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Financial Services Regulatory Relief Act of 2003 - Part I

Floor Speech

By:
Date:
Location: Washington, DC

FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2003 -- (House of Representatives - March 18, 2004)

The SPEAKER pro tempore (Mr. Walden of Oregon). Pursuant to House Resolution 566 and rule XVIII, the Chair declares the House in the Committee of the Whole House on the State of the Union for the consideration of the bill, H.R. 1375.

IN THE COMMITTEE OF THE WHOLE

Accordingly, the House resolved itself into the Committee of the Whole House on the State of the Union for the consideration of the bill (H.R. 1375) to provide regulatory relief and improve productivity for insured depository institutions, and for other purposes, with Mr. LaHood in the chair.

The Clerk read the title of the bill.

The CHAIRMAN. Pursuant to the rule, the bill is considered as having been read the first time.

Under the rule, the gentleman from Ohio (Mr. Oxley) and the gentleman from Massachusetts (Mr. Frank) each will control 30 minutes.

The Chair recognizes the gentleman from Ohio (Mr. Oxley).

Mr. OXLEY. Mr. Chairman, I yield myself 5 minutes.
Mr. Chairman, I am pleased to bring to the floor today H.R. 1375, bipartisan legislation making a number of changes to Federal banking, thrift, and credit union laws that will enable these sectors of the financial services industry to operate more productively and provide a higher level of service to their customers.
I want to begin by recognizing the efforts of the principal sponsor of this legislation, a valued member of the Committee on Financial Services, the gentlewoman from West Virginia (Mrs. Capito), as well as her primary democratic cosponsor, the gentleman from Arkansas (Mr. Ross). In putting together this legislation, the gentlewoman from West Virginia (Mrs. Capito) and the committee consulted extensively with the Federal banking and credit union regulators, as well as affected private sector parties, to fashion a package that, by removing unneeded or outdated legal restrictions, helps to maintain the competitive standing of the U.S. banking and financial services system that has no equal in the world.
In the aftermath of the September 11 terrorist attacks on America, President Bush and this Congress have called upon the financial services industry to play a major role in the effort to starve al Qaeda and like-minded organizations of the funds they need to inflict terror on the civilized world. Title III of the USA PATRIOT Act enacted shortly after the September 11 attacks imposes a host of new mandates and due diligence requirements on financial institutions designed to identify and block the movement of terrorist funds through the global financial system. Committee on Financial Services has conducted extensive oversight on the implementation of title III, and I think I speak for many members of the committee in applauding the seriousness and sense of commitment with which the financial services industry has gone about fulfilling the front-line responsibilities it has been asked to assume in the financial war against terrorism.
Shouldering these burdens is not without significant costs, of course. The changes made by the PATRIOT Act require banks and other depository institutions to devote significant compliance resources to monitoring and examining transactions, verifying the identities of new customers, and responding to inquiries by law enforcement authorities seeking to track terrorist finances through the U.S. banking system. Both as a way of offsetting these new expenses and freeing institutions to devote sufficient resources to PATRIOT Act compliance and serving their customers, the committee began during the last Congress to try to identify regulatory or statutory requirements that could have outlived their useful purpose and could be eliminated without any adverse affects on the safety and soundness of the banking system or on basic consumer protections. H.R. 1375 is the end result of that process.
The legislation, which enjoyed bipartisan support in the Committee on Financial Services, reflects significant contributions from several members of the committee. For example, the bill incorporates legislation authored by the gentleman from California (Mr. Ose) which would permit credit unions to offer check-cashing and wire transfer services to individuals who are not members of the credit union, but are within its field of membership, thereby promoting alternative sources of banking services for many low- and moderate-income Americans. An important amendment offered in committee by the gentleman from Oklahoma (Mr. Lucas) would greatly improve coordination between home and host State supervisors of State-chartered banks that operate branches in multiple States.
I also want to commend the gentleman from Ohio (Mr. Gillmor) and the ranking member, the gentleman from Massachusetts (Mr. Frank) for their hard work in crafting a compromise on an issue that was the subject of spirited debate in the committee: the extent to which certain commercially owned industrial loan companies, which are insured depository institutions chartered in a handful of States, should be permitted to exercise the new branching authority provided for in section 401 of the bill. I will offer a manager's amendment later today that incorporates the good work of the gentleman from Ohio (Mr. Gillmor) and the ranking member on this difficult issue.
Finally, I want to thank the gentleman from Alabama (Mr. Bachus), the chairman of the Subcommittee on Financial Institutions and Consumer Credit, for quarterbacking this effort in his subcommittee and helping to shepherd it through the full committee.
Thanks to hard work of the gentlewoman from West Virginia (Mrs. Capito) and the gentleman from Arizona (Mr. Ross) and many other members of our committee, the House will have an opportunity to vote later today on legislation that improves the productivity and efficiency of our financial services industry. A vote for this bill is a vote to allow banks, thrifts, and credit unions to channel their resources away from complying with unneeded regulatory mandates and toward making loans and providing other financial products and services to consumers and to their small business customers, which can only help fuel economic growth in local communities across this country.
I strongly urge my colleagues to support this bipartisan piece of legislation.

Mr. Chairman, I reserve the balance of my time.

