Banking Law Prof Blog

OCC's Views on FHA Housing Stabilization & Homeownership Retention Act of 2008

Comptroller John Dugan presented the agency's views on the FHA Housing Stabilization and Homeownership Act of 2008 before Congress today.  This is basically a voluntary loan workout program with the lender taking a write-down and the borrower getting a refinanced FHA-guaranteed loan at the reduced principal amount. 

Link:  http://www.occ.gov/ftp/release/2008-38.htm

(ag) April 9, 2008, in Congress/Lending Issues

Members of Congress Concerned About Reg B

Three members of Congress -- Melvin Watt (D-NC), Chairman of the House Financial Services Subcommittee on Oversight and Investigations; Carolyn Maloney (D-NY), Chairman of the Subcommittee on Financial Institutions & Consumer Credit; and Barney Frank (D-MA), Chairman of the House Financial Services Committee -- have sent a letter to the Government Accountability Office expressing their concern that the Federal Reserve has decided not to amend Regulation B, which implements the Equal Credit Opportunity Act (ECOA). 

In fact, they're so concerned that they are asking the GAO to conduct its own study of the impact of removing Reg B's prohibition on collecting and publicly reporting of race and gender data for non-mortgage credit. 

Link to letter:  http://www.house.gov/apps/list/press/financialsvcs_dem/press2071707.shtml

(ag) July 18, 2007, in Congress, Consumer Protection, Federal Reserve, Lending Issues

Calling for a GAO Study of Foreclosures & the Subprime Market

House Financial Services Committee Chairman Barney Frank (D-MA) and Ranking Republican Committee Member Spencer Bachus (R-AL) are calling on the Government Accountability Office to assess the current situation regarding high rates of foreclosure for subprime mortgages, to analyze the causes, and to provide solutions.  

This issue is a top priority for Congress, the financial services industry, and for consumer advocates.  We all recognize the serious nature of the problem.  Let's hope for realistic consideration, not superficial quick-fix responses.  That's a temptation which often leaves a bad situation worse.  Watch this space as the debate continues.

Link to April 25, 2007, Letter to GAO:  http://www.house.gov/apps/list/press/financialsvcs_dem/press042507b.shtml

(ag) May 1, 2007, in Congress/Subprime Lending

Chris Dodd Speaks Out - Credit Cards, GSEs, Hybrid ARMs

Senate Banking Committee Chairman Chris Dodd has been hitting the speaking circuit on several key issues. 

1. Credit Cards - Here's an excerpt from Sen. Dodd's Mar. 14, 2007, speech to the National League of Cities: 

"Just look at the credit card situation, if you will. The average American family has a revolving debt problem of over $9,300; 98 percent of that is in credit cards and it's growing.

When you consider that a median income for an American family is $43,000, with that kind of credit card obligations growing by the day, it's going to be very difficult for these people to put aside the savings or make the kind of investments for their own financial security and future.

When you have these kinds of interest rates and gimmicks that are being used to make it impossible for people to get out from under these obligations, then the problems only get worse and worse.

I'm a strong advocate of credit cards; don't misunderstand me. But the abuse by the financial institutions in making it impossible for people to get out from underneath these financial problems is causing us serious, serious problems.

We've already had hearings on this, and my hope is that we'll pass legislation that'll prohibit some of the practices that have made it so difficult for people to manage their financial affairs in a more solid and safe way."

Link to Speech:  http://banking.senate.gov/index.cfm?FuseAction=Articles.Detail&Article_id=121&Month=3&Year=2007

2.  GSEs.  Sen. Dodd tells Fed Chairman Ben Bernanke that there is broad support for legislation to create a new regulator to oversee Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.  Essential powers for the new -- and independent --- regulator, which would be outside the appropriations process, should include the ability to set both minimum and risk-based capital levels; enforcement and prompt corrective action powers, including the authority to set prudential management and internal control standards, to place a GSE in receivership, and to oversee both safety and soundness and adherence to the mission of promoting affordable home ownership (not turf building).

Link to Sen. Dodd's Mar. 6, 2007, Statement on GSEs:  http://banking.senate.gov/index.cfm?FuseAction=Articles.Detail&Article_id=120&Month=3&Year=2007

3.  Hybrid Adjustable Rate Mortgages (ARMs with "teaser rates" which, after 2-3 years, hit subprime borrowers with higher interest rates and monthly payments they can't afford).  Sen. Dodd finally received what he calls "the right answer" from the Federal Banking Agencies:  Proposed application of nontraditional mortgage guidance to these Hybrid ARMS. 

