Hope Springs Eternal
By David Floreen
Spring has arrived and, with the longer and warmer days, everyone affected (or afflicted) by the actions on Beacon or Capitol Hill continues to hold out hope that their issues will be addressed as desired. At this stage of the legislative cycle, committees are nearly finished deciding what bills they will endorse and which will be referred to study. Final redrafts are being written, and the legislative leadership in both branches is reviewing committee recommendations to determine which matters will get to the floor for votes – a process often influenced by the skill of interest groups or the crush of public or media attention.
Beacon Hill Report
Without any doubt, reform of the state’s health care system was the overriding issue on Beacon Hill for the past six months. After months of intense and at times difficult negotiations, in mid-March legislative leaders reached an accommodation on a mechanism to fund health care reform. The package features a mandate that individuals purchase health insurance coupled with new incentives to make health insurance more affordable to the working poor, expands Medicaid eligibility and imposes a new assessment of $295 per employee per year on businesses with 10 or more employees that do not offer health insurance. It remains to be seen how this package will be implemented.
Formal sessions on Beacon Hill for 2006 resumed in mid-January, but much of the attention has been focused on non-fiscal social matters such as primary enforcement of seat-belt use, restricting in-state tuition availability for illegal immigrants, restricting use of mercury, anti-gang measures and a variety of other issues. Meanwhile, items that carry a significant fiscal price tag, such as an economic development package, welfare reform and a major supplemental budget, remain stalled until the final costs of the health care package are determined. Later this month the House will debate its version of a state budget for fiscal year 2007 which begins July 1.
As of this writing, none of these matters had been settled, but should be resolved very soon. The economic development package will include at least $30 million more funding for brownfields redevelopment and other environmental improvements – a key banking priority.
In late March, the Committee on Consumer Protection approved a comprehensive package that incorporated more than a dozen bills dealing with identity theft, data breaches and allowing consumers to place a freeze on access to their credit reports. While this bill, a redraft of H. 4775, seeks to provide an exemption for financial institutions that are subject to the privacy provisions of Gramm-Leach-Bliley and the interagency data security guidelines issued by federal bank regulators in March 2005, the draft, unfortunately, contains a number of troublesome features. It does not incorporate language authorizing banks to recover costs incurred in reissuing cards to customers who were affected by a data breach at a retailer or other third party. We remain hopeful that refinements will be made as the bill winds its way through the Legislature. Other proposals still pending include severe restrictions on fees that may be charged on overdrafts, a car buyer’s bill of rights, changes to the gift card laws and restricting the promotion of credit cards on college campuses.
On a positive note, the Legislature has given near final approval to S. 2278, the major mortgage recording and discharge reform package endorsed by the MBA. This bill will require lenders to provide a payoff statement within five business days, imposes penalties on lenders or attorneys who do not have a discharge recorded within 45 days and authorizes the use of affidavits for certain documents. At the Association’s request, the House added an amendment incorporating a repeal of the state mortgage-cost disclosures mandated by sections 17B, 17C and 17D of Chapter 184 that are now provided by the RESPA disclosure and the HUD 1 Statement.
In a rather surprising development, Sen. Andrea Nuciforo Jr., the Senate chair of the Committee on Financial Services, on St. Patrick’s Day announced that he would not seek re-election and instead would run for the soon-to-be-vacant position of register of deeds for Middle Berkshire County. Sen. Nuciforo will continue to be a key player on banking issues for the remainder of the year, but the jockeying will begin among senators to assume this key post in early 2007.
Meanwhile, on March 7 the Financial Services Committee held a major hearing on more than 25 banking bills, including most of the Association’s priority items. These included H. 3007, restricting the unauthorized use of a bank’s name; H. 3075, streamlining corporate governance procedures at state banks; H. 4649, updating Massachusetts EFT and check return laws; opposing S. 662 relative to mutual bank conversions; and H. 3073, revising the procedures relative to bank mergers. The Financial Services Committee has until May 1 to act on these and more than 200 other bills still pending before it.
