[House Report 107-516]
[From the U.S. Government Publishing Office]
107th Congress Rept. 107-516
HOUSE OF REPRESENTATIVES
2d Session Part 2
======================================================================
FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2002
_______
July 22, 2002.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 3951]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 3951) to provide regulatory relief and improve
productivity for insured depository institutions, and for other
purposes, having considered the same, reports favorably thereon
with amendments and recommends that the bill as amended do
pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Background and Need for the Legislation
A. Background.................................................. 2
B. Amendments.................................................. 3
Hearings......................................................... 4
Committee Consideration.......................................... 4
Vote of the Committee............................................ 4
Committee Oversight Findings..................................... 4
Performance Goals and Objectives................................. 4
New Budget Authority and Tax Expenditures........................ 5
Congressional Budget Office Cost Estimate........................ 5
Constitutional Authority Statement............................... 15
Section-by-Section Analysis and Discussion....................... 15
Changes in Existing Law Made by the Bill, as Reported............ 17
Markup Transcript................................................ 18
Additional Views................................................. 115
The amendments (made to the committee print document
containing the text of the amendment as reported by the
Committee on Financial Services) are as follows:
After section 311, insert the following (and make such
technical and conforming changes as may be appropriate):
SEC. 312. EXEMPTION FROM PREMERGER NOTIFICATION REQUIREMENT OF THE
CLAYTON ACT.
Section 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7))
is amended by inserting ``205(b)(3) of the Federal Credit Union
Act (12 U.S.C. 1785(b)(3),'' before ``or section 3''.
Strike section 607 (and make such technical and conforming
changes as may be appropriate).
Purpose and Summary
H.R. 3951, as reported by the Committee on the Judiciary,
is intended to alter or eliminate statutory banking provisions
in order to lessen the regulatory compliance burden on insured
depository institutions and improve their productivity, as well
as to make needed technical corrections to current statutes
without compromising existing protections against anti-
competitive behavior.
Background and Need for the Legislation
A. BACKGROUND
On June 18, 2002, the Committee on Financial Services
reported H.R. 3951, the ``Financial Services Regulatory Relief
Act of 2002'' (See H. Rept. 107-516). The bill was sequentially
referred to the Committee on the Judiciary for a period not
later than July 22, 2002. The sections within the jurisdiction
of the Committee on the Judiciary deal with the Federal courts,
claims against the United States, and for regulation of the
banking industry as it pertains to antitrust considerations.
H.R. 3951 provides the following regulatory improvements
for national banks: (1) removes the prohibition on national and
State banks expanding across State lines by opening branches;
(2) allows the use of subordinated debt instruments to meet
eligibility requirements for national banks to benefit from
subchapter S tax treatment; (3) eliminates duplicative and
costly reporting requirements on banks regarding lending to
bank officials; (4) changes the exemption from the prohibition
on management interlocks for banks in metropolitan statistical
areas from $20 million in assets to $100 million; and (5)
streamlines bank merger application regulatory requirements.
H.R. 3951 provides the following regulatory improvements
for savings associations: (1) gives savings associations parity
with banks with respect to broker-dealer and investment adviser
Securities and Exchange Commission (SEC) registration
requirements; (2) removes auto lending and small business
lending limits and expands business lending limit for Federal
thrifts; (3) allows Federal thrifts to merge with one or more
of their non-thrift subsidiaries or affiliates, the same as
national banks; (4) permits Federal thrifts to invest in
service companies without regard to geographic restrictions;
and (5) gives Federal thrifts the same authority as national
and State banks to make investments primarily designed to
promote community development.
H.R. 3951 provides the following regulatory improvements
for credit unions: (1) allows privately insured credit unions
to apply for membership to the Federal Home Loan Bank system;
(2) expands the investment authority of Federal credit unions;
(3) permits offering of check cashing and money transfer
services to eligible members; (4) increases the limit on
investment by Federal credit unions in credit union service
organizations from 1 percent to 3 percent of shares and
earnings; and (5) raises the general limit on the term of
Federal credit union loans from 12 to 15 years.
H.R. 3951 provides the following regulatory improvements
for Federal financial regulatory agencies: (1) provides
agencies the discretion to adjust the examination cycle for
insured depository institutions to use agency resources in the
most efficient manner; (2) allows the agencies to share
confidential supervisory information concerning an examined
institution; (3) modernizes agency record keeping requirements
to allow use of optically imaged or computer scanned images;
(4) clarifies that agencies may suspend or prohibit individuals
charged with certain crimes from participation in the affairs
of any depository institution and not only the institution with
which the individual is associated; and (5) allows bank
examiners to receive credit cards from examined depository
institutions if issued under the same terms and conditions as
generally offered to the public.
These improvements will allow financial institutions to
devote more resources to the business of lending to consumers
and less to compliance with outdated and unneeded regulations.
Reducing regulatory burden should lower credit costs for
consumers and boost the national economy.
B. AMENDMENTS
An amendment offered by Mr. Bachus, which creates a new
section 312 of H.R. 3951, amends the Clayton Act to exempt
credit unions from a premerger notification requirement, and
was adopted by voice vote.
Under provisions of the Hart-Scott-Rodino (HSR) Antitrust
Improvements Act of 1976 (15 U.S.C. 18a), certain acquired and
acquiring persons--including federally insured credit unions--
must file a notification and report form with the Federal Trade
Commission (FTC) to provide advance notification of mergers and
acquisitions when the value of the transaction exceeds $50
million. The information submitted is reviewed by the FTC to
determine if the proposed transaction may be anticompetitive
and to justify, if appropriate, taking enforcement action to
prevent the consummation of transactions that violate Section 7
of the Clayton Act. Only after observing the waiting period
under the HSR Act may the companies complete the proposed
transaction.
A tiered fee structure requires that companies pay a
$45,000 filing fee for transactions valued at less than $100
million, $125,000 for transactions valued at $100 million to
less than $500 million, and $280,000 for transactions valued at
$500 million or more. (Transactions valued at less than $50
million are exempt from the requirement of filing the pre-
merger notification forms).
Exempting federally insured credit unions from the pre-
merger notification requirements of the HSR Act would in no way
relieve credit unions from the prohibitions found in Section 1
of the Sherman Act which outlaws every contract, combination or
conspiracy, in restraint of trade or those found in Section 2
of the Sherman Act which make it unlawful for a company to
monopolize, or attempt to monopolize trade or commerce. Nor
would such an exemption shield credit unions from Section 7 of
the Clayton Act, which prohibits mergers and acquisitions in
which the effect may be to substantially lessen competition or
tend to create a monopoly.