Mr. FRANK of Massachusetts. Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, I want to express my appreciation to the chairman of the committee and the chairman of the subcommittee, because this is another example of where we have been able to work in a cooperative way. We do not agree on everything, but our method of operation allows us to refine our disagreements and to present to the House some legitimate policy disagreements, but in a form and in a context that does not interfere with our ability to go forward where there is consensus.
There will be two amendments that we will be debating. The gentleman from Alabama will offer one, which I plan to oppose, that would reject a request from the FDIC to make it easier for them to proceed against people in the banking area that they think have been negligent. The gentleman from New York (Mr. Weiner) will be offering an amendment that I think protects consumers. I feel strongly in favor of that one. Other than that, I believe we have agreement at the committee level. I want to emphasize, and I must say I am very hopeful that the Weiner amendment will be adopted, but we will have to see what happens.
I just want to reiterate my view that this reflects what I think ought to be our approach; namely, we start with respect for the market and an understanding that the free market is the best way to make our economy prosper. Particularly in the financial area that our committee has jurisdiction over, the role of the institutions as intermediaries in garnering the financial resources that are then made available to the people who do the production of goods and services, that is very important; and it is our obligation to make sure that that can be done with the maximum efficiency.
At the same time we recognize, many of us, that the market is not perfect. It does well what it is supposed to do, but there are areas of importance in our life that the market does not deal with. There are also inevitable tendencies in any institution, government, the private sector, the nonprofit sector, to do things that if there were constraints, it should not do. That does not mean that they are evil or that they are dysfunctional; it just means that human nature being what it is, no entity ought to be able to function without some restraints.
So our job is to provide for consumer protection in particular, which the market itself would not automatically do. Let me check that. In some areas I think we can rely on the market in the consumer area. There is a major merger, or a major sale in New England going on now where Fleet Boston is being bought by Bank of America. I have worked very closely with a number of entities that are advocates for low- and moderate-income people in the area of housing and in the area of small business and community development, because I do not think the market itself will take care of those. In other areas, in customer service, I think you can rely more on the market. There are competing institutions that will try to steal customers away. That is a good thing because, in the area of customer service, there will be competition. In areas where we are talking about lower-income people, competition does not do it, and we have to try to intervene.
What we need to do is to recognize the importance of regulation but, at the same time, make sure that we do not regulate unnecessarily, because there are regulatory costs. I do not object to regulatory costs if they are essential to achieving an important public purpose. Where they can be shown not to have that relationship, they ought to be removed. We ought to also try to pick among various regulatory approaches until we get the one that gives us the most benefit for the least cost. This bill is, on the whole, an effort to do that.
The chairman mentioned that in the controversial area of industrial loan corporations, we heard the forceful statements of the gentleman from Iowa who thinks that we should be more restrictive. We have Members who represent particularly States where the ILCs have played a major role, California and Utah in particular, who are represented in our committee, who think we have been too restrictive. The gentleman from Iowa (Mr. Gillmor) took the lead, and I was glad to work with him, in using a formula we had previously adopted in the Congress; namely, that to be a financial institution you should be 85 percent financial in your revenues, and we have used that as a screen for the additional entities that might be entering the ILC field. I think that is a reasonable compromise. I think that will protect the public interests, while continuing to allow consumer choice, and I congratulate the chairman and others for creating the context in which we could work that out.
I know we will be proceeding to debate on a couple of controversial issues and, as I said, I think this is a good overall bill, but Members may be waiting to see what happens on some of the amendments to make their final judgment.
Mr. Chairman, I reserve the balance of my time.

Mr. OXLEY. Mr. Chairman, I am pleased to yield 5 minutes to the gentleman from Alabama (Mr. Bachus), the chairman of the Subcommittee on Financial Institutions and Consumer Credit.

(Mr. BACHUS asked and was given permission to revise and extend his remarks.)

Mr. BACHUS. Mr. Chairman, I thank the chairman for yielding me this time.

Mr. Chairman, the financial services industry spends a great deal of time and a great deal of money every year complying with outdated and ineffective regulations. That is money that could be loaned to consumers and industries to buy new cars, new homes, new factories, new businesses, and that is what this bill is all about. It is also, as the chairman correctly said, delivering on a promise that this Congress made these same institutions, when we imposed title III of the PATRIOT Act, and also the Sarbanes-Oxley accountability measures. We told them that we would come and follow that with legislation to compensate them for that cost.

And in that regard, as the chairman so well put, I want to commend the financial institutions in this country for helping starve al Qaeda and other terrorist organizations. They have done an excellent job of cutting off the flow, not only to the terrorist organizations but also to narcotics traffickers and other criminal organizations, which is another benefit of these new money laundering legislations that this Congress put on the financial institutions. So it has had a very positive effect even on some areas that we might not have anticipated.
Secondly, I would like to commend the ranking member, the gentleman from Massachusetts (Mr. Frank). I would like to commend him for working closely on this legislation. We talk about bipartisanship in this body. This committee, under the chairman, the gentleman from Ohio (Mr. Oxley) and the ranking member, the gentleman from Massachusetts (Mr. Frank), has achieved on more than one occasion, on many occasions, a bipartisan spirit of cooperation which I think ought to be the model for other committees in the Congress as a whole. So I commend both these gentlemen.
I would like to commend the two sponsors of this bill, the gentlewoman from West Virginia (Mrs. Capito). She has done an excellent job. I would also like to commend the Democratic member of the committee who offered this legislation, and that is the gentleman from Arkansas (Mr. Ross).
Finally, I would like to call special attention to the legislation of the gentleman from Oklahoma (Mr. Lucas), the provisions within this legislation which will greatly improve the coordination between home and host State supervisors of State-chartered banks. When State-chartered banks branch beyond State lines, there is a great need for the bank supervisors to coordinate in the supervision. And I think this is a long overdue provision.
I would also like to commend the gentleman from Massachusetts (Mr. Frank) and the gentleman from Ohio (Mr. Gillmor) for working out, I think, an excellent compromise on this ILC provision, their compromise, the widespread almost unanimous support of the committee. There are Members who this morning have protested it.
The gentleman from Iowa (Mr. Leach) had offered on another bill the way he wanted to address this. The committee on the bank interest bill actually rejected that idea, competing idea, by a vote of 50 to 8. So this has been an issue that has been debated on prior occasions.
Finally, I would like to say that this is a regulatory relief bill, not a regulatory burden bill. For that reason, I will be offering an amendment to take and strike section 614 which equates independent contractors who do business with the bank, whether they be attorneys, whether they be accountants, whether they be appraisers, whether they be real estate agents, all sorts of independent contractors, which equates them with having the same knowledge of banking operation as insiders. That is simply not the case. And, in fact, I believe strongly that in these cases they ought to have the right to a jury trial, to a full hearing.
But if we do not strike section 614, any accountants, any attorney, any realtor, any appraiser who does business with the bank, will be subjected to having the same knowledge as an insider. Simply not the case. I think we all agree they do not have that same knowledge. And I oppose the Weiner amendment which is a regulatory burden amendment.

