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The American Banker

Legislative Update
August 14, 2003, Thursday

ACTION ON LEGISLATION

Fair Credit Reporting Act

HR 2622

The House Financial Services Committee voted 61 to 3 on July 24 to approve a bipartisan bill that would make
permanent an expiring section of the Fair Credit Reporting Act and amend the law to add more consumer protections.

The vote came after approximately 12 hours of debate and consideration of more than 20 amendments. Eleven were
accepted by voice vote, seven were defeated, and five were withdrawn.

The key provision would make permanent a section of the law, set to expire Jan. 1, that blocks states from interfering
with federal rules governing how businesses report, share, and use consumer credit histories. It easily survived two
Democratic efforts to eliminate or alter it.

The pro-consumer provisions include a requirement that credit-reporting agencies give consumers a free annual copy of
their credit report and score upon request. Other amendments accepted included one from Rep. Barney Frank,
D-Mass., that would make it easier for consumers to remove inaccurate information from their reports, and another from
Rep. Paul Gillmor, R-Ohio, that would require agencies to disclose when numerous inquiries for someone's report hurt
that person's credit score.

Several proposed studies were included in the House version, including a Federal Reserve Board investigation into
consumers' ability to avoid receiving prescreened offers of credit and insurance; a General Accounting Office study on
how well consumers understand reports and scores; and a Treasury Department look at the use of biometrics and other
technology to crack down on identity theft.

Also approved was a provision that would block financial institutions from using a person's private medical information
for credit decisions and one requiring companies to encode medical information to protect consumer privacy.

The House Financial Services subcommittee on financial institutions passed the bill 41 to 0 on July 16.

Senate Banking Committee Chairman Richard Shelby held the last two of six hearings on the credit law on July 29 and
July 31. At his last hearing, which included testimony from Treasury Secretary John Snow in favor of the
reauthorization, the Alabama Republican signaled that he might not support the industry's bid for a permanent extension
of the preemption, but instead could favor a temporary renewal. Sen. Shelby is expected to introduce his own bill next
month.

Regulatory Relief

HR 1375
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House members said on July 10 that they believe they have worked out a compromise on a controversial provision of a
bill to ease a wide range of regulations on banks, thrifts, and credit unions.

Rep. Barney Frank, D-Mass., and Rep. Paul Gillmor, R-Ohio, said last month that they expected their compromise
amendment to become part of the full bill before it reaches the House floor. It would allow industrial loan banks to take
advantage of expanded interstate branching powers accorded to other financial institutions in the bill, as long as they
existed before Jan. 1 or no more than 15% of their parent companies' revenue comes from nonfinancial activities.

Introduced on March 27 by Rep. Shelley Moore Capito, R-W.Va., the bill passed the House Financial Services
Committee on May 20 and the Judiciary Committee on July 9. It is substantially similar to one that passed the Financial
Services Committee last year but never advanced farther.

In an extensive nine-page letter dated June 25 to Sen. Tim Johnson, D-S.D., Federal Reserve Board Chairman Alan
Greenspan continued his assault against the idea of granting industrial loan banks any expanded powers. The letter
claimed that the lack of regulatory oversight over such institutions' parent companies helped lead to the 1999 collapse of
the $118 million-asset Pacific Thrift and Loan Co. in Woodland Hills, Calif.

At a Federal Deposit Insurance Corp. conference on the issue July 16, Sen. Robert Bennett, R-Utah, said he was
inclined to support increased powers for industrial loan companies, but he did not endorse specific legislation.

Electronic Check Processing

S 1334, HR 1474

An amendment to require the Fed to disclose the cost of transporting checks has temporarily delayed, and could stop
altogether, a bill designed to stimulate greater use of check images.

The amendment, inserted into the House version after lobbying from AirNet Systems Inc., an Ohio check transportation
company, was at the center of a disagreement between House and Senate staff members during a July 18 meeting.

According to several sources, House staff members said that the provision was a "priority" for House Financial Services
Committee Chairman Michael G. Oxley and must be included in any final version. Senate aides said they were only
willing to approve a GAO study of the issue. They cited Fed concerns that the amendment would unnecessarily increase
administrative costs.

Sources said the House and Senate aides are working during this month's congressional recess to find a compromise.

The AirNet language is expected to be the only obstacle to passage for the bill, which would let banks clear checks
electronically without returning canceled ones to the signers or their banks. The Senate passed its version on June 27 by
unanimous consent after the House voted 405 to 0 on June 5 to approve its version.

Basel II

HR 2043

The House Financial Services subcommittee on financial institutions passed 42 to 0 a bill that would create an
interagency committee under the Treasury secretary to oversee development of the new Basel II plan, which would
change international capital standards for banks.