Link to Sen. Dodd's March 2, 2007, statement of approval to federal banking agencies for the proposal and urging that they finalize this proposal pronto:  http://banking.senate.gov/index.cfm?Fuseaction=Articles.Detail&Article_id=118&Month=3&Year=2007

(ag) Mar. 15, 2007, in Congress, Consumer Protection, Predatory Lending

Udall's Credit Card Bill

Congressman Mark Udall (D-CO) introduced H.R. 1461 on Friday, Mar. 9, 2007.  The "Consumer Credit Protection Act" is intended to ban abusive credit practices, enhance consumer disclosures, and protect underage consumers.The Bill has been referred to the House Financial Services Committee.   

Link to Bill Text:  http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1461:

(ag) Mar. 13, 2007, in Congress, Consumer Protection, Predatory Lending

Congressional Hearing on Credit Card Fees & Practices

The U.S. Senate Permanent Subcommittee on Investigations, chaired by Carl Levin (D-MI), has scheduled a hearing for Wednesday, March 7, 2007, on "Credit Card Practices: Fees, Interest Rates, and Grace Periods". 

Two panels are scheduled:  Panel I includes one consumer and Alys Cohen, Staff Attorney for the National Consumer Law Center.  Panel 2 includes representatives from the credit card operations of Bank of America, Chase Bank and Citigroup. 

This is billed as only the first of several hearings that will focus on credit card practices.  In this hearing, expect testimony and questions about how credit card issuers apply interest rates and fees to consumer accounts. The subcommittee wants to know how credit card issuers select interest rates and eliminate grace periods.  The subcommittee is also concerned about high fees charged for late payments and over-the-limit charges, as well as how those fees add to interest costs and increase consumer debt. The committee will examine an industry practice requiring consumer payments to be applied first to balances with the lowest interest rates instead of to balances with the highest interest rates. Part of the basis for the hearing is a September 2006 GAO report detailing the finance charges, fees, and disclosure practices associated with 28 popular credit cards.

Previous Inquiry into Credit Card Practices is detailed on the Sen. Levin's website, including:  The 2006 GAO Report indicating that "credit card issuers are making more of their money from climbing fees, complex interest charges, and poor disclosure practices that take advantage of working families. In 2006, Americans used nearly 700 million credit cards to purchase more than $1.8 trillion in goods and services, including essentials like groceries and gas. Bombarded by more than 3 billion credit card solicitations in the mail, by 2004, the average American household owed credit card debt of more than $5,100." 

LInk:  http://levin.senate.gov/senate/investigations/index.html

(ag) Mar. 6, 2007, in Congress/Predatory Lending

Small Business Tax Relief - Good. Clawback for Sale-In, Lease-Out Big Problem

Last week, the House of Representatives passed the Small Business Tax Relief Act of 2007 (HR 976). This bipartisan legislation, introduced by Ways & Means Chairman Charles Rangel (D-NY) and Ranking Member Jim McCrery (R-LA), was approved by a vote of 360 to 45.  Now the bill goes to the Senate. 

Here's the issue:  Although it was the subject of debate, the House Bill did not contain a provision to recoup (or "clawback") tax breaks for SILO transactions (essentially a financing devise with favorable tax treatment for banks that count lease payments as income and depreciate the corresponding capital assets purchased by the bank and leased out).  Will the Senate now include such a provision?  The Financial Services Roundtable and the American Bankers Association are on record as strongly opposing such a retroactive provision.

Link to Feb. 16, 2007, Financial Services Rountable Newsletter, which discusses the issue and should be updated shortly to reflect the current bill status:  http://www.fsround.org/pdfs/bulletins/16February2007WeeklyBulletin.pdf

Link to House Ways & Means Committee Press Release:  http://waysandmeans.house.gov/

(ag) Feb. 22, 2007, in Congress

 

Barney Frank's Advice to Ben Bernanke

Recognizing that the Federal Reserve Chairman's position is structured as a 12-year term to preserve independence from an excess of political influence from Congress or the President, Congressman Barney Frank, nevertheless, had some interesting views he hopes Ben Bernanke will take to heart. 

Here's the link to the full text of the Speech to the National Press Club, available on Congressman Frank's House Website:  http://www.house.gov/frank/pressclub07.html

Here are some highlights of remarks focused on the Federal Reserve:

" MODERATOR: How does the Federal Reserve fit into your agenda? How do you think the Fed should change, if it should?