[Begin Insert]

Mr. Chairman, I rise in strong support of H.R. 522, the Financial Services Regulatory Relief Act of 2003.
I want to begin by thanking Chairman OXLEY for the tremendous leadership he has shown in steering this complex bill through the legislative process. I also want to thank the ranking member of the committee, Mr. FRANK, for his support of this important piece of legislation.
This bipartisan legislation, introduced by our colleagues on the subcommittee, Mrs. CAPITO and Mr. ROSS, reflects a commonsense approach to easing regulatory burdens imposed on our nation's depository institutions. H.R. 1375 is largely a product of recommendations that the committee has received over the last several years from the Federal and State financial regulators.
The legislation has strong bipartisan support and was approved by the Financial Services Committee by a unanimous voice vote. It is supported by a host of interested parties, including the Financial Services Roundtable, America's Community Bankers, the National Association of Federal Credit Unions, and the Credit Union National Association.
The banking industry estimates that it spends somewhere in the neighborhood of $25 billion annually to comply with regulatory requirements imposed at the Federal and State levels. A large portion of that regulatory burden is justified by the need to ensure the safety and soundness of our banking institutions; enforce compliance with various consumer protection statutes; and combat laundering and other financial crimes.
However, not all regulatory mandates that emanate from Washington, DC, or other State capitals across the country are created equal. Some are overly burdensome, unnecessarily costly, or largely duplicative of other legal requirements. Where examples of such regulatory overkill can be identified, Congress should act to eliminate them.
The bill that Congresswoman CAPITO and Congressman ROSS have introduced-and that I am proud to cosponsor along with Chairman OXLEY-contains a broad range of constructive provisions that, taken as a whole, will allow banks and other depository institutions to devote more resources to the business of lending to consumers and less to the bureaucratic maze of compliance with outdated and unneeded regulations. Reducing the regulatory burden on financial institutions will also lower the cost of credit for consumers.
In closing, let me once again commend Mrs. CAPITO and Mr. ROSS for this important legislative as well as the full committee chairman, Mr. OXLEY. The chairman has demonstrated a strong commitment to getting regulatory relief legislation enacted this year. I look forward to working with him to help accomplish that objective.

[End Insert]

Mr. FRANK of Massachusetts. Mr. Chairman, I yield such time as he may consume to the gentleman from New York (Mr. Meeks), a very hard working member of this committee.

Mr. MEEKS of New York. Mr. Chairman, let me begin by congratulating the leadership, the gentleman from Ohio (Mr. Oxley) and the ranking member, the gentleman from Massachusetts (Mr. Frank) on this great bill.
It proves that when Democrats and Republicans sit down and talk and work together, we really can come to a consensus. And the leadership of this committee should be applauded in a way that this bill, this important bill has gone through the committee. And I thank both the ranking member and the chairman.
My position has never been to favor one depository institution charter over another but, instead, to support policies that give each charter the best opportunity to be competitive and improve service delivery to their business and individual constituents.
It is my assertion that H.R. 1375, the regulatory relief bill, does just that for national banks, savings institutions, and credit unions, all of whom are vital to the financial health of this Nation and the provision of financial services to businesses and individuals nationwide.
For national banks, the bill eases certain restrictions related to directors, provides for flexibility in declaring dividends, and makes it easier to expand through intrastate branching or mergers with State banks.
For savings institutions, the bill provides more flexibility to provide automobile loans and leases for personal use. It also eliminates the limitation on small businesses, lending based on percentage of assets. These changes, among others, will greatly allow savings institutions to increase the diversity of their lending portfolios.
Federally chartered credit unions will be able to purchase and hold for their own account highly rated investment securities. They will be able to provide check cashing and money transfer services to nonmembers within their field of membership.
These changes, along with others, such as easing the process for voluntary mergers, will help credit unions diversify their portfolios and provide more services to individuals and the communities that they serve.
The ever-changing dynamics of the financial service industry demands that from time to time this committee review the existing laws and take action where required, not just to increase the laws as we often do, but to adjust and even eliminate archaic laws that may be hindering the success of our financial industry. I believe that this is just what we have done with this regulatory bill, a bill that has a little bit of something for everyone.

