By David Floreen
In many ways, fall is the real start of the new year. Summer vacations are over, schools are back, businesses are focusing on service, sales and next year’s budgets, and legislative bodies resume deliberations on public policies. While both the Massachusetts Legislature and Congress recessed formal sessions during August, their staffs and committees have been busy working on a number of major issues. And of course, two hurricanes and one remaining vacancy in the U.S. Supreme Court have forced some adjustments in the national agenda.
Activity at the State House picked up substantially in mid-September, starting with key votes on same-sex marriage, economic stimulus packages, a corporate tax initiative, tax credits for movie production, drunk-driving reforms and several others. From now until the third Wednesday in November, the 16th, when legislative rules require the suspension of formal sessions until January, we should expect considerable activity, as many standing committees will be reporting out bills on which they heard testimony earlier this year. By Thanksgiving, most committees will have completed hearings on all bills filed, except for late-filed petitions and special messages filed by the governor that crop up every year.
The new Committee on Financial Services has held 10 hearings thus far, covering more than half of the 350 bills assigned to it. Two of the 10 hearings focused on banking issues dealing with mortgages, credit unions and bank fees, with most of the attention focused on mortgage lending. With a vastly expanded agenda, including most banking-related matters, all insurance bills including health, auto and property, plus a number of securities-related matters, the Financial Services Committee will be conducting public hearings into November.
Over the summer, representatives from the Real Estate Bar Association and the Massachusetts Bankers Association held several meetings to hammer out a final draft of S. 624, a major reform of the mortgage recording and discharge process. Negotiations are nearly complete and we are hopeful that the Legislature will act on this package by the end of the year. Legislation extending CRA to mortgage companies is a high priority for the MBA.
It’s far too early to speculate about the fate of the credit union, bank fee and real estate lending bills as the committee does not plan to hold an executive session on any of these matters until later this fall. At that time, the Committee on Consumer Protection may act on a comprehensive package that would deal with identity theft, security breaches, credit-file freezes and related matters. The deluge of negative press over security breaches across the nation has generated considerable legislative action in many other states, with at least 15 enacting some form of legislation thus far in 2005. The Association has been actively involved in this process and has urged the committee to either defer to pending federal legislation or, at a minimum, use the federal bank regulatory guidance as the security breach standard for all entities including retailers and card processors holding or possessing consumer data.
There is considerable sentiment to enact new state laws to stiffen fines and penalties for those convicted of committing identity theft, and impose new notification requirements on any entity (banks, governments, universities, retailers, third party vendors, etc.) that determine that a breach of a customer’s personal information has occurred. The debate surrounds what defines a breach, when a notice must be delivered and in what form.
Earlier this year the banking and business community was deeply concerned over the third major corporate tax loophole bill Gov. Mitt Romney had filed since 2003. Fortunately, extensive work and discussions by many business leaders have convinced both Gov. Romney and key legislative leaders to scale back several of the more onerous sections. These included new provisions granting the commissioner of revenue broad discretionary authority to reallocate income from subsidiary companies and major changes to the bank match program that would have forced all financial institutions in Massachusetts (banks, credit unions, mutual funds, brokers, etc.) to turn over to the DOR the names, addresses and Social Security numbers of all their customers. It now appears that neither of the two above provisions will be incorporated in a final corporate tax package expected to be adopted later this year.
State tax revenues continue better than projections and significantly above FY 2005 levels. Overshadowing much of the debate on Beacon Hill are intensive discussions on how to address high housing costs and economic and job growth that are below the national averages.
What’s on the fall agenda? Economic stimulus packages, more funds for brownfields revitalization, health care, welfare reform and expanding the supply of housing, to name a few. From a banking perspective, the key issues for the fall, in addition to the items highlighted above, may include hearings by the Financial Services Committee on MBA’s corporate governance reforms, including loans to officers and directors, regulating the unauthorized use of a bank’s name, EFT law simplification and efforts to preserve charter options for mutual institutions.
There is no shortage of issues stirring in Washington, D.C. Even before the tragedy of hurricanes Katrina and Rita, the death and resignation of two Supreme Court justices, members of Congress had a very full agenda planned for the fall. Unforeseen events often have a profound influence far beyond their initial impact, and hurricanes Katrina and Rita are at the top of the list. The widespread devastation, loss of life and property as well as the debate over the government’s preparedness and response to the disasters are having a major effect on Washington. Add in the $300 billion cleanup and reconstruction costs and many of the tax cuts that were to be front and center on President Bush’s fall agenda have now been scrubbed. Other domestic initiatives also may be placed on hold.
The major financial services issues now generating the most attention are reform of the government-sponsored enterprises (GSEs), multiple efforts to curtail security breaches, the potential for a review of expanding CRA to credit unions and an examination of the competition in the real estate brokerage business.
While the power struggles between the Democrats, Republicans and the White House persist over judicial appointments, Iraq and tax cuts, members of Congress are working diligently on a number of issues. The full House is expected to pass a GSE bill later this fall that may incorporate special benefits for those who lost their homes in the hurricanes.
As mentioned earlier, security breaches and file freezes have stimulated considerable activity and at least four congressional committees are working on comprehensive data security bills. The Senate Commerce Committee reported out a bill in late July. In late September, the House Committee on Energy and Commerce as well as both the Senate Banking Committee and House Financial Services Committee held hearings and mark-up sessions on comprehensive data security bills. This non-partisan issue does not cost the government much money to address, at least not on the surface, and demonstrates a prompt and substantive response to a definable problem that is well-covered by the media.
OCC preemption, real estate brokerage, deposit insurance reform, interest on business checking, regulatory burden reform and credit union fairness still have a reasonable chance of moving forward later in 2005.
Finally, the regulatory agencies continue to move ahead with a number of initiatives. The release of new HMDA data generated further scrutiny of bank lending practices. The federal banking agencies adopted and implemented a new intermediate bank test for CRA for banks with assets between $250 million to $1 billion. The Federal Trade Commission and federal banking agencies still must finalize language on a few remaining portions of the FACT Act. In a positive development, the Securities and Exchange Commission has delayed until September 2006 final regulations to implement the bank broker-dealer provisions that will impact bank trust departments and those banks with third-party relationships that assist in the sale of securities and mutual funds. Banking regulatory agencies are not expected to advance revisions to the RESPA requirements or address regulatory burden relief in the immediate future.
David Floreen is senior vice president at the MBA. He can be reached at :