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Advocacy Alert- 10/14/2002

CBA Backs special California congressional action to reinstate SBA loan program

CBA's Federal Government Relations Committee was active this week making phone calls urging embers of the California congressional delegation to sign a letter to Speaker Dennis Hastert seeking legislation to reinstate the maximum loan amount under the regular SBA Sec. 7(a) loan guarantee program to its former level of $1 million. The maximum guarantee under the program was slashed to $500,000 on October 1 because the administration continues to calculate the subsidy on the basis of outdated and highly inflated loss assumptions while Congress and the industry urge assumptions based on actual experience over the last three to five years.

Republican Darrell Issa and Democrat Lucille Roybal-Allard led the effort to send a separate California letter to the Speaker. The letter points out that the cut in the loan guarantee program hits particularly hard in California and other very high cost states. A day after Issa and Roybal-Allard circulated their letter, CBA followed up with a memorandum to the delegation from FGRC chairperson Jane Netherton and president Gary Gertz urging members of Congress to get "on board." The SBA action cutting the popular 7(a) program in half has attracted national attention, and indications are that Congress will address the issue in the final funding resolution which will carry the U.S. Government through the election or into next year if there is no lame duck session.

OTS pre-empts California law on credit card issuers

In recent weeks, the OTS has taken two significant actions in implementing its preemption authority. A few weeks ago, OTS finalized a proposal removing preemptions for state-chartered mortgage lenders that govern late fees and prepayment penalties, provisions which are often found in predatory loans. Those preemptions which had been on the books since Congress passed the so-called Parity Act in 1982 to give state-chartered housing lenders (including state licensed non depositories) parity with federal banks and thrifts, will no longer shield these lenders from state imposed consumer protection laws that are aimed at combating predatory lending. The rule does not, however, end the preemption of state laws on adjustable rate loans indexes or annual adjustments.

But last week OTS did exercise its preemption authority to negate a California law that requires credit card issuers to inform cardholders how long it would take them to pay off their balances assuming they make only the minimum payment. The OTS action applies only to federal thrifts and the California law applicable to account agreements that allow payments of less than 10 percent of the outstanding balance. But the OTS action is likely to have some affect on a lawsuit pending in California to block the law from taking affect against any card issuers.

FDIC doing study on future of banking to include commercial ownership

FDIC Chairman Don Powell has announced that the Corporation is engaged in comprehensive study of the future of banking that will include a major section on the ownership of banks by commercial firms. Ironically, the FDIC announcement comes just a few days after California Governor Gray Davis signed legislation prohibiting commercial firms from purchasing industrial banks chartered by the state, in response to the ill-fated Wal-Mart application. It also comes at a time when many in Congress have been questioning the fundamental premise of GLB that allows affiliation between investment and commercial banking in light of revelations surrounding Enron. Powell said he understood that the issue is worrisome to many community bankers but that "they must embrace the possibilities of emerging markets and structures."