In addition, if the attorney general of any State believed
that the merger of two credit unions resulted in injury to
persons residing in his/her State by virtue of alleged
violations of either the Sherman or the Clayton Act, nothing
would impede the ability of the attorney general to bring a
civil action in the name of the State on behalf of those
individuals living in that State. This action could be brought
in any U.S. District Court having jurisdiction over the
defendant.
An amendment offered by Ms. Jackson Lee to eliminate
section 607 of H.R. 3951 was adopted by voice vote. Section 607
would have amended the Bank Holding Company Act of 1956, 12
U.S.C. Sec. 1849(b), by eliminating an existing minimum 15 day
waiting period for bank and bank holding companies to merge
with or acquire another bank or bank holding company.
Currently, the Bank Holding Act provides a 30 day waiting
period, which may be reduced to 15 days upon a concurrence of
the Attorney General and the relevant banking agency.
Hearings
No hearings were held on H.R. 3951.
Committee Consideration
On Wednesday, July 17, 2002, the Committee met in open
session and ordered favorably reported the bill H.R. 3951, with
amendment, by voice vote, a quorum being present.
Vote of the Committee
There were no recorded votes taken on H.R. 3951.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee reports that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Performance Goals and Objectives
H.R. 3951 does not authorize funding. Therefore, clause
3(c) of rule XIII of the Rules of the House of Representatives
is inapplicable.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House rule XIII is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 3951, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 19, 2002.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3951, the
Financial Services Regulatory Relief Act of 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Kathleen
Gramp, who can be reached at 226-2860.
Sincerely,
Dan L. Crippen, Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 3951--Financial Services Regulatory Relief Act of 2002.
SUMMARY
H.R. 3951 would affect the operations of financial
institutions and the agencies that regulate them. Some
provisions would address specific sectors: national banks could
more easily operate as S corporations; thrift institutions
would be given some of the same investment, lending, and
ownership options available to banks; credit unions would have
new options for investments, lending, mergers, and leasing
Federal property; and certain privately insured credit unions
could become members of the Federal Home Loan Bank system. The
bill would modify regulatory procedures governing certain
financial transactions, such as de novo branches and interstate
mergers, and give agencies more flexibility in sharing data,
retaining records, and scheduling exams. It also would limit
the legal defenses that the United States could use against
certain claims for monetary damages. Finally, H.R. 3951 would
require insured depository institutions and credit unions to
notify a consumer if information that may be construed as being
adverse is being given to a credit reporting agency.
CBO estimates that enacting this bill would reduce Federal
revenues by $23 million over the next 5 years and by a total of
$72 million over the 2003-2012 period. In addition, we estimate
that direct spending would increase by $17 million over the
next 5 years and by a total of $22 million over the 2003-2012
period. Because H.R. 3951 would affect direct spending and
receipts, pay-as-you-go procedures would apply.
H.R. 3951 contains intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that
the cost of complying with those requirements would not exceed
the threshold for intergovernmental mandates established in
UMRA ($58 million in 2002, adjusted annually for inflation).
H.R. 3951 contains several private-sector mandates as
defined by UMRA. Those mandates would affect insured depository
institutions and credit unions, uninsured banks, nondepository
institutions that control depository institutions, certain
parties affiliated with those depository institutions, and
people charged with or convicted of crimes of dishonesty. At
the same time, the bill would relax some restrictions on the
operations of certain financial institutions. CBO estimates
that the aggregate direct cost of private-sector mandates in
the bill would exceed the annual threshold established in UMRA
($115 million in 2002, adjusted annually for inflation).
ESTIMATED COST TO THE FEDERAL GOVERNMENT
The estimated budgetary impact of H.R. 3951 is shown in the
following table. The costs of this legislation fall within
budget function 370 (commerce and housing credit).
BASIS OF ESTIMATE
Most of the budgetary impacts of this legislation would
result from three provisions: section 101, which would make it
easier for national banks to convert to S corporation status;
section 214, which would limit the Government's legal defenses
against certain claims for monetary damages, and section 302,
which would allow certain Federal credit unions to lease
Federal land at no charge. For this estimate, CBO assumes that
H.R. 3951 will be enacted in the fall of 2002.
HR. 3951 also would affect the workload at agencies that
regulate financial institutions, but we estimate that the net
change in agency spending would not be significant. Based on
information from each of the agencies, CBO estimates that the
change in administrative expenses--both costs and potential
savings--would average less than $500,000 a year over the next
several years. Expenditures of the Office of the Comptroller of
the Currency (OCC), the Office of Thrift Supervision (OTS), the
National Credit Union Administration (NCUA), and the Federal
Deposit Insurance Corporation (FDIC) are classified as direct
spending and would be covered by fees or insurance premiums
paid by the institutions they regulate. Any change in spending
by the Federal Reserve would affect net revenues, while
adjustments in the budget of the Securities and Exchange
Commission would be subject to appropriation.
Revenues
CBO estimates that enacting H.R. 3951 would reduce Federal
tax revenues collected from national and State-chartered banks
and would have an insignificant effect on civil and criminal
penalties collected for violations of the bill's provisions.
S Corporation Status. Under this bill, some national banks
would find it easier to convert from C corporation status to S
corporation status. section 101 would allow directors of
national banks to be issued subordinated debt to satisfy the
requirement that directors of a bank own qualifying shares in
the bank. This provision would effectively reduce the number of
shareholders of a bank by removing directors from shareholder
status, making it easier for banks to comply with the 75-
shareholder limit that defines eligibility for subchapter S
election.
Income earned by banks taxed as C corporations is subject
to the corporate income tax, and post-tax income distributed to
shareholders is taxed again at individual income tax rates.
Income earned by banks operating as S corporations is taxed
only at the personal income tax rates of the banks'
shareholders and is not subject to the corporate income tax.
The average effective tax rate on S-corporation income is lower
than the average effective tax rate on C-corporation income.
CBO estimates that enacting this provision would reduce
revenues by a total of $23 million over the 2003-2007 period
and by $72 million over the 2002-2012 period.
Based on information from the Federal Reserve Board, the
OCC, and private trade associations, CBO expects that most of
the banks that would be affected are small, although banks and
bank holding companies with assets over $500 million would also
be affected. In addition, States are likely to amend the rules
for State-chartered banks to match those for national banks.
CBO expects that most conversions to Subchapter S status would
occur between 2003 and 2006 and that national banks would
convert earlier than State-chartered banks.
Civil and Criminal Penalties. H.R. 3951 would make all
depository institutions--not just insured institutions--subject
to certain civil and criminal fines for violating rules
regarding breach of trust, dishonesty, and certain other
crimes. CBO estimates that any additional penalty collections
under those provisions would not be significant.
Direct Spending
CBO estimates that enacting H.R. 3951 would increase direct
spending by a total of about $15 million over the 2003-2012
period to pay for increased litigation costs and larger
payments for ``goodwill'' claims against the Government. The
bill also would reduce offsetting receipts from credit unions
that lease Federal facilities, and it could affect the cost of
deposit insurance.