The Washington Scene
With President Bush’s poll ratings dipping to new lows, the fallout over Katrina and Rita continuing, lingering anger over the ports deal and public angst regarding Iraq, it’s no surprise that many Republican congressmen and senators are showing signs of independence from their leadership and the president in advance of the mid-term November elections.
It’s been many years since we’ve seen such strident partisan activity in the nation’s Capitol and, historically, these elections often prove challenging for a second-term president. Even financial services issues are impacted by these events.
Shortly after returning from the Christmas recess in late January, the House and Senate enacted and President Bush signed into law a deposit insurance reform package supported by the banking industry after a six-year effort. Already, the FDIC has approved regulations increasing to $250,000 the maximum amount of deposit insurance available on IRA accounts. The merger of the BIF and SAIF funds was expected April 1. Other provisions will take effect later in 2006. A comprehensive summary of the deposit insurance reform package can be found at www.massbankers.org.
Last month, the House Financial Services Committee approved a comprehensive bill, H.R. 3997, dealing with data breaches, consumer file freezes and related matters. While there is widespread concern over the need to require banks, retailers, data processors and others to tighten up security of data files and report breaches to consumers, several Washington observers believe that there is no real consensus on a number of issues such as how far any state preemption language should go, whether consumers can impose a file freeze on their consumer reports, and definitions of a security breach.
Six months ago, it appeared that Congress was poised to advance major reform of the government-sponsored enterprises (GSEs). Last October, the House approved creation of a new regulator for GSEs by a 331-90 vote, but until very recently it appeared that GSE reform was bogged down in political squabbles between the White House, the agencies and Congress. However, Treasury Secretary John Snow recently indicated that a compromise may be possible on this matter. The future appears dim, however, for enactment of legislation permitting the payment of interest on business checking accounts.
By a vote of 415-2, the House in mid-March passed H.R. 3505 that would substantially cut the number of Currency Transaction Reports that banks must file for “seasoned” business customers, extend community bank exam schedules, remove restrictions on interstate de novo branching, and eliminate the need-to-send annual privacy notices if a bank made no changes in its policies and did not share personal information with third parties. Will it pass this year? There is a much better chance than predicted three months ago, however, action now must occur in the Senate.
Will pension reform occur? Probably, but some reports now suggest that the amendments that were added actually impair rather than enhance reform. How about a comprehensive hurricane relief package that addresses flood insurance coverage? The House Financial Services Committee on a voice vote approved H.R. 4973, a bill that eliminates subsidies for vacation properties and raises the cap on annual premium increases from 10 percent to 15 percent, along with other reforms. Enactment seems probable, given the mounting pressure from constituents to get answers on what and where and with what resources they can begin to rebuild.
Then there are the regulatory agencies! Perhaps the most critical proposal is an effort by FFIEC to establish more stringent commercial real estate guidance. The FDIC is considering adopting a controversial proposal that would preempt host state laws for state chartered banks’ out-of-state branches where a federal court or the OCC has determined that the law is preempted for national banks. The FDIC is still awaiting the appointment of a new chairman to replace Donald Powell, who was nominated to take over management of the federal government’s rebuilding of the Gulf Coast. The FDIC is also holding two public hearings on the application by Wal-Mart to charter an industrial loan company (ILC) in Utah. This bears close watching since, despite Wal-Mart’s vociferous denials, many observers speculate that Wal-Mart really wants to establish a nationwide branching network. (See cover story.)
Notably, in Massachusetts, Wal-Mart has applied to the Division of Banks to open 44 check-cashing operations in its stores across the commonwealth and the Division of Banks plans to conduct public hearings on the applications later this spring. Combined with the FDIC’s state preemption powers rule, this could pave the way for significant inroads by Wal-Mart into basic community banking.
Separately, the Federal Housing Finance Board has proposed additional capital requirements for the Federal Home Loan Bank System. This action is pending despite significant capital growth in recent years.
Finally, the National Association of Realtors continues to find ways to stir up its membership. This time it’s over recent decisions by the Office of the Comptroller of the Currency to approve expansion of national bank investments in real estate. Given the escalating concerns expressed by some in Washington over state rights and federal agency preemption actions, the OCC may slow the pace of further actions in this area.
David Floreen is senior vice president at the MBA. He can be reached at email@example.com