It Was a Very Good Year
By David Floreen
One of Frank Sinatra’s many hit recordings, “It Was a Very Good Year,” reflects on a few times that were special. From a legislative perspective, the year 2006 was one of those years for the Massachusetts banking industry. The Association successfully steered a number of bills through the Legislature that Gov. Mitt Romney signed into law. Equally significant, no negative bills became law.
A legislative program that targeted real needs; well-documented testimony clearly presented by knowledgeable bankers; effective lobbying; and the support and leadership by the chairs of the new Committee on Financial Services all contributed to the enactment of six bills filed by the Association. Fewer banking bills advanced in Washington, as Congress failed to reach agreement on a number of banking bills at the close of the session earlier this month. However, no legislation detrimental to banking became federal law.
Beacon Hill Report
The biggest Beacon Hill story is of course the upcoming November elections. Most of the attention is focused on the race for governor among Democrat Deval Patrick, Republican Kerry Healey, Independent Christy Mihos and the Green-Rainbow candidate, Grace Ross. Republicans have held the corner office for 16 years, while the Democrats hold over 85 percent of House and Senate seats. Since Republican candidates failed to gain sufficient signatures, the Democratic incumbent treasurer, secretary of state and auditor will be re-elected. Democrat Middlesex County District Attorney Martha Coakley is running against Republican Larry Frisoli for attorney general. The only significant statewide referendum is Question 1, which seeks to permit the sale of wine in grocery stores.
In the Legislature, 82 of the 200 seats are contested. Only two Senate seats are open, both in western Massachusetts. They are currently held by Minority Leader Brian Lees, R-Longmeadow, and Senate Chair of the Financial Services Committee, Sen. Andrea Nuciforo, D-Pittsfield. Ten House seats are vacant, and a few other incumbents face spirited opposition.
Although Gov. Romney signed the health care reform package into law six months ago, implementation of the sweeping package continues to generate considerable attention. In early September, the Health Care Connector published preliminary rules governing the structure and premium costs of new health insurance products. The impact on low- and moderate-income individuals and families who may have to begin paying monthly health insurance premiums as of July 1, 2007, has yet to play out, and the new governor may be faced with significant fiscal and political challenges to market and administer the individual insurance mandate that takes effect July 1, 2007.
The state’s fiscal situation continues to reflect the relatively modest growth in income and employment. State tax collections continue to grow, although the rate of growth is less than reported in 2005 and earlier this year. Economic projections for fiscal year 2007 suggest that state tax revenue growth may not be as robust as one year ago.
Scheduled formal sessions in the House and Senate concluded on July 31, but the Legislature continues to meet in brief informal sessions twice a week and can act on substantive matters if and when unanimous consent is achieved. A most recent example is the extension of the statute of limitations to 27 years for prosecution of sex offender crimes against children.
After extensive prodding by Gov. Romney and many legislators, the House and Senate leadership are expected to return for a special one-day session to act on a major capital bonding package that is essential to provide additional funding for the state’s information technology accounts. As of Sept. 1, funding for many critical IT improvements ground to a halt. As usual, the issues are more complex than they appear, as the House and Senate versions of the capital budget are $800 million apart and Speaker of the House Salvatore DiMasi is very reluctant to suspend House rules as he fears it would set a precedent for the future. Always intrigue on Beacon Hill!
Throughout the 2005-2006 session, the legislative leadership and many legislators directed their attention to non-banking specific matters, allowing the Association to focus its energies on its legislative agenda. However, the recent negative publicity regarding alleged abuses regarding various practices by mortgage brokers and lenders regarding option ARMs, stated income loans and the collection practices of certain entities may alter the recent period of benign neglect.
During the final month of formal sessions, the Legislature enacted and Gov. Romney signed into law the three key Association legislative initiatives. They are: Chapter 209, restricting the unauthorized use of a bank’s name; Chapter 221, streamlining corporate governance procedures primarily impacting mutual savings and cooperative banks, and updating lending limits for officers and directors of state-chartered banks; and Chapter 279, updating Massachusetts electronic and check processing laws to be in greater harmony with Regulation E and Check 21. The adoption of Chapter 279 will permit Massachusetts banks to implement innovative check processing strategies such as full image capture at point of first presentment, and reduce debit card fraud by making the state error-resolution periods consistent with Federal Regulation E.
Last April, Gov. Romney signed the mortgage discharge reform package into law as Chapter 63 of the Acts of 2006. This Act will require lenders to prove a payoff statement within five business days, impose penalties on lenders or attorneys who do not cause to have a discharge recorded within 45 days, and authorize the use of affidavits for certain documents. At the Association’s request, the Legislature incorporated an amendment repealing 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. The cost disclosure repeal section became law on July 1, while the mortgage discharge features took effect Oct. 1.
While the financial services committee approved bills to permit state-chartered credit unions to convert to a federal charter and accept public deposits, none of those bills advanced during the formal legislative session and are not expected to see further action this year. Furthermore, the financial services committee rejected proposals strongly opposed by the Association to restrict the ability of banks to form mutual holding companies, expand the Board of Bank Incorporation, restrict mergers and allow credit unions to branch statewide.