Monetary Damages in Goodwill Cases. Section 214 would
preclude the use of certain legal defenses in claims for
damages against the United States arising out of the
implementation of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA). CBO estimates that
enacting this provision would increase the cost of litigating
and resolving such claims by a total of $15 million over the
next 5 years.
Background on Goodwill Cases. Under section 214, courts
could not dismiss a claim arising out of the implementation of
FIRREA on the basis of res judicata, collateral estoppel, or
similar defenses if the defense was based on a decision,
opinion, or order of judgment entered by any court prior to
July 1, 1996. On that date, the Supreme Court decided United
States v. Winstar Corp., 518 U.S. 839 (1996), holding that the
Government became liable for damages in breach of contract when
the accounting treatment of ``supervisory goodwill'' that it
had previously approved was prevented by enactment of FIRREA.
About 100 ``goodwill'' cases against the Government are still
pending before the courts, with claims totaling about $20
billion. CBO estimates that, under current law, such claims
will cost the Government about $2 billion over the 2003-2012
period. Judgments, settlements, and litigation expenses for
such claims are paid from the FSLIC Resolution Fund, and such
payments do not require appropriation action.
By eliminating some defenses currently available to the
United States in such cases, section 214 would increase the
likelihood that some claims would reach a hearing on the
merits, thereby allowing cases to proceed further in the
judicial process than may otherwise be likely. According to the
Department of Justice (DOJ) and the FDIC, this provision would
affect only a few of the goodwill cases; claims in the affected
cases could total about $200 million. (This provision also
could affect cases in which the FDIC is the plaintiff as the
receiver of a failed thrift, but any monetary awards to the
FDIC would be intragovernmental payments and would have no net
effect on the Federal budget.)
Estimated Cost of This Provision. CBO expects that enacting
section 214 would increase the cost of litigation and potential
settlements or judgments against the United States. Whether
those costs are large or small would depend on the role those
defenses would otherwise play in the outcome of each case. For
example, the cost could be significant if the loss of those
defenses resulted in a judgment for plaintiffs on the merits,
but could be negligible if the judgment were against the
plaintiffs.
For this estimate, CBO assumes that defenses of res
judicata and collateral estoppel would be just two of several
possible defenses and other factors affecting awards of
monetary damages and that barring them would therefore have a
small effect on the potential costs of such claims. We estimate
that enacting this provision would increase expected payments
for such claims by about $10 million--or 5 percent of the $200
million in claims that may be affected by this provision. Given
the pace of such litigation, we expect that those added costs
would occur in 2006 and 2007. In addition, CBO estimates that
DOJ's administrative costs would increase by an average of
about $1 million a year as a result of the added time and
workload associated with those cases. This estimate is based on
historical trends in the cost of litigating such claims.
Nongoodwill Cases. Because section 214 would not limit the
affected claims to goodwill cases, this provision also could
affect other types of claims for monetary damages arising out
of the implementation of FIRREA that meet the criteria in the
bill. This provision could encourage the filing of such claims
that were resolved prior to July 1, 1996; however, DOJ is
currently unaware of any such claims.
Offsetting Receipts From Federal Leases. Section 302 would
allow Federal agencies to lease land to Federal credit unions
without charge under certain conditions. Under existing law,
agencies may allocate space in Federal buildings without charge
if at least 95 percent of the credit union's members are or
were Federal employees. Some credit unions, primarily those
serving military bases, have leased Federal land to build a
facility. Prior to 1991, leases awarded by the Department of
Defense (DoD) were free of charge and for terms of up to 25
years; a statutory change enacted that year limited the term of
such leases to 5 years and required the lessee to pay a fair
market value for the property. According to DoD, about 35
credit unions have leased land since 1991 and are paying a
total of about $525,000 a year to lease Federal property. Those
proceeds are recorded as offsetting receipts, and any spending
of those payments is subject to appropriation.
CBO expects that enacting this provision would result in a
loss of offsetting receipts from all credit union leases. Those
lessees currently paying a fee would stop making those payments
after they renew their current leases, all of which should
expire within the next 5 years. In addition, credit unions that
have long-term, no-cost leases would be able to renew them
without becoming subject to the fees they otherwise would pay
under current law. CBO estimates that enacting this provision
would cost a total of about $2 million over the next 5 years
and would cost an average about $700,000 annually after 2007.
Deposit Insurance. Several provisions in the bill could
affect the cost of Federal deposit insurance. For example, the
bill would streamline the approval process for mergers,
branching, and affiliations, which could give eligible
institutions the opportunity to diversify and compete more
effectively with other financial businesses. In some cases,
such efficiencies could reduce the risk of insolvency. It is
also possible, however, that some of the new lending and
investment options could increase the risk of losses to the
deposit insurance funds.
CBO has no clear basis for predicting the direction or the
amount of any change in spending for insurance that could
result from the new investment, lending, and operational
arrangements authorized by this bill. The net budgetary impact
of such changes would be negligible over time, however, because
any increase or decrease in costs would be offset by
adjustments in income from insurance premiums from banks,
thrifts, or credit unions.
Spending Subject to Appropriation
Section 312 would exempt federally insured credit unions
from filing certain acquisition or merger notices with the
Federal Trade Commission (FTC). Under current law, the FTC
charges filing fees ranging from $45,000 to $280,000, depending
on the value of the transaction. The collection of such fees is
contingent on appropriation action. Based on information from
the FTC, CBO estimates that this exemption would have no
significant effect on the amounts collected from such fees.
PAY-AS-YOU-GO CONSIDERATIONS
The Balanced Budget and Emergency Deficit Control Act sets
up pay-as-you-go procedures for legislation affecting direct
spending or receipts. The net changes in outlays and
governmental receipts that are subject to pay-as-you-go
procedures are shown in the following table. For the purposes
of enforcing pay-as-you-go procedures, only the effects through
fiscal year 2006 are counted.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
H.R. 3951 would preempt certain State laws and place new
requirements on certain State agencies that regulate financial
institutions. Both the preemptions and the new requirements
would be mandates as defined in UMRA.
Section 209 would preempt certain State securities laws by
prohibiting States from requiring agents representing a Federal
savings association to register as brokers or dealers if they
sell deposit products (CDs) issued by the savings association.
Specifically, this provision would affect States that register
exclusive agents of certain insurance companies who offer or
sell CDs issued by the thrift they are affiliated with. Such a
preemption would impose costs (in the form of lost revenues) on
those States that currently require such registration.
Information from representatives of the securities industry and
securities regulators indicates that 16 States could be
affected by this provision, but that only a small number of
agents would fall under the preemption. CBO estimates that
losses to States as a result of this prohibition would total
less than $1 million a year.
