volley at the CBA. In a press release dated March 4, the CCUL called the CBA "hypocritical" due to our efforts to study the idea of eliminating the tax subsidy currently afforded credit unions.

CCUL deemed our efforts to level the tax playing field "hypocritical" because of a 600 percent increase in the number of Sub S banks - from three to 18. Keep in mind that the number of credit unions in the state of California is nearly double the number of banks.

To review the press release from the CCUL, and to review the proposed legislation on the issue of tax parity for credit unions (AB 1226), please visit the CBA Web site (www.calbankers.com), accessing the Government Relations/Grassroots part of the site.

House Financial Services votes out deposit reform and interest on business checking bills

The House Financial Services Committee has again approved and sent to the House floor legislation to reform the deposit insurance system and to authorize the payment of interest on business checking accounts. The House had twice in the preceding Congress approved legislation authorizing the payment of interest on business checking. The Committee approved the measure again, with a two year phase-in period. The Committee also adopted an amendment offered by Rep. Ed Royce of California authorizing industrial banks to offer interest bearing NOW accounts to business depositors.

The approved deposit insurance reform bill is virtually identical to the bill the House passed a year ago on the subject. There were unsuccessful efforts to change the deposit ceilings - to lower the general ceiling to $100,000, to triple rather than double the ceiling for retirement accounts and to eliminate the special $3 million ceiling on municipal accounts. Thus the House bill again would increase the general ceiling to $130,000, the retirement savings ceiling to $200,000 and the municipal ceiling to a maximum of $3 million. There were minor amendments clarifying but not substantively changing provisions dealing with premium rebates and credits.

Both of these bills should come to the House floor prior to the Easter recess. They have been approved overwhelmingly in the past, and they have very broad bipartisan support.

Spring nears; scent of pre-emption fills the air

As the longest Washington winter in recent memory draws to a close, the aroma of pre-emption is wafting in the air. OTS recently pre-empted predatory lending laws enacted by Georgia and New York and will likely to repeat the process when New Jersey enacts a similar law. The Comptroller indicates that it might pre-empt the Georgia Fair Lending Act, even though the state of Georgia amended (and substantially gutted) its law just last week in light of the furor it caused, resulting in national rating agencies refusing to rate pools that included Georgia mortgages. Meanwhile, Sen. Paul Sarbanes, the ranking Democrat on the Senate Banking Committee, said he would soon introduce a predatory lending bill and he expressed some willingness to consider a federal pre-emption of all state predatory lending laws. However, the Sarbanes bill will contain strong national standards providing limits on prepayment penalties, balloon mortgages and fees that can be financed through sub-prime loans. Rep. Robert Ney, a member of the House Financial Services Committee, has introduced a predatory lending pre-emption bill in the House.

This week a federal district court judge ruled that the California Department of Corporations has no right to supervise the activities of a mortgage subsidiary of a national bank. This ruling, won by Wells Fargo, is significant because it is the first time a federal court has ruled that the Comptroller has exclusive regulatory authority over an operating subsidiary of a national bank. The OCC filed an amicus brief supporting Wells' pre-emption argument. A final ruling is expected from the Sacramento District Court next week.

But in what might be the most important development this week, new Treasury Secretary Snow told a group attending a banking conference in Washington that it is "awfully important" to extend the Fair Credit Reporting Act pre-emption provisions which expire at the end of this year. He indicated that the legislation ought to be coupled with legislation providing protections against identity theft, thus revealing the administration's strategic approach to the privacy issue but also signaling that the administration will lead an effort in this regard.

BIF ratio climbs to 1.27 percent; lessens likelihood of second half premiums

There was welcome news this past week from FDIC that, owing to very low growth in insured deposits and a substantial reduction in reserves that had previously been set aside to cover losses, the BIF ratio actually grew two basis points to 1.27 percent as of the end of 2002. A decision on premiums for the second half of 2003 will be made by the Corporation no later than May 15. By that time, preliminary figures through the end of the first quarter of 2003 may be available. But the likelihood of a premium anytime in 2003 has certainly diminished in light of this news.

California privacy ballot initiative unveiled by E-Loan exec

The title and summary for a ballot initiative on the issue of financial privacy have been filed with the Attorney General by Chris Larsen, CEO of E-Loan. Not surprisingly, this ballot initiative calls for the "express, affirmative consent" of consumers to have any of their information shared between financial institutions, their affiliates, partners or vendors. Those familiar with the vernacular of the privacy issue will recognize this as an across-the-board-opt-in regime. In addition to the "opt in" provisions of the proposed ballot initiative, it appears that the Attorney General's office will be responsible for developing appropriate language for disclosure notices and will also be responsible for monitoring financial institutions' compliance with these notices.

There is a private right of action allowed in the proposed initiative under 17200 of the Business & Professions Code and a clause exists that doubles the fine for the financial institution if information shared "illegally" by a financial institution is used to perpetrate the crime of identity theft. In other words, the criminal actions by an ID thief could double the penalty paid by the financial institution for the negligent release of personal information.

CBA, along with its industry partners, continues to work toward a legislative solution that would make this ballot initiative a moot point. The next few weeks will prove to be crucial in the negotiation process. More than ever, it is important for CBA member institutions to contact their elected officials and remind them that good policy decisions are best made through the legislative process, not through the initiative process.