Other key bills the Association closely followed that did not pass included proposals to: restrict the sale and use of gift and employee wage cards; impose new standards on credit counseling services, including for-profit agencies; restrict fees on overdraft protection plans; and expand the definition of and penalties for attempted bank robbery. While the Committee on Consumer Protection last March approved a sweeping data breach/identity theft bill, H. 4775, it contained several troublesome features. Many financial and business organizations voiced concerns about the committee draft and it appears that the legislative leadership became more appreciative of those concerns. Expect this issue to return in 2007.
This past August, Gov. Romney signed into law expedited permitting reform, a key priority of the business community. One key provision will force state agencies and local communities to act on permits within 180 days. While the financial services committee approved a bill to reform the state’s heavily regulated auto insurance system, many senators, including Sen. Andrea Nuciforo, the Senate chair of the committee, strongly objected to the bill, claiming that it would force higher premiums for young, urban and elderly drivers and permit insurers to utilize factors other than driving records in setting insurance rates. Proponents claim that sweeping reforms of the auto insurance industry are necessary to induce large national property and casualty insurers back to Massachusetts to broaden the base for homeowners insurance. On a related topic, the Senate is contemplating action on a new bill that would establish a separate state entity to provide wind damage coverage on property in hurricane-prone areas.
The Washington Scene
Next month’s mid-term elections could have a major impact on the make-up of Congress and the ability of President George Bush to advance his agenda in his final two years of office. With just a few weeks of campaigning left, most political pundits suggest that the Democrats may regain control of the House, while a shift of six seats in the Senate may be more difficult. While President Bush’s favorability ratings remain low for a sitting president, neither Democratic nor Republican leaders have crystallized a message or agenda that resonates with voters. Socially conservative Republicans are aggressively pushing for votes on their agenda, such as immigration reform and repeal of the estate tax, while more traditional conservative Republicans are chagrined over the lack of fiscal discipline and some are privately expressing concerns over the costs of many programs, including the war in Iraq.
The same challenges face incumbent senators, although only one-third face re-election next month. About 15 seats are likely to be a real contest, including races in Connecticut, Rhode Island and Vermont. Sen. Edward Kennedy has a relatively unknown and underfunded Republican rival as he campaigns for his eighth term.
One positive development was the signing of major pension reform legislation by President Bush on Aug. 18 that includes several provisions sought by the financial services community. These include higher contribution limits for 401(k) plans and IRAs; ERISA relief to make investment advice more readily available in the workplace; and the provisions encouraging employers to offer automatic enrollment in 401(k)s. In addition, 529 Plans were made permanent.
Despite all the partisan maneuvering, it is likely that the House and Senate will return after the Nov. 7 elections to consider a few items that Congress could not reach agreement on earlier. Just prior to adjourning, both the House and Senate did approve S. 2856, the Financial Services Regulatory Relief Act. While the final bill does not include MBA-supported provisions to streamline the CTR exemption process and stop industrial loan companies (ILCs) from expanding across state lines, the legislation does direct the Securities and Exchange Commission to reach a compromise with the banking regulators over rules governing bank securities activities. In addition, the bill contains provisions to streamline call report filing, extend the exam schedules from 12 to 18 months for community banks under $500 million in assets, and direct the regulators to create a model privacy notice for all banks. One positive note is that the final bill does not include a number of provisions sought by the credit union industry to expand its powers.
Despite all the media coverage over the ongoing instances of the unauthorized disclosure of personal information of over 26 million veterans and other data breaches, Congress has been unable to resolve jurisdictional disputes over which committee should control the content of any legislation. Only the bill endorsed by the House Financial Services Committee, H.R. 3997, would include federal agencies under the data breach law, while the bill approved by the Energy and Commerce Committee would subject banks to the jurisdiction of the Federal Trade Commission and state attorneys general; a feature strongly opposed by the banking industry. Another major sticking point is whether to allow consumers to freeze their credit file.
A long shot for legislative action, possibly in November, could be GSE reform. In October 2005, the House passed a bill to establish a new regulator to oversee Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Senate Banking Committee has passed a somewhat different bill by a narrow 11-9 margin, but the full Senate has yet to take up the bill. Like a good poker game, as the deadline for final action approaches, advocates and key legislators evaluate their hand and make decisions on when and if to hold or fold and under what conditions. The Association continues to vigorously oppose H.R. 2317, which would double credit unions’ ability to make riskier commercial loans while simultaneously lowering credit union capital requirements.
On the regulatory front, since our last column, the Senate Banking Committee confirmed Sheila Bair to become chairman of the FDIC. One of her first actions was to place a six-month moratorium on the applications by Wal-Mart and other corporations to own an industrial loan company. Many members of Congress have sent letters in opposition to the applications as have many bankers associations, including MBA. However, since a number of commercial entities already own an ILC, such as Target stores and General Electric, an outright denial may be difficult.
As previously discussed, the federal banking agencies are actively reviewing the thousands of comments received pertaining to the proposed regulations governing commercial real estate lending, yet final action may be months away. Other regulatory issues on the front burner include implementing the new FDIC insurance regulations and premium schedule, implementing new regulations on Regulation DD governing overdraft protection, proposed Federal Housing Finance Bond Capital Rules for the Federal Home Loan Banks, new Basel II/Basel IA capital rules, and more.
In short, the outcome of the November elections could have a substantial impact on the business and banking community in Massachusetts and Washington. More on that in our next issue.
David Floreen is senior vice president at the MBA. He can be reached at: firstname.lastname@example.org