Section 301 would authorize certain privately insured
credit unions to apply for membership in a Federal home loan
bank. Part of the application process would require the
relevant State regulators of credit unions to determine whether
an applicant is eligible for Federal deposit insurance. This
requirement would be a mandate, but because the regulators
already make that determination under State law, the additional
cost to comply with the requirement would be minimal.
Upon becoming a member of a Federal home loan bank, such a
credit union would be eligible for loans from that bank. To
preserve the value of these loans, section 301 would preempt
certain State contract laws that otherwise would allow
defaulting credit unions to avoid certain contractual
obligations. Because those credit unions are not currently
eligible for membership in a Federal home loan bank, and
accordingly, have no contracts for credit, this preemption,
while a mandate, would impose no costs on State, local, or
tribal governments.
Section 302 would require State regulators of credit unions
to provide certain information when requested by the NCUA.
Because this provision would not require States to prepare any
additional reports, merely to provide them to NCUA upon
request, CBO estimates the cost to States would be minimal.
Section 401 would expand an existing preemption of State
laws related to mergers between insured depository institutions
chartered in different States. Current law preempts State laws
that restrict mergers between insured banks with different home
States. This section would expand that preemption to cover
mergers between insured banks and other insured depository
institutions or trust companies with different home States.
This expansion of a preemption would be a mandate under UMRA
but would impose little or no cost on States.
Section 401 also would preempt State laws that regulate
certain fiduciary activities performed by insured banks and
other depository institutions. The bill would allow banks and
trusts of a State (the home State) to locate a branch in
another State (the host State) as long as the services provided
by the branch are not in contravention of home State or host
State law. Further, if the host State allows other types of
entities to offer the same services as the branch bank or trust
seeking to locate in the host State, home State approval of the
branch would not be in contravention of host State law. This
provision could preempt laws of the host State but would impose
no costs on them.
CBO estimates that the cost of those mandates taken
together would not exceed the threshold established in UMRA
($58 million in 2002, adjusted annually for inflation).
ESTIMATED IMPACT ON THE PRIVATE SECTOR
H.R. 3951 contains several private-sector mandates as
defined by UMRA. At the same time, the bill would relax some
restrictions on the operations of certain financial
institutions. CBO estimates that the aggregate direct costs of
mandates in the bill would well exceed the annual threshold
established in UMRA ($115 million in 2002, adjusted annually
for inflation). CBO does not have sufficient data to provide an
estimate of the total private-sector cost of complying with
mandates in the bill, but we estimate that start-up costs would
be at least $250 million and ongoing costs at least $600
million a year.
Mandates
The bill would impose mandates on insured depository
institutions and credit unions, uninsured banks, nondepository
institutions that control depository institutions, certain
parties affiliated with those depository institutions, and
people charged with or convicted of crimes of dishonesty.
Mandates in the bill include a new consumer notification
requirement, an expansion of the authority of the Federal
Deposit Insurance Corporation over insured depositories
controlled by a company that is not a depository institution
holding company, and expanded prohibitions on employment at
financial institutions of people convicted of certain crimes.
Consumer Notification Requirement. Section 409 would
require insured depository institutions and insured credit
unions to notify customers when information that is, or may be
construed as, adverse to the interests of the customer is
furnished to a consumer reporting agency.
To comply with this mandate, the affected institutions
would incur start-up and ongoing costs. Start-up costs would
include additional data processing, legal services, personnel
training, and the design of notification forms. Primary ongoing
costs would include the costs of producing and mailing notices
and any additional personnel needed to answer customers'
questions about the new notifications and to handle customer
disputes.
Start-up Costs. Institutions that report information to
consumer credit reporting agencies would have to keep track of
the information furnished to such agencies and report it to the
customer at the same time it is reported to the agency. The
costs of required data processing changes could include the
purchase and installation of software and equipment,
programming and testing, and charges by third-party processors.
Based on data from a Federal Reserve study of the cost of
implementing the Truth in Savings Act, CBO estimates that the
cost to set up data-processing systems could average about
$15,000 per institution. About 16,500 insured depository
institutions and credit unions furnish customer data to
consumer reporting agencies. Thus, CBO estimates that the cost
of data-processing systems would amount to at least $250
million. To the extent that the data processing changes
necessary to comply with this mandate would likely be more
complicated than what was necessary to comply with the Truth in
Savings Act, the compliance costs would be larger.
Institutions also would likely incur legal costs, training
costs, and the costs of designing and producing notification
forms. CBO does not have adequate information to estimate those
costs of complying with this mandate.
Ongoing Costs. According to industry sources, consumer
reporting agencies receive about 2 billion updates per month on
consumer accounts from all types of financial service firms.
About 200 million to 300 million of those notices are obviously
adverse reports, such as a report of late payments. Assuming
that about half of those adverse notices are furnished by
insured depository institutions, they would be responsible for
at least 100 million to
150 million notices per month. Many additional types of
reports, however, may be construed as an adverse report under
the bill. For example, opening a new credit card account may be
construed as adverse by a lender reviewing a credit report if
an individual already has several lines of credit.
The ongoing cost of compliance would depend on whether the
notices would have to be sent out separately to qualify as
notifying the customer ``at the same time'' as the information
is furnished to the consumer reporting agencies. Because the
notices would have to be personalized (as opposed to a blanket
policy disclosure that is the same for all customers), they
would have to be mailed at a first-class rate. Depending upon
the presorting done by the depository institution, first-class
postage could range from 28 cents to 37 cents a piece. In
addition to postage, mailing costs would include the cost of
paper, envelopes, printing, and labor. According to industry
sources, outside letter shops might charge between 50 cents and
$1 a piece to mail such notices, including postage. (If insured
depository institutions are allowed to include notices in
monthly statements that they already send, the incremental cost
of mailing could be much lower.) If separate notices are
required, and if 100 million notices would be mailed per month
at a cost of 50 cents each, the ongoing costs of producing and
mailing such notices would be $600 million per year. But CBO
expects the printing and mailing costs would probably be higher
than this amount. In addition to those costs, institutions
would incur ongoing expenses for any additional personnel who
would be needed to respond to customers' inquiries, correct
errors, and resolve disputes.
Because reporting to consumer credit reporting agencies is
voluntary, it is possible that insured depository institutions
might mitigate their cost of compliance by decreasing the
frequency with which they report customer data to such
agencies, or by reducing the information they report, or stop
such reporting altogether. However, depository institutions
would have to weigh the costs and benefits of reducing their
reporting to consumer credit reporting agencies. For example,
depository institutions themselves benefit from having more
comprehensive information about a potential borrower's credit
history when making decisions about extending credit to that
individual.