Mr. OXLEY. Mr. Chairman, I yield 4 minutes to the gentlewoman from West Virginia (Mrs. Capito), the lead sponsor of this important legislation.

(Mrs. CAPITO asked and was given permission to revise and extend her remarks.)

Mrs. CAPITO. Mr. Chairman, I want to thank my colleague, the gentleman from Arkansas (Mr. Ross), for sponsoring the Regulatory Relief Act of 2003 with me. He has been very instrumental in bringing this much-needed legislation to the floor. I also want to thank the gentleman from Alabama (Mr. Bachus) and the ranking member, the gentleman from Massachusetts (Mr. Frank), and especially the gentleman from Ohio (Mr. Oxley) for shepherding this bill through the process, it has been a process, and their strong leadership on the committee.
With the passage of the Gramm-Leach-Bliley Act, the U.S. PATRIOT Act, and the Sarbanes-Oxley Act, Congress has imposed sweeping reforms and multiple new mandates on the financial services industry. While I firmly believe that these new laws have strengthened this important sector of our economy, such sweeping reforms do not come without a cost, a cost that is ultimately paid for by every American who writes a check, saves for their retirement, or simply purchases groceries with a credit card.
The gentleman from Arkansas (Mr. Ross) and I introduced this bill to restore regulatory balance. While Federal regulations play an important role in protecting consumers, instilling confidence and ensuring a level playing field, overregulation can depress innovation, stifle competition, and actually retard our economy's ability to grow.
Periodically reviewing and questioning the regulations put into place over time will ensure that as industries and technologies change, so too will the rules that govern them.
This bipartisan legislation will roll back several outdated and burdensome mandates while also providing new commonsense provisions that together will benefit the financial services industry and their consumers. To promote efficiency our bill allows the FDIC the flexibility to rely on new technology to store records electronically, streamlines the merger application process, and gives examining agencies the discretion to adjust the exam cycle so their resources can be used most efficiently, among very many other revisions in the regulatory process.

We provided enhanced consumer protection by prohibiting a person from working at a bank who has been convicted of a breach of trust and by allowing interagency data sharing to ensure that a lack of information does not result in malfeasance.
H.R. 1375 strikes a balance that will help the financial services community thrive, compete, and offer the best services to their customers. Again, I want to thank the ranking member and our chairman and the gentleman from Alabama (Mr. Baucus) and the other Members for the bipartisan nature of which this bill has been brought to the floor.
I urge my colleagues' support.

Mr. FRANK of Massachusetts. Mr. Chairman, I yield 5 minutes to the gentlewoman from New York (Mrs. Maloney), a very able member of our subcommittee, the ranking member of the Subcommittee on International and Domestic Monetary Policy.

Mrs. MALONEY. Mr. Chairman, I thank the gentleman from Massachusetts (Mr. Frank) for yielding and for his leadership.
I rise in support of the financial services regulatory relief legislation. This bill is the subject of several years of work and I thank the sponsors, the gentlewoman from West Virginia (Mrs. Capito) and the gentleman from Arkansas (Mr. Ross) for their hard work.
I especially want to thank them for the inclusion of an amendment that I offered in committee with my colleague, the gentleman from Oklahoma (Mr. Lucas). This amendment prohibits nonchartering States from unilaterally imposing a discriminatory fee against State-chartered banks from other States. It also strengthens cooperative agreements among the States for supervision of multistate institutions by giving Federal recognition to the cooperative agreements and requiring chartering States to follow them. This language is very important for preserving the vitality of our dual banking system.
As for amendments that will be offered today, I want to thank my colleague, the gentleman from New York (Mr. Weiner) for his checking amendment. He is a great consumer advocate. I have some concerns about how the amendment will work in practice, and I look forward to working with him on this as the process goes forward.
I also want to indicate my strong support for the Kelly-Toomey amendment. This language tracks legislation that the gentlewoman from New York (Mrs. Kelly) and I passed on the floor of this Congress earlier this year in the Business Checking Freedom Act.
This language builds on the important modernization of financial services that Congress has worked on in recent years. It lifts the prohibition on the payment of interest on business checking accounts after a 2-year phase-in. During the phase-in, banks may increase sweeps to interest-paying accounts to 24 intervals per month.
The prohibition on interest on both consumer and business accounts was enacted during the Great Depression. At the time it was enacted to limit competitive pressures to pay higher interests that were feared could lead to bank failures. Today given the global nature of financial services, interstate banking and many advances in technology, interest payment limits only distort competition and force businesses to seek out alternative interest bearing opportunities.
The prohibition on paying interest on consumer checking accounts was repealed by Congress more than 20 years ago and has not increased any concern about safety and soundness. Today the House, once again, takes an important step forward in offering this same benefit to the business community.
Importantly, this language will disproportionately benefit small businesses. Small businesses must keep money in checking accounts to meet payrolls and pay expenses. They are less likely to have complex financial arrangements that will allow them to get around interest restrictions.
The legislation also allows the Federal Reserve to pay interest on sterile accounts. These are reserves private banks hold at the Federal Reserve which the Fed can manipulate as a tool of monetary policy. And this provision is endorsed by Federal Reserve Chairman Alan Greenspan.
I support the legislation. I urge my colleagues to support it.

Mr. OXLEY. Mr. Chairman, I yield 5 minutes to the gentleman from Iowa (Mr. Leach), the distinguished former chairman of the committee.

Mr. LEACH. Mr. Chairman, let me just say this bill has a number of very commonsense provisions, but in the name of a relatively large number of minor commonsense issues, there is more than a small measure of regulatory mischief.
This bill is about less regulation but it is also about more imbalance.