FRANK: Well, one, I think we should be able to talk about it more. . . . there are people in this country who think that the Fed somehow should be above democracy. . . .I mean, I remember talking to some people in the Clinton administration: Oh, we can't discuss interest rates.

I mean, we can debate whether Terri Schiavo's life should be recognized as over. We can debate abortion. We can debate wars in Iraq. We can debate the most fundamental questions in human existence, but God forbid anybody in elected office should talk about whether or not we need a 25-basis point increase in the Fed. Somehow, that's sacrosanct. No, it isn't. It's public policy.

One, I don't want a change. There are people who have been arguing that the Fed should have its mandate changed, that the Humphrey-Hawkins Act, which says it should deal both with stable prices and maximum [employment], that that should be changed, and it should just go to stable prices.  That's not going to happen when we're in power. And we can prevent that from happening.

Secondly, though, they have to pay more attention to wages. And I'm hoping that Ben Bernanke will recognize this. The last report we got -- the Fed comes and testifies before both houses twice a year and they present a report, the Humphrey-Hawkins report. . . . .There were 13 sections about this part of the economy, that part of the economy. In 12 of the sections, they talked about the economy in real terms, i.e. adjusted for inflation. . . . .Then they got to wages, and wages were not adjusted for inflation. They talked about nominal, i.e. they made wages look bigger than they are.

I think the Fed could show a little more social sensitivity to this. . . .I think the danger will be this . . .: Wages may now be starting to rise, real wages. One, they've been depressed for so long, there's a natural tendency for that to happen. Inflation, if it stays down, allows real wages to go up.  What I fear is that respected opinion, including the financial pages of some of our liberal newspapers, will start worrying that wages are going up. And oh, if wages go up, that's bad.

If corporate profits go up, that's a good thing. If wages go up, that's a bad thing. That's the basic received wisdom which I'm trying to change.  But what I'm afraid is that the Fed will join in this and that you will have people in the Fed saying, well, geez, wages are going up; we better raise the interest rates. And I talk about war on wages.

My fear is that, if we look at past practices, the Fed will be tempted to blame real wage increases, which are long overdue and which could be considerable for some time and still not have caught up, and they'll blame that as the reason for cutting back. So that would be my concern. "

(ag) Feb. 20, 2007, in Congress, Economy, Federal Banking Agencies

Congress Will Look at Credit Card Issues

Congresswoman Carolyn Maloney (D-NY), Chair of the House Financial Institutions and Consumer Credit Subcommittee, joined House Financial Services Committee Chairman Barney Frank in the following statement about issues in the credit card industry: 

“The problems and concerns consumers are having with credit card companies are definitely on the agenda of this committee, and we will be scheduling hearings in the near future to investigate these issues.  The Subcommittee on Financial Institutions and Consumer Credit will be taking the lead on scheduling and conducting hearings to examine consumer complaints with respect to credit cards, and the subcommittee will be scheduling hearings soon.”

(ag) Feb. 15, 2007, in Congress 

New Privacy and Data Security Bills Filed

Caution:  Congress at Work! 

The House Committee on Energy and Commerce, chaired by John Dingell (D-MI) will consider four recently filed bills relating to Privacy and Data Security: 

1.  The Prevention of Fraudulent Access to Phone Records Act - Sponsors: Dingell & Barton (R-TX);

2.  The Social Security Number Protection Act of 2007 - Sponsors: Markey (D-MA) & Barton;

3.  The Securely Protect Yourself Against Cyber Trespass Act (the "SPY Act'") - Sponsors: Towns (D-NY) & Bono (R-CA);

4.  The Data Accountability & Trust Act ("DATA") - Sponsors: Rush (D-IL) & Stearns (R-FL).

Link to Committee Press Release, with short bill descriptions:  http://energycommerce.house.gov/Press_110/110nr6.shtml

(ag) Feb. 13, 2007, in Congress/Privacy/Data Security

Overdraft Fee Legislation in 2007?

U.S. House Financial Services Committee member Carolyn Maloney (D-NY) announced her plans to reintroduce Overdraft Fee legislation.  Her principal focus is increased disclosure and consumer choice to opt out of overdraft fees.

The Center for Responsible Lending issued a Report last week indicating that debit card overdrafts generate a sizeable percentage of overdraft fees.

Link to Maloney Press Release:  http://maloney.house.gov/index.php?option=content&task=view&id=1273&Itemid=61

Link to Center for Responsible Lending Report:  http://www.responsiblelending.org/issues/overdraft/reports/page.jsp?itemID=31469347

(ag) Jan. 29, 2007, in Deposit Regulation/Congress

What About the House?