Expansion of the FDIC's Authorities. The Gramm-Leach-Bliley
Act allowed new forms of affiliations among depositories and
other financial services firms. Consequently, insured
depository institutions may now be controlled by a company
other than a depository institution holding company (DIHC).
H.R. 3951 would amend current law so that certain regulatory
authorities of the FDIC would apply to all commonly controlled
depository institutions, regardless of the form of their
holding company.
Under current law, if the FDIC suffers a loss from
liquidating or selling a failed depository institution, the
FDIC has the authority to obtain reimbursement from any insured
depository institutions within the same DIHC. Section 407 would
expand the scope of the FDIC's reimbursement power to include
all insured depository institutions controlled by the same
company, not just those controlled by the same DIHC. Section
408 would broaden the FDIC's authority to prohibit or limit any
company that controls an insured depository from making
``golden parachute'' payments or indemnification payments to
institution-affiliated parties of insured depositories.
(Institution-affiliated parties include directors, officers,
employees, and controlling shareholders.) CBO has no basis to
estimate the costs of these mandates.
Employment Practices. The bill would prevent people
convicted of certain crimes from participating in the affairs
of uninsured banks and would give bank regulatory agencies the
authority to bar individuals charged with certain crimes of
dishonesty from working at any depository institution. Section
604 would give the OCC and the Federal Reserve the authority to
penalize uninsured banks for unauthorized participation by
individuals convicted of certain crimes. Section 608 would
expand the suspension, removal, and prohibition authority of
Federal banking agencies and the National Credit Union
Administration Board with regard to individuals charged with
certain crimes. CBO has no basis to estimate the cost of these
mandates.
Other Private-Sector Effects
Several provisions of the bill would benefit financial
institutions by allowing for greater flexibility of operations
and relaxing certain restrictions. However, those provisions do
not qualify as direct savings under UMRA since those benefits
do not result directly from compliance with the mandates or
affect the same activities as the mandates and cannot be netted
against the mandate costs. Some of the provisions that would
benefit the private sector are listed below:
LSection 101 would make it easier for some
national banks to meet the requirements for S-
corporation status, and could lower the taxes paid by
those banks.
LTitle II would give Federal thrift
institutions some of the same powers available to
banks, such as parity with banks with respect to
investment adviser and broker-dealer registration
requirements, allowing investments in community
development and small businesses, ownership by trusts,
and mergers with nonthrift affiliates.
LTitle III would give Federal credit unions
new options for investments, lending, and mergers,
subject to certain terms and conditions. Section 302
would allow Federal agencies to lease land to Federal
credit unions without charge under certain conditions.
Section 312 would exempt insured credit unions from the
requirement to file a notification and report form with
the Federal Government in advance of a merger.
LTitle IV would ease restrictions on
interstate branching and mergers and eliminate
reporting requirements regarding insider lending
imposed on banks and banks' executive officers.
PREVIOUS ESTIMATES
On July 17, 2002, CBO transmitted a cost estimate for H.R.
3951 as ordered reported by the House Committee on Financial
Services on June 6, 2002. The version ordered reported by the
Committee on the Judiciary differs only with regard to the
timing of antitrust reviews and the filing of pre-merger
notifications by federally insured credit unions. CBO estimates
that those differences would have no significant effect on the
impact of the bill on the Federal budget or on the costs of the
intergovernmental or private-sector mandates imposed by the
bill.
ESTIMATE PREPARED BY:
Federal Costs: Kathleen Gramp (226-2860)
Federal Revenues: Pam Greene (226-2680)
Impact on State, Local, and Tribal Governments: Susan Sieg
Tompkins (225-3220)
Impact on the Private Sector: Judith Ruud (226-2940)
ESTIMATE APPROVED BY:
Robert A. Sunshine
Assistant Director for Budget Analysis
and
G. Thomas Woodward
Assistant Director for Tax Analysis
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority for this legislation in article 1,
section 8, clause 1 (relating to the general welfare of the
United States); article 1, section 8, clause 3 (relating to the
power to regulate interstate commerce); article 1, section 8,
clause 5 (relating to the power to coin money and regulate the
value thereof); and article I, section 8, clause 18 (relating
to making all laws necessary and proper for carrying into
execution powers vested by the Constitution in the government
of the United States).
Section-by-Section Analysis and Discussion
The following section by section analysis describes the
sections of H.R. 3951 as reported by the Committee on the
Judiciary.
TITLE I--NATIONAL BANKS
Provisions contained in title I were not referred to the
Committee on the Judiciary, see H. Rept. 107-516 for analysis.
TITLE II--SAVINGS ASSOCIATIONS PROVISIONS
Section 213. Clarifying citizenship of Federal savings
associations for Federal court jurisdiction. This section
amends the Home Owners' Loan Act, 12 U.S.C. Sec. 1464, by
establishing home State citizenship for Federal savings
associations in the State where the association's main office
is located. Federal diversity jurisdiction requires all of the
parties of a lawsuit be citizens of different States and there
be at least $75,000 in dispute. Currently Federal savings
associations do not satisfy the requirements of diversity
jurisdiction because they are chartered by the Federal
Government, typically operate in a number of States, and thus
have no State citizenship. This section will conform the legal
citizenship of Federal savings associations with that of
national banks, which have been deemed citizens of the State
where they are headquartered.
Section 214. Clarification of applicability of certain
procedural doctrines. This section amends Section 11A(d) of the
Federal Deposit Insurance Act, 12 U.S.C. Sec. 1821a(d), by
prohibiting the assertion of res judicata, collateral estoppel,
or any similar defense or rule of law for claims brought
against the United States or related agency based upon actions
of the Federal Savings and Loan Insurance Corporation prior to
its dissolution, or the Federal Home Loan Bank Board prior to
its dissolution, and arising from th Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA) or its
implementation where any monetary recovery would be paid from
the Federal Savings & Loan Insurance Corporation (FSLIC)
Resolution Fund. During the savings and loan crisis of the
1980's, Federal thrift regulators sought to avoid incurring
additional deposit insurance liabilities by encouraging healthy
thrifts to take over ailing thrifts through supervisory
mergers. In exchange, the Federal thrift regulators offered to
treat a failed thrift's negative net worth as supervisory
goodwill and include it in regulatory capital. In 1989,
Congress enacted FIRREA, which prohibited thrifts from counting
supervisory goodwill as regulatory capital. In 1996, in United
States v. Winstar, 518 U.S. 839 (1996), the Supreme Court held
that the government had entered into contracts with the
acquiring thrifts, and had breached those contracts when it
implemented FIRREA's prohibitions on including supervisory
goodwill in calculating regulatory capital. Section 214 seeks
to ensure that all institutions entitled to pursue claims
against the government under the Winstar decision be treated
equally and given an opportunity to have those claims heard on
their merits.