The banking industry believes that a workable, reasonable solution can be reached and that the announcement of this initiative is merely a ploy to scare the industry into accepting undesirable, inoperable legislation.

For more information on the financial privacy ballot initiative, as well as CBA's current position on the issue of financial privacy (issue brief, talking points), please visit the CBA Web site at www.calbankers.com, accessing the Government Relations/Grassroots pages using your CBA User ID and Password. If you do not know your CBA User ID and Password, please contact Laura Thornton at lthornton@calbankers.com. Only e-mail requests can be honored (as e-mail provides us with confirmation of your identity).

Grassroots Update

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.

You are welcome to phone in to a grassroots conference call (1-888-903-2663) every Thursday afternoon (4:00 pm - State Legislature / 4:30 pm - House of Representatives) prior to a scheduled district office meeting(s) to discuss CBA's priority issues and to answer any questions you may have regarding meeting with your legislator.

Date Time Legislators Location

March 19 / 11:30 a.m. / Assembly Member Dave Cox
Sacramento, State Capitol (CBA Facilitator: James Clark)

March 21 10:00 a.m. Assembly Member Ken Maddox Costa Mesa
(CBA Facilitator: Rich Jett)

March 21*** 10:30 a.m. Assembly Member Juan Vargas Chula Vista
(CBA Facilitator: Mike Jones)

March 25 11:30 a.m. Senator Mike Machado Sacramento
(CBA Facilitator: James Clark) State Capitol

March 28 3:30 p.m. Assembly Member Rebecca Cohn Campbell
(CBA Facilitator: Bob Longatti)

April 3 1:30 p.m. Senator Rico Oller Farmers & Merchants Bank
(CBA Facilitator: James Clark) Elk Grove

April 4 10:30 a.m. Senator Dede Alpert San Diego
(CBA Facilitator: Rich Jett)

April 4 10:00 a.m. Assembly Member Ron Calderon * Montebello
(CBA Facilitator: Rick McGill,
Quaker City Bank, Whittier)

April 4 11:00 a.m. Assembly Member Ellen Corbett San Leandro
(CBA Facilitator: Doug White)

April 4 *** 10:00 a.m. Senator Joe Dunn Garden Grove
(CBA Facilitator: Mike Jones)

April 4 1:00 p.m. Senator Dennis Hollingsworth El Cajon
(CBA Facilitator: Rich Jett)

April 11*** 10:30 a.m. Senator Roy Ashburn Bakersfield
(CBA Facilitator: Bob Longatti)

April 11 9:00 a.m. Senator Liz Figueroa Fremont
(CBA Facilitator: James Clark)

April 11 11:00 a.m. Assembly Member Fabian Nunez * Los Angeles
(CBA Facilitator: Rich Jett)

April 11 9:30 a.m. Senator Gloria Romero Rosemead
(CBA Facilitator: Rich Jett)

Date Time Legislators Location continued

April 15 10:00 a.m. Senator Denise Moreno Ducheny Chula Vista
(CBA Facilitator: Rich Jett)

April 17*** 2:00 p.m. Congresswoman Zoe Lofgren San Jose
(CBA Facilitator: Doug White)

April 18 1:00 p.m. Assembly Member Lynn Daucher Brea
(CBA Facilitator: Rich Jett)

April 18*** 1:30 p.m. Assembly Member Manny Diaz San Jose
(CBA Facilitator: Bob Longatti)

April 18 1:00 p.m. Assembly Member Paul Koretz West Hollywood
(CBA Facilitator: Doug White)

April 18 10:00 a.m. Assembly Member Abel Maldonado San Luis Obispo
(CBA Facilitator: Mike Jones)

April 18 10:00 a.m. Assembly Member Barbara Matthews Stockton
(CBA Facilitator: Pat Zenzola)

April 25*** 10:30 a.m. Assembly Member Sally Lieber * San Jose
(CBA Facilitator: Leland Chan)

April 25 10:00 a.m. Assembly Member Robert Pacheco City of Industry
(CBA Facilitator: Rich Jett)

April 25 10:30 a.m. Assembly Member Pat Wiggins Santa Rosa
(CBA Facilitator: James Clark)

May 16** 1:00 p.m. Assembly Member Tom Harman Huntington Beach
(CBA Facilitator: Rich Jett)

May 16 2:00 p.m. Assembly Member Jay La Suer La Mesa
(CBA Facilitator: Doug White)

May 16*** 10:00 a.m. Assembly Member Keith Richman Granada Hills
(CBA Facilitator: Rich Jett)

May 30 2:00 p.m. Senator Dick Ackerman Tustin
(CBA Facilitator: Rich Jett)

May 30 2:00 p.m. Assembly Member Christine Kehoe San Diego
(CBA Facilitator: Mike Jones)

May 30*** 2:00 p.m. Senator Sheila Kuehl Los Angeles
(CBA Facilitator: Don Robinson,
Bank of the West, Los Angeles)

May 30*** 10:00 a.m. Assembly Member Sarah Reyes Fresno
(CBA Facilitator: Bob Longatti)

June 13 10:00 a.m. Assembly Member Ed Chavez City of Industry
(CBA Facilitator: Rich Jett)

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

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