It empowers a hitherto largely unknown charter in America called Industrial Loan Companies to have all the powers of commercial banks and, added with one of the amendments that is likely to pass today, a power to not only branch in all 50 States, but to do checking in a business kind of way, something ILCs were not hitherto empowered to do.
We will be giving five States in America the right to offer a charter with less regulation than 45 States. We will be putting an inequity in law that relates to this charter versus all others; and then we are going to be putting in a very intriguing way inequity between the charters, that is, those that have existed for a while will have more rights than those industrial loan companies that will be empowered later.
I would only like to stress to my colleagues, because there is some misunderstanding here, that one of the theories of the grandfather is to block a particular institution from getting an industrial loan company charter with full powers, which by the way indicates that those full powers are very significant. That particular company is unpopular with some of its competitors in the financial services industry. It is unpopular with organized labor. So there is a grandfather provision against that company; but the intriguing aspect of it is, it is a very enfeebled grandfather provision.
It is enfeebled because it gives the States the power of interpretation. There is no tie-in to Federal statute; and so any new company can get a new ILC charter, can buy an existing ILC charter. Then there are rules about changing control, but States have different change-of-control statutes. Some change of control is 25 percent ownership; some over 80 percent ownership. So a company can buy an existing charter and take on all the powers of an ILC under the pre-grandfather provisions, even though there appear to be in this statute certain restrictions, for example, that relate to a percentage that is financial in nature of their current operating business. All this is being interpreted by State government which has a vested interest to give charters rather than to stop charters because it means more jobs for their States.
The history of the ILC is that they were small institutions until 1987 when Congress, without much forethought, exempted them from the Bank Holding Company Act; and so the largest ILC charter had been less than $400 million, now the largest is $60 billion, and there are eight above a billion in size. If we give ILCs all the powers contemplated in this bill, there will be a pell mell run to the ILC charter.
This will sweep assets from 45 States to five States. It will breach commerce and banking in ways that have never been breached in modern day, and it will create great pressure to move grandfather dates and change existing statute in other ways because of the obvious inequities that will almost immediately develop within the ILC charter itself.
So I would like to suggest to this body that this was something that could be handled very simply, credibly, and that is simply to put ILCs like most other financial institutions of any size under the Bank Holding Company Act; but because of insider power, that amendment was not even allowed to be considered on this floor, and I cannot tell my colleagues that it would have passed. I can tell my colleagues that Chairman Greenspan thinks it would be very important to the security of the United States and, in many different ways, not only due to the fact that American ILCs can operate without oversight of the holding company but foreign companies can have ILCs.
So the FDIC, which is a very credible regulator, can look at the bank; but let us say a foreign company in Latin America or in Russia gets Utah to give them a charter. They create jobs in Utah. They could operate the bank credibly, but they could also be money laundering from their host company abroad, and so this is an invitation as a charter to greater money laundering.
I frankly urge my colleagues to think twice; and, unfortunately, I am in a position of suggesting opposing the bill.

Mr. FRANK of Massachusetts. Mr. Chairman, I yield 5 minutes to the gentleman from Vermont (Mr. Sanders), a member of the committee, who is the ranking member of the subcommittee which has jurisdiction over this bill.

Mr. SANDERS. Mr. Chairman, I thank the gentleman from Massachusetts for yielding me the time.
Mr. Chairman, among other things, the Financial Services Regulatory Relief Act would make it easier for some of the biggest banks and other financial institutions in this country to merge. At a time in America where big institutions are becoming bigger and small institutions are being driven out of business, I think we have to ask whether this is a good idea. At a time in America when the people at top are making out like bandits, the middle class is shrinking and poverty is increasing. I think we have to ask whether it is proper for the United States Congress to give "regulatory relief" to huge multibillion dollar institutions. I think not.
Specifically, this bill would reduce the Federal review process for bank mergers from 30 days to a mere 5 days. This bill would allow the Officer of Comptroller Currency to waive notice requirements for national bank mergers located within the same State. This bill would end the prohibition of out-of-state banks merging with in-state banks that have been in existence for less than 5 years. This bill also gives Federal thrifts the ability to merge with one or more of their nonthrift affiliates; and, finally, this bill would eliminate certain reporting requirements for banks' CEOs in regard to inside-lending activities.
Mr. Chairman, I have serious concerns about the provisions in this bill; but equally important, I have major concerns about what this bill is not addressing, what it is not addressing, and what the American people and consumers all over this country are deeply concerned about.
For example, while the prime rate is at a historic low of 4 percent and the Federal Reserve has lowered the Federal funds rate 13 times to a mere 1 percent; credit card issuers are making record-breaking profits by ripping off consumers through outrageously high interest rates of 25 to 30 percent. How come in the midst of giving the ability of large banks to become larger, we forgot about demanding that interest rates go down so that people who already are hurting are not forced to pay usurious interest rates. I guess we just forgot about that.
Mr. Chairman, at a time when banks are making record-breaking $7.3 billion in late fees they collect from consumers, another major rip-off, there is nothing in this bill that would bring down these excessive fees. I guess we forgot about that issue as well.
Mr. Chairman, every Member of this Congress understands that throughout America we are hemorrhaging decent-paying jobs in manufacturing and in information technology; and one of the areas, one of the industries where we are hemorrhaging good-paying jobs is in the financial services industry. No mention, no mention in this bill of a concern that with these mergers comes the loss of decent-paying jobs. Maybe when we talk about financial services, we might want to talk about the ordinary people who do business in banks rather than just the needs of the CEOs who make huge compensation packages running these banks.
Mr. Chairman, while credit card issuers are ripping off middle class Americans by charging sky-high interest rates and outrageous fees, credit card CEOs are laughing all the way to the bank; and mark my words, this will be an issue that the American people will demand this Congress to address. We cannot ignore the fact that scam after scam is forcing hard-pressed American people to pay 20, 25 percent a year in interest rates on their credit card. That issue will come before the United States Congress.
In the midst of all of these rip-offs, if I may use that word, the compensation packages of the CEOs are going sky high. Over the past 5 years, the CEO of Citigroup made over $500 million in total compensation and the CEO of Capital One made over $169 million in total compensation. When we deregulate these industries, maybe we want to say a word on that issue as well.
Bottom line is that this legislation works on behalf of the largest financial institutions. It does not work on behalf of consumers, and I respectfully ask for a "no" vote on it.