TITLE III--CREDIT UNION PROVISIONS
Section 312. Exemption from Premerger Notification
Requirement of the Clayton Act. This section amends the Clayton
Act to exempt credit unions form provisions of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (15 U.S.C. 18a) which
require certain acquired and acquiring persons--including
federally insured credit unions to file a notification and
report form with the Federal Trade Commission (FTC) to provide
advance notification of mergers and acquisitions when the value
of the transaction exceeds $50 million.
TITLE IV--DEPOSITORY INSTITUTION PROVISIONS
Section 402. Statute of Limitations gor Judicial Review of
Appointment of a Receiver for Depository Institutions. This
section amends the National Bank Receivership Act, 12 U.S.C.
Sec. 191, the Federal Deposit Insurance Act, 12 U.S.C.
Sec. 1821(c)(7), and the Federal Credit Union Act, 12 U.S.C.
Sec. 1787(a)(1), by establishing a uniform 30 day statute of
limitations for national banks, State chartered non-member
banks, and credit unions to challenge decisions by the Office
of the Comptroller of the Currency, Federal Deposit Insurance
Corporation, and the National Credit Union Administrator to
appoint a receiver. Current law generally provides that
challenges to a decision by the Federal Deposit Insurance
Corporation or the Office of Thrift Supervision to appoint a
receiver for an insured State bank or savings association must
be raised within 30 days of the appointment. See 12 U.S.C.
Sec. Sec. 1821(c)(7), 1464(d)(2)(B). However, there is no
statutory limitation on national banks' ability to challenge a
decision by the Office of the Comptroller of the Currency to
appoint a receiver of an insured or uninsured national bank. As
a result, the general 6 year statute of limitations currently
applies to national banks in these instances. This protracted
time period severely limits the Office of the Comptroller of
the Currency's authority to mange insolvent national banks that
are placed in receivership and the ability of the Federal
Deposit Insurance Corporation to wind up the affairs of an
insured national bank in a timely manner with legal certainty.
See James Madison, Ltd. v. Ludwig, 82 F.3d 1085 (1996).
TITLE V--BANKING AGENCY PROVISIONS
Provisions contained in title V were not referred to the
Committee on the Judiciary, see H. Rept. 107-516 for analysis.
TITLE VI--BANKING AGENCY PROVISIONS
Section 609. Streamlining Depository Institution Merger
Application Requirements. This section 609 amends paragraph 4
of section 18(c) of the Federal Deposit Insurance Act, 12
U.S.C. Sec. 1828(c), by establishing new competitive report
requirements for depository institution merger applications.
Currently, depository merger applications require competitive
factors reports from the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the
Federal Reserve, and the Office of Thrift Supervision, and the
United States Department of Justice (DOJ). This section
simplifies the competitive report requirement by requiring a
report from the responsible banking agency and the DOJ, and
requires that all report requests be filed with the FDIC to
provide notice as it relates to the provision of Federal
deposit insurance.
TITLE VII--CLERICAL AND TECHNICAL AMENDMENTS
Section 703. Other Technical Corrections. This section
amends 18 U.S.C. Sec. 1306 by making a technical correction to
a cross reference to section 5136A of the Revised Statutes of
the United States. 18 U.S.C. Sec. 1306 imposes criminal
penalties for national or State banks in violation of the
banking laws, which prohibit banks from participating in a
lottery. In 1999, when Gramm-Leach-Bliley, Pub. L. No. 106-102,
was enacted, the law that prohibits national banks from
participating in lotteries was re-designated from section 5136A
to section 5136B of the Revised Statutes of the United States;
however, no corresponding change was made to the cross
reference in title 18. This section correctly amends title 18
to conform with the change made in 1999 by correctly changing
the cross reference to section 5136B of the Revised Statutes of
the United States.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported by the Committee on Financial Services,
are shown in Report 107-516 part 1, filed on June 18, 2002.
The Committee on the Judiciary adopted amendments (shown at
the beginning of this report) to the bill as reported by the
Committee on Financial Services. Changes in provisions of
existing law that would result from those amendments and differ
from the changes that would result from the bill as reported by
the Committee on Financial Services are shown as follows (new
matter is printed in italics and existing law in which no
change is proposed is shown in roman):
SECTION 7A OF THE CLAYTON ACT
Sec. 7A. (a) * * *
* * * * * * *
(c) The following classes of transactions are exempt from
the requirements of this section--
(1) * * *
* * * * * * *
(7) transactions which require agency approval
under section 10(e) of the Home Owners' Loan Act,
section 18(c) of the Federal Deposit Insurance Act (12
U.S.C. 1828(c)), 205(b)(3) of the Federal Credit Union
Act (12 U.S.C. 1785(b)(3), or section 3 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1842), except
that a portion of a transaction is not exempt under
this paragraph if such portion of the transaction (A)
is subject to section 4(k) of the Bank Holding Company
Act of 1956; and (B) does not require agency approval
under section 3 of the Bank Holding Company Act of
1956;
* * * * * * *
Markup Transcript
BUSINESS MEETING
WEDNESDAY, JULY 17, 2002
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
Chairman Sensenbrenner. The Committee will be in order.
* * * * * * *
Pursuant to notice, I now call up the bill H.R. 3951, the
``Financial Services Regulatory Relief Act,'' for purposes of
markup and move its favorable recommendation to the House.
Without objection, the bill will be considered as read and
open for amendment at any point.
[The bill, H.R. 3951, follows:]
Chairman Sensenbrenner. The Chair now recognizes himself
for 5 minutes for purposes of a statement.
This bill was reported by the Committee on Financial
Services and was sequentially referred to the Judiciary
Committee for a period not later than July 22, which is next
Monday so we have to act on this bill today. Sections 213, 214,
402, 607, 609, and 703 are within the jurisdiction of this
Committee and will be open for amendment.
The last time Congress overhauled the regulation of
America's banking industry, the FIRREA law was enacted in 1989.
At that time we were recovering from an S&L crisis which
prompted Congress to develop comprehensive reform to restore
the integrity and reliability of the banking industry. While
FIRREA has generally been a large success, the bill addresses
many shortcomings in the law. It is estimated that the annual
cost of compliance with various State and Federal banking
regulations is nearly $26 billion. While the need for effective
banking regulation is absolutely necessary to ensure the
soundness of banking institutions, enforce compliance with
various consumer protection statutes, and combat money
laundering and other financial crimes, this bill eliminates
duplicative and unnecessary regulation. As a result, banking
regulation will be more focused, regulators will be better
prepared to conduct thorough and effective reviews, and banks
should be able to improve productivity for the American
consumer.
