Current Events - 09/18/2000

CBA Year-end Wrap-up in Process — The Legislature adjourned for the year at midnight, August 31st. More than 2,200 bills and resolutions were either chaptered or enrolled and awaiting the Governor’s consideration. CBA’s Sacramento Office is currently preparing its comprehensive annual State Legislative Summary, a compendium of all enacted bills of significant interest to the industry, together with the year’s highlights and predictions for next year’s hot legislative topics. The Summary is scheduled for release in mid-November. An executive summary of key bills passed or awaiting the Governor’s pen will be distributed to the membership in about two weeks. And, for those measures with significant compliance implications, CBA will issue Regulatory Compliance Bulletins over the next several weeks.

CBA Seeking Governor’s Veto on Three Major Bills — CBA is seeking Governor Davis’ veto of three major bills sent to his desk during the waning days of the session. AB 1963 (Hertzberg), which would require, commencing January 1, 2001, all monthly credit card statements to disclose, according to the terms of each cardholder’s agreement, exactly how long it would take and the total cost of paying off the entire balance if only the minimum payment was made each and every month. Not only is compliance impossible by January 1st, but the information will be stale and misleading when given and only be relevant to the 1-2% of cardholders who regularly make only the minimum payment. CBA coordinated a meeting between representatives of all national card issuers, their respective trade associations and the Governor’s legislative unit last week to press the industry’s case for a veto.

Last week’s Current Events (“Much Ado About Nothing”) explained the legal impact (or absence thereof) of AB 2869 (Machado), a measure that attempts to go beyond the Gramm-Leach-Bliley Act (“GLBA”) in regulating the disclosure and sharing of marketing information between credit card issuers and their affiliates.

CBA’s long battle over SB 1607 (Figueroa), requiring the disclosure of credit scores by real estate-secured consumer lenders, has resulted in a bill that is infinitely better than the measure introduced. However, the bill’s disclosure standard, which remains unfair (it doesn’t apply to federal savings associations) and vague may lead to expensive litigation.

Elder Abuse Bill Dropped By Author — Readers of the most recent issue of California Banker (“Financial Elder Abuse: The Vastly Under Reported Crime”) may be wondering what actually happened to the bill (AB 2253 (Jackson). Two days before the Legislature adjourned, the author, Assembly Member Hannah-Beth Jackson (D-Santa Barbara), dropped the bill when she realized that several banks had concluded that amendments to the original bill would discourage participation and might even cause an existing major program to be dismantled. This well-intended effort gone awry in the legislative process has a silver lining. The CBA task force which developed the original draft of AB 2253 has unearthed California and federal case law indicating banks may be on much firmer ground under current California law. CBA will share this research with membership soon in the hope that more institutions will be encouraged to report elder financial abuse. Developing and implementing an elder abuse reporting program is a topic to be addressed at the upcoming CBA Regulatory Compliance Conference. This type of program provides a good opportunity to gain favorable publicity in your community and possibly obtain CRA credit.

November Elections Underscore Grassroots Relationship Building Opportunities — As many of you know, both the American Bankers Association and CBA are paying much greater attention to the importance of building and maintaining strong relationships with elected representatives to insure better and continued legislative success in the future. CBA is using ABA’s implementation of Team 21 to strengthen our Legislative Relationship Program as well. Because of the turnover caused by term limits for members of the Legislature, there are many open seats in the Assembly (31) and State Senate (10) this fall. And, there are several targeted Congressional seats which could go either way. Now is the time to introduce or reacquaint yourselves to candidates. Please let CBA’s Sacramento Government Relations Office (Mary Maybie, 916/441-7377 x207) know about any new relationship you are establishing or if you need information about candidates.

Predatory lending — Congress, federal banking agencies, state legislators, city governments, consumer groups and the media are all abuzz about predatory lending. Whether the issue is taking off because abusive lending is truly on the rise or because it is an election year is uncertain, but the industry can expect to play defense on several fronts. For the most part depository institutions are not seen as the culprits, and rightly so. But because governments tend to “fix” problems with blunt instruments, we can expect attempts to impose new burdens on all lenders.

Case in point, a draconian ACORN-backed measure (SB 2128) was introduced by State Senator Hilda Solis (D-El Monte), who will be elected to represent California’s 31st Congressional District in November, having defeated 18-year veteran Marty Martinez in the March primary. CBA was successful in getting FDIC insured institutions, their holding companies, subs and affiliates carved out of the bill early on. The bill then was reduced to a mere study bill and eventually dropped by the author before the legislature adjourned. It is fair to assume that the author is likely to become a leading proponent of predatory lending legislation next year in Washington.

Most of the banking regulatory agencies do have, or are anticipating issuing, regulations relating to subprime lending and predatory practices. The industry should take every opportunity to ask government agencies to enforce existing laws more rigorously to target the bad actors rather than, as is too often the case, cast a wide net over all lenders. The increased costs and risks associated with new regulations could encourage legitimate lenders to withdraw from the subprime market. This would only lead to drying up credit to those individuals who do not qualify for traditional loans, and leaving them even more exposed to the bad actors who do not bother with laws in the first place.

FDIC insurance — The next Congress will almost certainly pass legislation to merge the BIF and SAIF deposit insurance funds. Most agree this is a prudent move: a combined fund is stronger and the reasons for separate funds have just about vanished. The question is what else should the legislative package include? Should the insurance level be increased? Should this level be indexed for growth? Should there be a cap on the size of the fund with the excess rebated to the industry? And how should we deal with the free rider problem or “Merrill Lynch” problem? The CBA Board’s FDIC Insurance Task Force is grappling with these issues and will help the Board develop a strategy for the new Congress. The FDIC is expected to issue its proposals to Congress by the end of the year.