Mr. OXLEY. Mr. Chairman, I am now pleased to yield 3 minutes to the outstanding gentleman from Ohio (Mr. LaTourette), a valued member of the committee.

(Mr. LaTOURETTE asked and was given permission to revise and extend his remarks.)

Mr. LaTOURETTE. Mr. Chairman, I want to talk about some of the smaller financial institutions in America. It has been about 6 years since the Congress passed the Credit Union Membership Access Act, a piece of legislation that forever changed the nature and the way the credit unions do business in this country, and I want to congratulate the gentleman from Ohio (Chairman Oxley) and the gentleman from Massachusetts (Ranking Member Frank) for including in this regulatory relief bill provisions that benefit credit unions once again.
Mr. Chairman, nearly 84 million Americans enjoy low-cost financial services at their credit unions. It is imperative that we allow credit unions to continue to change with the ever-expanding financial marketplace, just as we do with the banking and the thrift industry.
Credit unions do an excellent job of serving their members, a tradition we need to help protect and preserve. Sometimes the members of credit unions will be the men and women who are serving our country valiantly in the Armed Forces.
The bill being considered today would allow credit unions to build their own buildings on DOD facilities and to pay a nominal fee for rent, a practice which had been in effect but has recently been changed. Credit unions at DOD facilities provide our troops with the tools for money management so that while they are away defending our great Nation, their personal financial dealings back at home are not ignored. This may not always be profitable; but with credit unions, it is not a matter of profit. It is a matter of people. As member-owned not-for-profit entities, credit unions serve their members to the fullest capacity.
Another provision that I want to highlight would allow credit unions who convert to community charters to continue to serve their select employee groups who were added before their conversion. As we are all aware, with today's troubled economic times, there are times when a credit union that has been associated with a plant or an industry and it is closed down or the jobs are lost, the credit union is lost as well. The credit unions that serve the people whose jobs are gone and whose plants are closed, rather than also shutting down and leaving, are instead converting to community charters.
This accomplishes two things: One, it would allow the institution to stay open and bring in new members from the community; and, two, it allows those workers to continue their important relationship with their credit union.
Mr. Chairman, again I want to congratulate the gentleman from Massachusetts, ranking member Frank, and Chairman Oxley for crafting this bill, and I want to congratulate the trades that represent the credit unions in this town for making sure that H.R. 1375 has provisions with real teeth that benefit the credit union industry.

Mr. FRANK of Massachusetts. Mr. Chairman, I yield myself such time as I may consume.
Before yielding time to one of the coauthors of the bill, the gentleman from Arkansas, who has done a lot of work on this, I did want to respond to the gentleman from Vermont. Frankly, I was somewhat surprised to hear him raise some of those issues because he is, as I noted, the ranking member on the minority side of the subcommittee of jurisdiction; and I must say that had he raised some of them when we were considering this bill, he might not now feel they were being ignored.
One of them, of course, is not germane to this bill, the credit card question. That was debated and voted on in the committee last year, but some of the other issues he raised now, I just have to say that it is a little late to come to the floor, when the bill is already before us, and raise issues, particularly when you are the ranking member of the subcommittee and you have hearings and you have markup in subcommittee and you have markup in full committee.
In one case I would note he objected to the fact that this bill reduces the period during which the Federal Government can wait and study a merger for antitrust. Yes, I agree that that is a problem. We debated that one, in fact, in committee. It was the gentlewoman from California (Ms. Waters) who raised that; and I appreciate the fact that because she, having raised it, stuck with it, she has worked with the majority, and an amendment that will put that back up to 15 days, instead of 5, I believe, is going to be accepted.
So I would like to inform the gentleman, he has left the floor, that there was, in fact, an agreement to address one of those issues that he raised.
He also raised the question of executive compensation, and I have been working with the very good staff that we have on our side of the committee to deal particularly with the aspect of executive compensation, top-level executive compensation, that is, the perverse incentive that stock options give to the top people.

So that one I assure him is going to be dealt with. But I do not think it makes sense to deal with it only for financial institutions. I think it should be dealt with across the board.
The committee is going to remain in business, and I have to say to my now absent colleague from Vermont that, as ranking member, he is fully positioned to raise these, and many of the other members would be glad to work with him, as we were able to work with the gentlewoman from California when she took a very serious look at this and accomplished something.
Mr. Chairman, I yield such time as he may consume to the gentleman from Arkansas (Mr. Ross), who is a cosponsor of this bill.