The bill was carefully reviewed by the Financial Services
Committee during 2 days of hearing and subsequent markup. It
has received wide bipartisan support and was adopted in that
Committee by a voice vote. It is common-sense legislation
because it eliminates bureaucratic red tape and costly
regulations that are not being utilized, and I would urge the
Members to support it.
At this point in time, I recognize the gentleman from
Michigan, Mr. Conyers, for an opening statement.
Mr. Conyers. Thank you, Mr. Chairman.
I agree with your opening statement, and I hope my
colleagues on this side of the aisle will as well. The only
thing that we would ask that you consider is the Waters
amendment, which would--could make this a much shorter hearing.
And I don't know if you----
Chairman Sensenbrenner. Without objection, all Members may
include opening statements in the record at this point.
Are there amendments? And the gentleman from Alabama has an
amendment.
Mr. Bachus. Thank you.
Chairman Sensenbrenner. For what purpose does the gentleman
from Alabama seek recognition?
Mr. Bachus. Mr. Chairman, I have an amendment at the table,
and I----
Chairman Sensenbrenner. The clerk will report the
amendment.
The Clerk. Amendment to Judiciary----
Mr. Conyers. Mr. Chairman, I reserve a point of order.
Chairman Sensenbrenner. A point of order is reserved.
The Clerk. Amendment to Judiciary Committee Print to H.R.
3951, offered by Mr. Bachus----
Mr. Bachus. Mr. Chairman, I'd ask that the amendment be
considered as read.
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. The gentleman from Alabama is
recognized for 5 minutes on the condition that the gentleman
from Michigan has reserved a point of order. The gentleman from
Alabama is recognized.
Mr. Bachus. Mr. Chairman, my amendment's very simple. It
amends current law to give credit unions the same exemption
from the pre-merger notification requirements of Hart-Scott-
Rodino that banks and thrifts already enjoy. As my colleagues
know, that act requires that certain businesses that are
planning to engage in merger transactions must file notice with
the FTC and pay a $45,000 filing fee. The act sets forth
specific exemptions for certain transactions that are already
subject to review and approval by Federal agencies other than
the FTIC, including mergers involving banks and thrifts that
are reviewed by the Federal Reserve, the Comptroller, the FDIC,
and OTS. As with these depository institutions, when credit
unions merge, the transaction is subject to review and approval
by the Federal regulator, the National Credit Union
Administration, which, like the FTIC, is an independent Federal
agency.
I have heard no one offer any justification for why credit
unions should be treated any differently from mergers involving
banks and thrifts. My amendment simply ensures parity of
treatment among the various kinds of financial institutions.
This amendment has the strong support of the NCUA board. Its
chairman, appointed by the President, has written a letter
earlier this week endorsing the amendment. I'd like to move
that that be made a part of the record.
Chairman Sensenbrenner. Without objection.
[The letter follows:]
Mr. Bachus. I would also like to thank the Federal
Association of Federal Credit Unions and the Credit Union
National Association, NAFCU and CUNA, for their support for
this effort. I urge adoption of the amendment and reserve the
balance of my time.
Mr. Watt. Would the gentleman yield for a second?
Mr. Bachus. I would yield.
Mr. Watt. I wanted to inquire, apparently the amendment is
fairly non-controversial except that your amendment refers to
17--12 U.S.C. 1785(b), and I'm told that the specific section
that you want to amend would actually be 12 U.S.C. 1785(b),
subparagraph (3), as opposed to the entire section.
Mr. Bachus. That's correct.
Mr. Watt. I am wondering if the gentleman would entertain
a--would amend his amendment to insert the reference to
1785(b)(3) as opposed to just 1785(b)?
Chairman Sensenbrenner. Will the gentleman----
Mr. Bachus. I consider that a perfecting----
Chairman Sensenbrenner. Would the gentleman from Alabama
yield? When the staff is given permission to make technical and
conforming changes, should this bill be reported out, that
issue can be picked up and the correction made pursuant to
authority.
Mr. Watt. I think that this is a little bit more than a
technical amendment, Mr. Chairman. This has substance to it
because what the amendment currently does is waive all the
provisions of the Clayton Act as opposed to just the specific
pre-merger provision. So I don't think the staff can do this on
a technical clean-up, and so I would ask the gentleman if he
would include the reference specifically or at least let's make
it clear that we are talking about 1785(b)(3).
Mr. Bachus. We are. We're just talking about the pre-merger
notification requirement alone. So I believe that what you are
proposing is consistent with what I'm attempting to do. So I
would accept the----
Chairman Sensenbrenner. Without objection, the amendment is
so modified.
Mr. Conyers. Mr. Chairman?
Chairman Sensenbrenner. The question--does the gentleman
from Michigan insist upon his point of order?
Mr. Conyers. No, sir, I do not.
Chairman Sensenbrenner. The reservation is withdrawn. The
question is----
Mr. Conyers. No, wait a minute. I seek recognition.
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Conyers. Thank you.
We're back in this ``hurry up and let's get out of here''
stage today, aren't we, Mr. Bachus? In your other Committee, we
hold hearings on this bill, H.R. 3951. In the Judiciary
Committee, we hold no hearings. And then on top of it, you have
the concern to come forward with an amendment with no
discussion, no warning, that credit unions should be exempt
from the Hart-Scott-Rodino. Could you explain to me----
Mr. Bachus. Now----
Mr. Conyers. Could you explain to me why you didn't bring
it up in the bill that you originally introduced back in March
but this morning, without a single hearing, you find it very
timely to run it through? And I yield.
Mr. Bachus. No, I appreciate the gentleman raising that.
The provisions in the credit union title of 3951 are all
amendments to the Federal Credit Union Act and other banking
law. And my amendment amends the Clayton Act, as you said, but
it was not included in the measure that came out of the
Financial Services, a difference to this Committee's
jurisdictional prerogative, and not----
Mr. Conyers. Okay----
Mr. Bachus.--because the Financial Services Committee had
any concerns about the substance of the provision.
Mr. Conyers. All right.
Mr. Bachus. In fact, the Chairman has----
Mr. Conyers. Okay, fine. Excuse me, sir.
Mr. Bachus. So this----
Mr. Conyers. Now that you've explained why it didn't come
up in this Committee, could you please tell me why credit
unions should be exempt from Hart-Scott-Rodino?
Mr. Bachus. Yes. All we're exempting them from is the pre-
merger notification requirement that the act exempted banks and
thrifts from. So we're not exempting them from the whole act.
We're simply exempting them from the requirement that they pay
the $45,000 fee and get----
Mr. Conyers. Okay, sir. Let me put it this way: Are you
exempting them from the reporting--the credit unions from the
reporting requirements of Hart-Scott-Rodino?
Mr. Bachus. No, not other than----
Mr. Conyers. No.
Mr. Bachus. No.
Mr. Conyers. Well, then, I have a staff problem because
it's suggested from them that you are.
