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Advocacy Alert- 06/23/2003

Grassroots activity helps defeat SB 1 in Assembly Banking & Finance Committee

California's financial privacy bill, SB 1, was defeated in the Assembly Banking & Finance Committee on June 17, with the bill garnering only three yes votes. It would have needed seven to move out of the committee. Not surprisingly, the bill's supporters testified at length about the philosophical question of who owns the consumer information used by financial services companies.

CBA and other opponents of the bill did an excellent job taking the debate away from the philosophical approach and directing it toward the issue of workability. No fewer than 20 industry experts offered testimony describing the technical, regulatory or operational problems contained in the bill. It was a long list and the point was obvious - no matter how much we all may want a financial privacy bill, this one had too many flaws to pass.

Several legislators asked questions or made comments after both sides of testimony were heard. Among those most vocal about industry's concerns with the bill were Assembly Member Tim Leslie, Assembly Member Juan Vargas, Assembly Member Ron Calderon and Assembly Member Lou Correa. Among the comments offered up by these four legislators were the facts that concerns raised by supporters were already addressed by existing law, that Senator Speier's characterizations of the financial services community were mean-spirited and inappropriate, and that the bill would actually harm, not help, lower-income Californians. All of these legislators indicated that they had met with bankers in their communities and understand the industry's concerns about this issue - proof that grassroots communications make the difference in tough legislative battles. If you reside in or do business in these legislators' districts, we urge you to write them a letter thanking them for their support on this issue, if you haven't already done so. (Please see attached Assembly Roster for address information. Those who didn't vote for the bill are noted with an asterisk)

The real victory so far has been that the bill's supporters have failed to force industry to accept a bad bill by threatening a ballot initiative. It's important to remember that this fight isn't over and that in many ways, it has just begun. The bill may be reconsidered and there is always a chance that another bill will be "gutted" and SB 1 language added to it later in the session in a last-ditch effort to get the bill passed. We continue to work on strategy for the remainder of the legislative session and also for the initiative, should it qualify for the ballot. Please contact James Clark, senior vice president of Government Affairs at jclark@calbankers.com or 916/441-7377 ext. 209 if you have any questions.

Freddie Mac woes may bring about high profile GSE regulator

The accounting discrepancies and management shake-up at Freddie Mac may have handed GSE critics enough ammunition to force the creation of a new and greatly enhanced GSE regulator, as well as legislation ending or changing GSE exemption from SEC registration requirements. The accounting irregularities had been known and largely discounted when news of the replacement of its top three officers stunned Washington. Federal law enforcement agencies now investigating Freddie may yet turn up additional surprises, but it appears that most of the fall-out will be political, not economic. When the dust settles, it could be that regulation not only of Fannie and Freddie but also of the Home Loan Bank System will be transferred to a high profile agency housed not in HUD but rather the Treasury Department.

There have been hints that the political power of the housing GSEs has been slipping in the last year or so. Fed Chairman Greenspan has squandered few opportunities over the last few years to point out the potential exposure posed by the housing GSEs whose debt is perceived to be federally guaranteed. Slowly but surely, Rep. Richard Baker has gained important allies in his campaign to enhance the regulation and transparency of Fannie and Freddie. The Federal Home Loan Bank System has more than held its own against efforts of Fannie and Freddie to rein in their mortgage purchase programs. Corporate complaints about the competitive advantages of the GSEs may have begun to take a toll, and Treasury Secretary Snow now says he will work with Congress to enhance GSE regulation.

The GSEs may yet stave off anything too damaging. But long term adversaries of the GSEs, as well as more recent ones, have long said it would take a real scandal at one of the GSEs to bring about the kind of changes they were seeking. They have their smoking gun now.

Congressional hearings on FCRA continuing

House and Senate committees continued hearings on the Fair Credit Reporting Act (FCRA) over the past two weeks. The House Financial Services Subcommittee has heard from more than three dozen witnesses at hearings devoted to the credit granting process and on how FCRA is used to aid employment screening. The Senate hearing this week focused on identity theft. Rep. Michael Oxley, chairman of the House Financial Services Committee, has revealed plans to mark-up legislation that would extend the pre-emption provisions of FCRA before the August recess, and full House action in September. The Senate schedule is uncertain. Consumer groups and public interest advocates continue to argue that reserving power to states wishing to enact more stringent provisions to protect their citizens will not interfere with the credit granting process. There has also been criticism of credit scores themselves and many witnesses have urged that consumers be given a free copy of their credit reports at least annually. Other witnesses have focused on difficulties consumers encounter in correcting erroneous information in their credit reports.

Late this week a group of moderate House Democrats formally indicated their support for an extension of the FCRA provisions, albeit with conditions that some of the consumer and identity theft issues need to be addressed as well. Finally, there were encouraging reports that the White House, which has not tipped its hand yet, will publicly support a straight extension along with revealing its proposals for dealing with identity theft.

Senate panel approves check truncation bill, final passage nears

The Senate Banking Committee passed legislation substantially similar to the House -passed check truncation bill and the measure now heads for the Senate Floor where passage is expected soon.

Treasury announces Patriot Act rules may be revisited

The Treasury Department has agreed to re-open a Patriot Act issue that the industry thought had been resolved following protracted negotiations -- whether banks will be required to keep copies of identifying documents such as drivers' licenses or personal identification issued by foreign governments. Under severe congressional pressure, Treasury Secretary Snow said that a final regulation not requiring banks to make copies of drivers' licenses and to leave identity verification of foreign customers to the discretion of the bank will now be reviewed in light of the criticisms from Congress. Treasury officials advise that banks should proceed with plans to comply with the Act's requirements, but the industry was surprised and perplexed at the "about face." Treasury's original proposal called on banks to maintain copies of such identifications, but the industry objected and the requirement was removed in the final regulation. Treasury says its latest review will be completed shortly.

FHFB says "modern membership" on July agenda

The Federal Housing Finance Board (FHFB) has indicated it will tackle the controversial multiple membership, or "modern" membership, as it is characterized by FHFB Chairman John Korsmo. At issue is whether a financial institution, which is a member of a Home Loan Bank, may simultaneously belong to another bank, or even several other banks. The FHFB has obtained a legal opinion from a private law firm stating that if it were necessary on a safety and soundness basis, it could authorize multiple memberships. However, the Treasury Department has taken the position that there is no legal authority for the FHFB to allow multiple memberships, a point reiterated just a week ago by Treasury Assistant Secretary Wayne Abernathy at a Home Loan Bank Council meeting.

Legislative meetings 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 send a senior officer from your bank. These meetings are a good opportunity for your senior management to get to know the legislators who vote on the issues of importance to your bank.

You are welcome to phone in to a grassroots conference call (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.

*          Freshman legislator

**        Meeting rescheduled – new time

***      Meeting rescheduled – new date/time