The bill, introduced on May 9, seeks to prevent U.S. financial services firms from being put at a competitive
disadvantage, and to force U.S. regulators to settle their differences over the plan's domestic implementation. During the
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vote, lawmakers from both parties praised the bill as a necessary step to slow down Basel II, which has been in
development for more than four years and is officially scheduled to be completed this year.

It is sponsored by House Financial Services Chairman Michael G. Oxley, R-Ohio, Rep. Barney Frank, D-Mass., Rep.
Carolyn Maloney, D-N.Y., and Rep. Spencer Bachus, R-Ala.

Internet Gambling

HR 2143, S 627

The Senate Banking Committee on July 31 passed 19 to 0 a bill that would bar the use of any bank instrument, such as
credit cards, to pay for illegal online gambling.

The Unlawful Internet Gambling Prohibition Act, introduced on March 13 by Sen. Jon Kyl, R-Ariz., and Sen. Dianne
Feinstein, D-Calif., would require financial companies to block illegal Internet bets. Regulators would establish a
system to notify banks which transactions they would be required to block. However, the bill, which financial
companies have endorsed, does not offer legal protection for banks that block illegal gambling transactions as directed
by the bank regulators.

The Senate bill is the companion to House legislation, which passed the full chamber on June 11 by a vote of 319 to
104.

Banks in Real Estate

On July 24 the House Appropriations Committee approved for the second straight year a bill that includes a provision
that would block the Treasury Department from finalizing a rule that allows banks to engage in real estate brokerage. If
enacted, the provision would stop the Treasury from appropriating any money to implement such a rule until Sept. 30,
2004.

The provision was promoted by the National Association of Realtors, which favors legislation that would prohibit the
rule. It was opposed by bankers and by House Financial Services Committee Chairman Michael G. Oxley, R-Ohio, and
Rep. Barney Frank, D-Mass., the panel's ranking member.

NEW LEGISLATION

GSEs

HR 2803, 2572, 2022, 2117, S 1508

Rep. Ed Royce, R-Calif., on July 22 introduced a bill that would merge the safety-and-soundness supervisor of Fannie
Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight, with the Federal Housing Finance Board,
the agency in charge of overseeing the 12 Federal Home Loan banks.

The merged agencies would become the Office of Housing Finance Oversight, a unit of the Treasury.

Rep. Royce said his bill was meant to be an alternative to legislation offered by Rep. Richard Baker, R-La., on June 24,
that would merge the OFHEO and the Office of Thrift Supervision into a new office under the Treasury called the
Office of Housing Finance Supervision. Rep. Royce, who called them "different animals," said he was opposed to
combining the OTS with any new regulator of the government-sponsored enterprises.

That attitude is shared by Rep. Barney Frank, the House Financial Services Committee's ranking Democrat, who told
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reporters on July 21 that he opposed combining the OTS with OFHEO. He said he was still deciding on whether Fannie
and Freddie should have a new regulator at all.

But Rep. Baker said House Financial Services Committee Chairman Michael G. Oxley "absolutely" supports the
proposals he has made so far. Treasury Secretary John Snow is scheduled to testify on GSE issues at a Sept. 10 hearing
in front of the panel.

Other legislation on the issue includes a bill introduced on May 7 by Reps. Christopher Shays, R-Conn., and Ed
Markey, D-Mass., that would require Fannie and Freddie to register their debt and mortgage-backed securities with the
Securities and Exchange Commission. The GSEs have long resisted such a move, which they say would harm the
mortgage market.

On May 15, Rep. Pete Stark, D-Calif., introduced a bill that would repeal Fannie and Freddie's exemption from local
and state income taxes.

Sen. Chuck Hagel, R-Neb., and Sen. John Sununu, R-N.H., and Sen. Elizabeth Dole, R-N.C., introduced legislation on
July 31 that would establish a separate regulator for Fannie and Freddie, called the Office of Federal Enterprise
Oversight, under the control of the Treasury. Four other Senate Banking Committee members wrote a letter on Aug. 1
urging Mr. Snow to back moving oversight of the GSEs to the Treasury.

Sen. Jon Corzine, D-N.J., is expected to introduce a bill next month that would transfer oversight to the Treasury and
mandate more prescriptive standards for portfolio management at Fannie and Freddie.

S Corporations

HR 2896

As part of President Bush's American Jobs Creation Act of 2003, introduced on July 25, House Ways and Means
Chairman William M. Thomas, R-Calif., included a provision that would relax restrictions on S corporations by
expanding their maximum number of shareholders by 33%.

Aside from raising the maximum number of shareholders to 100, the bill would let S corporations treat family members
as one shareholder and would let shareholders of a company seeking to become an S corporation buy stock held in
individual retirement accounts without incurring a penalty tax.

Similar legislation was passed in the Senate version of the tax bill in May, but the S-corporation language was removed
from the final version.

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