Congressman Barney Frank (D-MA) is expected to Chair the U.S. House of Representatives Financial Services Committee. 

The Boston Globe ran a story today outlining Congressman Frank's ideas for a "grand bargain" with the U.S. corporate world.  Under his plan, businesses would agree to wage and benefits increases and Democrats would reduce regulatory burden and support free trade.

The Washington Post ran a story dated Nov. 18, 2006, quoting Frank in favor of relaxing some of the burdensome aspects of Sarbanes-Oxley.

(ag) Nov. 19, 2006, in Congress, SOX

It's a Whole New World: Democratic Senate Committee Assignments

On Nov. 15, 2006, Incoming Senate Majority Leader Harry Reid (D-NV) announced committee assignments he anticipates for the 110th Congress.  Senate rules require a meeting with the incoming Senate Republican Leader following the Republican Caucus's leadership elections.  The Majority and Minority Leaders will negotiate and finalize the Majority/Minority makeup of each Senate Committee.

The Senate Banking Committee is expected to be Chaired by Christopher Dodd (D-CT).

Democratic Senators who have previously served on the Banking Committee and are expected to return are:  Tim Johnson (D-SD); Jack Reed (D-RI); Charles Schumer (D-NY); Thomas Carper (D-DE); and Robert Menendez (D-NJ).  Expected new committee members include:  Daniel K. Akaha (D-HI); Sherrod Brown (D-OH); Bob Casey (D-PA); Herb Kohl (D-WI); and Jon Tester (D-MT).

(ag) Nov. 19, 2006, in Congress

Congress Giveth with the Right Hand & Taketh Away with the Left

President Bush signed two bills on Friday the 13th which will have contradictory effects on banks.  First, the Regulatory Relief Bill, which adopts some measures intended to reduce regulatory burden on financial institutions and allow them to get back to the business of banking.  Second, the Unlawful Internet Gambling Enforcement Act, which was attached to "The Safe Ports Act".

Who can argue with the stated purpose of the Unlawful Internet Gambling Enforcement bill?  No one is opposed to protecting children from the evils of and possible addiction to Internet Gambling.  The problems lie in the implementation.  Once again, banks are assigned the role of "policemen" for illegal activities they don't engage in themselves.  Is this fair?  Is it effective?  Is it even possible?

The Unlawful Internet Gambling Enforcement Act of 2006 prohibits gambling enterprises from knowingly accepting payments in connection with unlawful Internet gambling.  The Federal Reserve and Treasury are jointly charged with writing regulations, within 270 days of bill passage, which will detail policies and procedures financial institutions must adopt to identify and block illegal transactions.

First problem:  Not all Internet Gambling is made illegal under this bill.  For example, betting on horse racing is authorized by the Interstate Horseracing Act.  Betting on some sports in Delaware, Nevada, and Oregon, is also legally grandfathered by the Amateur Sports Protection Act.  Casino gambling on Indian reservations is legal and excluded from the force of this bill, as are State lotteries. 

Second problem:  Financial institutions are being called upon to distinguish "legal" from "illegal" Internet gambling.  This does not sound like the business of banking.  The bill actually requires banks to block "illegal" transactions, but requires them to ensure that legal transactions are not blocked.  Maybe the Fed/Treasury regs can provide some guidance, but even if they do, banks will have to hire and train personnel to follow the guidance and keep up with all the record retention and reporting that this new burdensome duty will entail.

Fortunately, testimony from the Independent Community Bankers Association and others apparently resulted in bill language authorizing the Fed & Treasury to exempt payment methods from the "identify and block" requirements if such payments (like checks and ACH transactions) simply do not capture information in such a way as to make it "reasonably practical" to include them.  So the bill seems to be aimed primarily at credit card transactions.

Banks already have a heavy burden in complying with Bank Secrecy Act/USA PATRIOT Act/Anti-money laundering legislation and regulations.  Banks already are required to file Suspicious Activity Reports (SARs) covering any illegal activity they detect in the course of providing financial services.  The Unlawful Internet Gambling Enforcement Act, however, goes way beyond reporting.  It requires banks to stop a transaction in its tracks as it is occurring. 

Small, community banks will bear a disproportionate cost for this new responsibility.  In a small bank, hiring and training even one more person and purchasing whatever detection-and-blocking system is required will impose a cost that matters to the bank's bottom line.  Moreover, the cost and the time required to comply will fall on the institution's legitimate customers and the community it serves.  Time and money spent on this compliance issue are time and money diverted from the business of providing loans, deposit accounts, and other much-needed banking services.

