The Beat Goes On
By David Floreen
When the General Court concluded its formal sessions for the 2003-2004 session on July 30, many Beacon Hill observers called it one of the more productive sessions in a decade.
The Legislature sent the fiscal year 2005 state budget to Gov. Mitt Romney in balance and on time. It enacted a long-sought, significant reform of the school building assistance program, streamlined the public construction bidding process, reorganized state transportation agencies and approved major courthouse and transportation-construction bond authorizations. These were major initiatives that required extensive negotiation over several months that also received broad bipartisan support.
Two new laws stand out that will directly impact the banking industry. First, Chapter 268 of the Acts of 2004 establishes new predatory lending standards for all lenders providing home mortgages in Massachusetts. Chapter 268 creates a new Chapter 183C of the General Laws to regulate high-cost loans, which generally are defined as any loan secured by a borrower’s principal dwelling where the interest rate exceeds 8 percent over the comparable Treasury security, and fees exceed the greater of 5 percent of the total home loan or $400.
The new law also mandates that all lenders, including banks, make a determination that, with respect to a refinancing conducted within 60 months of any previous financing, the loan is “in the best interest of the borrower.” Chapter 268 outlines at least five criteria that would qualify for meeting the standard. The Division of Banks will be issuing regulations interpreting this standard and other related issues prior to the Nov. 7 effective date.
The second key law enacted thus far is Chapter 262 which contains a number of revisions to the state corporation tax laws that are expected to generate about $90 million in additional revenue annually, including two provisions applicable to banks. We are pleased to report that the Legislature enacted a long-sought reform of the state’s fiduciary tax laws. Commencing with the 2005 tax year, all Massachusetts fiduciaries will follow the Internal Revenue Service model and provide Massachusetts beneficiaries a K-1 form, which will contain interest and dividend income that the beneficiary will report to the commonwealth on his or her individual return. Chapter 262 also includes technical revisions to the definition of the securities corporation statute that retains nearly all of the language critical to Massachusetts banks.
Two other bills also became law so far in 2004: Chapter 218 increases the homestead exemption from $300,000 to $500,000, and Chapter 243 imposes new penalties on lien holders if they do not release motor vehicle titles within the 10-day period mandated by law.
Even though the Legislature is now meeting only in informal session until Dec. 31, the Massachusetts Bankers Association remains confident that the Legislature will enact three MBA priorities: recodifying state banking and mortgage lending laws, restricting the unauthorized use of a bank’s name by a third party, and revising state electronic funds transfer and check return requirements.
Down in Washington, D.C., Congress has been struggling to complete action on several major appropriation bills. Given the few days remaining for floor activity before the Nov. 2 elections, the prognosis is uncertain. In September, the Senate voted to make permanent a ban on banks selling real estate. The House has only extended a moratorium for another year and the banking industry continues to strongly support the House alternative. On a positive note, Congress did pass language re-authorizing the national flood insurance program until 2009.
Barring unforeseen developments, it does not appear that high-profile issues such as bankruptcy reform, restructuring of the government-sponsored enterprises (GSEs), regulatory reform, or unfair credit union competition will advance this session.
However, while congressional activity may be scant, the regulatory agencies have been extremely busy. The Federal Reserve Board issued final regulations for implementing Check 21 that take effect on Oct. 28, and the Federal Trade Commission is expected to release final regulations implementing the Fair Access to Credit Act (FACT), which is set to take effect Dec. 1. Meanwhile, the Securities and Exchange Commission is now reviewing extensive comments filed by the banking industry on its Regulation B, implementing the controversial broker-dealer rule.
The FDIC extended the comment period until Oct. 20 on its recommendation to increase the threshold from $250 million to $1 billion for the streamlined small-bank CRA exam, without regard to holding-company affiliation. The proposed rule also would add a new community development criterion – consideration of the bank’s community development lending, services and investments – to the small-bank examination standard for banks between $250 million and $1 billion. In addition, it would change the definition of “community development” to benefit not just low- and moderate-income residents, but also residents of rural areas. The OTS has already announced a move to the $1 billion threshold for CRA.
David Floreen is senior vice president at the MBA. He can be reached at email@example.com