Mr. ROSS. Mr. Chairman, I am pleased to join my colleagues, the gentleman from Ohio (Mr. Oxley), the chairman, and the ranking member, the gentleman from Massachusetts (Mr. Frank), and the gentlewoman from West Virginia (Mrs. Capito) as a cosponsor of this legislation.
Mr. Chairman, I live in a small rural town, I am a small business owner, and I recognize the limited resources that exist for small businesses. H.R. 1375, the Financial Services Regulatory Relief Act will assist financial institutions in my congressional district, and all across America for that matter, by easing some of the regulatory demands they have, which will allow them to focus more on service to their customers.
The Committee on Financial Services held a hearing on this bill with representatives of each of the regulatory agencies responsible for oversight of these institutions. Each presented their perspectives on the legislation and the need for implementation. I appreciate the efforts of my colleagues and the committee staff who have worked together since the full committee markup to make further improvements to ensure the final bill reflects a true bipartisan product; and, indeed, it does. It is what I call a piece of commonsense legislation.
This legislation is well balanced for all financial institutions, both large and small; both rural and urban. I believe it is imperative that Congress continues to work to help strengthen our struggling economy by making sure that our financial institutions have the necessary tools they need to operate more effectively and more efficiently. They are an integral part of our community's economic development and need legislation like H.R. 1375 to alleviate some of the burdens that impede their services to the public.
Again, I thank my colleagues, Chairman Oxley, Ranking Member Frank, and the gentlewoman from West Virginia (Mrs. Capito) for all of their hard work on this, and I urge my colleagues to support this legislation, H.R. 1375.

Mr. OXLEY. Mr. Chairman, I yield myself such time as I may consume to also recognize the leadership of the gentleman from Arkansas for being the lead Democrat sponsor on this legislation. We appreciate his hard work on this endeavor.
Mr. Chairman, I yield 3 minutes to the gentleman from California (Mr. Royce), a valuable member of the committee.

Mr. ROYCE. Mr. Chairman, I thank the gentleman for yielding me this time, and I rise today to bring some more facts to the debate over industrial loan companies.
ILCs are well regulated, both at the State and Federal levels. They have played an important part in our country's financial system for over 100 years. I have a letter from the chairman, Donald Powell, of the Federal Deposit Insurance Corporation, and I will provide it for the RECORD, but I also thought I would just read some of the observations that Chairman Powell makes about ILCs.
Chairman Powell says that industrial loan companies and industrial banks have existed since the early 1900s, and overall it is the FDIC's view that ILC charters pose no greater safety and soundness risk than other charter types. As with any other insured institution, ILCs are subject to examinations and other supervisory activities. The FDIC's authority to pursue formal or informal enforcement actions against an ILC is the same as the FDIC authority with respect to any other State nonmember bank, with limited exceptions. In short, the FDIC does not believe that there are any compelling safety and soundness reasons to impose constraints on this charter type that are not imposed on other charter types.
Chairman Powell of the FDIC goes on to say that the FDIC and the State chartering authorities directly supervise insured ILCs, which must comply with the FDIC's rules and regulations, including those requirements for capital standards, safe and sound operations, and consumer compliance and community reinvestment. Further, as he says, the FDIC has the authority to examine any affiliate of an ILC, including its parent company, as may be necessary, to determine the relationship between the ILC and the affiliate, and to determine the effect of such relationship on the ILC.
I thought I would bring those facts to light. I know that some competitors of ILCs worry because they do not want more competition in the banking marketplace, but we all know that competition is good for consumers, it is good for businesses, and it is good for our economy as a whole. And since I have heard other companies make the argument that ILCs are not safe and sound, I wanted to respond by saying that ILCs are heavily regulated financial institutions, ILCs are regulated by the FDIC and by State banking regulators in every State in which they operate, and I think we should judge ILCs on the facts.
To that end, Mr. Chairman, I submit the letter of Chairman Donald Powell for the RECORD herewith:

FEDERAL DEPOSIT INSURANCE CORPORATION,
Washington, DC, April 30, 2003.
Hon. EDWARD R. ROYCE,
House of Representatives,
Washington, DC.

DEAR CONGRESSMAN ROYCE: Thank you for your recent letter concerning industrial loan companies. We are closely monitoring the recent attention that industrial loan companies are receiving and appreciate your questions.
Industrial loan companies and industrial banks (collectively, ILCs) have existed since the early 1900s. States with existing insured ILCs include California, Colorado, Indiana, Minnesota, Nevada, and Utah. There are 51 insured ILCs, with the vast majority
[Time: 12:00] operated from Utah (24) and California (17). The charters are unique in that, as long as they meet certain criteria (typically, not accepting demand deposits), they are not considered "banks" under the Bank Holding Company Act. As a result, an ILC's parent company is not subject to supervision by the Federal Reserve. Just as is true of unitary thrift holding companies and parent companies of limited-purpose credit card banks, the parent companies of ILCs include a diverse group of financial and commercial firms.
Overall, it is the FDIC's view that ILC charters pose no greater safety and soundness risk than other charter types. As with any other insured institution, ILCs are subject to examinations and other supervisory activities. The FDIC's authority to pursue formal or informal enforcement actions against an ILC is the same as the FDIC's authority with respect to any other state nonmember bank, with limited exceptions. Those exceptions pertain to cross-guaranty authority and golden parachute payments, and legislative changes to eliminate those exceptions are being pursued in H.R. 1375, the proposed Financial Services Regulatory Relief Act of 2003. In short, the FDIC does not believe there are compelling safety and soundness reasons to impose constraints on this charter type that are not imposed on other charter types.
The risk posed by any insured depository institution depends on the appropriateness of the business plan and model, management's competency in administering the institution's affairs, and the quality and implementation of risk management programs. Similar to institutions with other charter types, an ILC's capital adequacy and overall safety and soundness is driven by the composition and stability of its lending, investing and funding activities and the competence of management.
The FDIC and the state chartering authorities directly supervise insured ILCs, which must comply with the FDIC's Rules and Regulations, including, but not limited to, those requirements for capital standards, safe and sound operations, and consumer compliance and community reinvestment. ILCs also are subject to Sections 23A and 23B of the Federal Reserve Act, which restrict or limit transactions with a bank's affiliates and the Federal Reserve Board's Regulation O, which governs credit to insiders and their related interests. Further, the FDIC has the authority to examine any affiliate of an ILC, including its parent company, as may be necessary to determine the relationship between the ILC and the affiliate and to determine the effect of such relationship on the ILC.
Answers to your specific questions are enclosed. If you would like additional information, please do not hesitate to contact me or Alice Goodman, Director of our Office of Legislative Affairs, at (202) 898-8730.
Sincerely,
Donald E. Powell,
Chairman.
Enclosure.
Response of the Federal Deposit Insurance Corporation's Division of Supervision and Consumer Protection to Questions Concerning Industrial Loan Companies