Further, financial institutions are an integral part of our national "payments system".  The U.S. economy depends on speedy, cost-effective processing of financial transactions.  Slowing that system down with "identify and block" requirements will have unintended consequences.  The payments system is just not set up to perform this function.  Some aspects of the payments system are not capable of being reengineered to accommodate it. 

What about customers whose legitimate transactions are incorrectly blocked?  Although the bill provides a safe harbor for financial institutions that make such a mistake, those customers are bound to be "mad as heck". 

Here's my take:  If Congress wants to prohibit gambling, let them do it across-the-board (not going to happen).  If there are penalties, they should fall on the entity that commits the illegal act.  Please don't make banks the enforcers.  That's not their job.  Please don't impose more compliance costs for an "identify and block" function that is unlikely to work. 

(ag) October 16, 2006, in Congress

Pass Bills in Haste, Try to Understand Them Afterward?

Bankers and their lawyers are trying to absorb the full ramifications of at least two bills (and that does not include the Reg Relief Bill) that Congress passed in the waning days of September as they rushed to "get out of Dodge". 

First, the Internet Gambling Bill (which achieved passage by virtue of being attached to a port security bill):  This is another example of using banks to police illegal activity committed by others.  Financial service companies are required to block payments to illegal Internet gambling sites -- but not payments to legal sites.  How will they know with certainty (and without totally invading financial privacy) which payments to block?

Second, the 36% interest rate cap on annual interest rates charged to military borrowers, together with prohibitions against certain "payday lending" tactics:  Senators Jim Talent (R-MO) and Bill Nelson (D-FL) attached this amendment to the 2007 Defense Authorization Bill.  The Pentagon strongly urged the need for Congressional attention to financial abuse of military personnel and families.  This, of course, is only part of the nation-wide debate about payday lending and usury.  Almost everyone expresses distaste for interest rates that, on an annualized basis, run into several hundred percent.  There are serious abuses out there, not just for military personnel but also for the elderly, minorities, the low-income wage-earner living paycheck to paycheck. 

See the Center for Responsible Lending website for extensive information in opposition to payday lending:  http://www.responsiblelending.org

Having recognized the problem, here are some issues with the bill:

*  Predatory payday lending targets more than just the military population.  Why address only this segment?

*  If people who need credit are not being served by reputable lenders, they will go somewhere to meet those credit needs.  Are we driving the problem underground? 

*  What more can be done effectively and nationally in terms of financial education, to teach all sectors of borrowers how to manage their money, how to shop for credit, and how important it is to maintain good credit?

BUT here's the real kicker to this bill.  The Department of Defense gets to write the regulations and could require additional interest-rate disclosures to military personnel, that are different in wording or calculation from the Truth-in-Lending disclosures already required.

Here's another thought:  The announcement of bill passage from the Center for Responsible Lending's website points out that:  "Military bases are like big fishponds to payday lenders -- full of young, financially inexperienced families trying to get by on modest pay . . . ."                            Why don't we pay our enlisted soldiers a living wage?

(ag) Oct. 9, 2006, Congress/Lending Issues/BSA/Predatory Lending/Usury

Reg Relief - Not Everything Banks Wanted, Better than Nothing?

Banking lawyers and trade associations are calling the Financial Services Regulatory Relief Act of 2006 "disappointing".

Link to enrolled bill:  http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/~c109dlrgN8::

Here's the American Bankers Association's short statement on the bill's passage:

http://www.aba.com/Press+Room/092806RegulatoryReliefPassage.htm

Here's a Bill Summary from the Independent Community Bankers of America's website:

http://www.icba.org/files/ICBASites/PDFs/regreliefsummary.pdf

(ag) October 6, 2006, in Reg Relief/Congress

Credit Rating Agency Bill Signed by President

With enactment of the Credit Rating Agency Bill, the SEC will assume oversight for NRSROs ("Nationally Recognized Statistical Ratings Organizations").  The bill is also touted as breaking the credit rating "duopoly" previously held by Moody's and Standard & Poor's, with new registration procedures opening participation in this industry to over 130 ratings firms.  Incentive to pass this legislation came from "mistakes S&P and Moody's made by telling investors that Enron and WorldCom were safe investments just days before they filed for bankrupty."

Link to U.S. House of Representatives Committee on Financial Services Sept. 29, 2006, Press Release:  http://financialservices.house.gov/News.asp?FormMode=release&ID=876

(ag) Oct. 2, 2006, in Credit Rating Agencies/Congress