In what banking activities are these institutions engaged? Do they have the authority to provide services that may not be offered by full-service commercial banks?
Generally, the authority of industrial loan companies and industrial banks (collectively, ILCs) to engage in activities is determined by the laws of the chartering state. The authority granted to an ILC may vary from one state to another and may be different from the authority granted to commercial banks. Except for offering demand deposits, an ILC generally may engage in all types of consumer and commercial lending activities and all other banking activities permissible for banks in general.
Core ILC functions are traditional financial activities that can generally be engaged in by institutions of all charter types. The exception would be institutions organized and chartered as limited-purpose institutions, which generally focus on credit card or trust activities.
Existing ILCs can generally be grouped according to one of four broadly defined business models:
Institutions that are operated as community-focused institutions, including stand-alone institutions and those serving a community niche within a larger organization. These institutions often provide credit to consumers and small- to medium-sized businesses. In addition to retail deposits (many ILCs offer NOW accounts), funding sources may include commercial and wholesale deposits, as well as borrowings. Institutions that operate within a larger corporate organization may also obtain funding through the parent organization.
Independent institutions that focus on specialty lending programs, including leasing, factoring, and real estate activities. Funding sources for this relatively small number of institutions may include retail and commercial deposits, wholesale deposits, and borrowings.
Institutions that are embedded in organizations whose activities are predominantly financial in nature, or within the financial services units of larger corporate organizations. These institutions may serve a particular lending, funding, or processing function within the organization. Lending strategies can carry greatly, but, within a specific institutions, are often focused on a limited range of products, such as credit cards, real estate mortgages, or commercial loans. Corporate strategies play a larger role in determing funding strategies in these cases, with some institutions periodically selling some or all outstanding loans to the parent organization. Parent assessments of funding options across all business units frequently determine the specific tactics at the ILC level. A few institutions restrict themselves to facilitating corporate access to the payment system or supporting cash management functions, such as administering escrowed funds.
Institutions that directly support the parent organizations' distinctly commercial activities. These institutions largely finance retail purchases of parent company products, ranging from general merchandise to automobiles, truck stop activities, fuel for rental car operations, and heating and air conditioning installations. Loan products might include credit cards, lines of credit, and term loans. Funding is generally limited to wholesale or money center operations, borrowings, or other options from within the parent organization.
From a federal law perspective, one of the primary differences between an ILC charter and other depository institution charters is that certain ILCs have a grandfathered exemption from the requirements and restrictions of the Bank Holding Company Act (BHCA). Generally, an LIC can maintain its exemption so long as it meets at least one of the following conditions: (1) the institution does not accept demand deposits, (2) the institution's total assets are less than $100,000,000, or (3) control of the institution has not been acquired by any company after August 10, 1987.
How does the FDIC go about regulating ILCs? What authority does the FDIC have to examine ILC parent companies? Does the FDIC feel it has the tools necessary to adequately and comprehensively regulate ILCs and their relationship to their owners?
The FDIC regulates ILCs in the same manner as other state nonmember institutions. ILCs are subject to the FDIC's safety and soundness regulations (with two exceptions discussed below), as well as federal consumer protection regulations. Like all insured depository institutions, ILCs receive regular examinations, during which compliance with the regulations is reviewed and overall performance and condition are analyzed. For FDIC-insured, state-chartered institutions that are not members of the Federal Reserve System, the FDIC and/or the state authority will conduct the examination. The FDIC has agreements with most states to conduct examinations under alternating schedules, although in the case of a troubled institution, the FDIC and the estate authority generally conduct joint or concurrent examinations.
Transactions with affiliates are reviewed during each examination. An ILC's transactions with its affiliates are restricted by Sections 23A and 23B of the Federal Reserve Act, which are made applicable to state nonmember banks in general by section 18(j) of the FDI Act, 12 U.S.C. §1828(j). Section 23A essentially limits the total amount of loans to affiliates and limits other transactions between a bank and its affiliates. These restrictions also apply to loans to third parties to pay debts to or purchase goods and services from an affiliate. Section 23B generally prohibits any transaction with an affiliate on terms or conditions less favorable to the bank than a transaction with an unrelated third party.


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