Mr. Bachus. From who?
Chairman Sensenbrenner. Will the gentleman from Michigan--
--
Mr. Conyers. My staff.
Chairman Sensenbrenner. Will the gentleman from Michigan
yield?
Mr. Conyers. The people that we pay to help us out.
Chairman Sensenbrenner. Will the gentleman from Michigan
yield?
Mr. Conyers. Of course.
Chairman Sensenbrenner. I think the best way to handle this
is while we're voting on the journal vote is to resolve this
problem. But the Chair notes the presence of a reporting
quorum, and I think it would be a good idea to get the four
bills that we have already debated reported out while we have a
reporting quorum present.
So the Chair asks unanimous consent----
Mr. Weiner. Mr. Chairman? Mr. Chairman, in light of the
fact that several of us had amendments to bills that have
already been considered and you want to report out now, I move
the Committee rise.
Chairman Sensenbrenner. That is not in order. The motion to
rise is not in order in a Committee session. The Chair asks----
Ms. Jackson Lee. Mr. Chairman?
Chairman Sensenbrenner. The previous question has been
ordered on the four bills that were called up----
Ms. Jackson Lee. Mr. Chairman, strike the last word.
Chairman Sensenbrenner.--when a working quorum--the
Committee is in recess----
Ms. Jackson Lee. I move to reconsider the previous bills.
Chairman Sensenbrenner. The Committee will be in recess
until after this vote. Members will return----
Ms. Jackson Lee. Thank you, Mr. Chairman.
Chairman Sensenbrenner.--promptly, and had the Members been
here promptly at 10 o'clock, they would have had a chance to
offer their amendments rather than attempting to backtrack.
[Recess.]
Chairman Sensenbrenner. The Committee will be in order. The
Chair notes the presence of a reporting quorum--working quorum,
I'm sorry, correction.
When the Committee recessed, pending was the Bachus
amendment to the bill H.R. 3951. Mr. Bachus was speaking at
that time. The gentleman from Alabama is recognized.
Mr. Bachus. Mr. Chairman, exempting federally insured
credit unions from the pre-merger notification requirements of
HSR Act would in no way relieve credit unions from prohibitions
found in section 1 of the Sherman Act, which outlaws every
contract combination or conspiracy in restraint of trade or
those found in section 2 of the Sherman Act. It would make it
unlawful for a company to monopolize or attempt to monopolize
trade or commerce. Nor would such exemption shield credit
unions from section 7 of the Clayton Act which prohibits
mergers and acquisitions in which the effect may be to
substantially lessen competition or tend to create a monopoly.
Credit union mergers involve institutions that hold only a
small fraction of the deposits held for consumers in the
Nation's financial system--it's actually less than 2 percent--
and are, therefore, far less likely than mergers of banks and
thrifts to raise the anti-competitive issues that Hart-Scott-
Rodino review is designed to address. It makes--and this is the
bottom line. It makes absolutely no sense to exempt banks and
thrifts from this requirement and not credit unions, and that's
what this--this is simply an amendment to offer equity to
credit unions.
I yield back the balance of my time and ask for adoption of
the amendment.
Mr. Watt. Would the gentleman yield?
Mr. Bachus. I yield.
Mr. Watt. I just wanted to revise the prior unanimous
consent request to reflect what I understand to be what we
should be technically doing, and so I would ask unanimous
consent that on line 4, after 205(b), we insert (3), and on
line 5, after 1785(b), we insert (3).
Chairman Sensenbrenner. Without objection, the modification
is agreed to.
Mr. Bachus. Thank you.
Chairman Sensenbrenner. The gentleman from Alabama.
Mr. Bachus. I yield back the balance of my time.
Chairman Sensenbrenner. The question--the gentleman from
North Carolina, Mr. Watt?
Mr. Watt. At the risk of prolonging this, I think Mr.
Conyers and his staff may have had some problems about it
because they thought this related to doing something
substantially more than it really does. This is just a pre--a
pre-exemption--pre-merger notification. It doesn't exempt
credit unions from the provisions of the Clayton Act. It
exempts them from just one minor pre-notice provision that
banks and other financial institutions are already exempt from.
If there were controversy, it really would have been
controversy about the banks and other financial institutions
being exempted, not the credit unions. Most of the credit
unions aren't large enough to really have substantial antitrust
implications, anyway. But I don't think there's a real problem
with this, so I would ask bipartisan support for it.
Chairman Sensenbrenner. The question is on agreeing to
the----
Ms. Jackson Lee. I have an amendment at the desk.
Chairman Sensenbrenner. There is an amendment pending. Is
this an amendment to the amendment?
Ms. Jackson Lee. No. I'm sorry. Thank you, Mr. Chairman.
Chairman Sensenbrenner. The question is on agreeing to the
amendment offered by the gentleman from Alabama, Mr. Bachus.
Those in favor will say aye? Opposed, no?
The ayes appear to have it. The ayes have it and the
amendment is agreed to.
For what purpose does the gentlewoman from Texas seek
recognition?
Ms. Jackson Lee. An amendment at the desk----
Chairman Sensenbrenner. The clerk will report the
amendment.
Ms. Jackson Lee. Ms. Waters and Ms. Jackson Lee.
The Clerk. Amendment to Committee--to the Judiciary
Committee Print of H.R. 3951, offered by Ms. Waters and Ms.
Jackson Lee.
Chairman Sensenbrenner. Without objection, the amendment is
considered as read.
[The amendment follows:]
Chairman Sensenbrenner. And the gentlewoman from Texas, Ms.
Jackson Lee, is recognized for 5 minutes.
Ms. Jackson Lee. Thank you very much, Mr. Chairman. I ask
that this amendment be studied by my colleagues. This bill is
not a balanced bill. It gives very little to consumers while it
takes away some of the few rights consumers have. Section 607,
for example, repeals the current 15-day period that merging
banks must well--must wait before completing their merger. The
reason behind the 15-day period is straightforward and very
important. It provides groups and individuals with an
opportunity to challenge a merger before it is improved--before
it's approved.
During the regular course of a bank merger process, both
the Federal financial supervisory agency and the Department of
Justice review the merger proposal for competitive concerns.
The Federal financial agency also reviews the proposal for
issues related to the Community Reinvestment Act and other fair
lending laws. The Department of Justice does not undertake this
second review.
Once the Federal banking agency approves a merger, the
Department of Justice has 30 days in which to challenge the
merger on antitrust grounds. The merging banks must wait at
least 15 days before completing their merger, regardless of
whether the DOJ decides to file a suit.
Under section 607, this minimum 35-day period would be
eliminated in cases when the DOJ indicates it will not file
suit challenging the merger, leaving the consumer without any
relief. Unfortunately, eliminating the 15-day period also takes
community groups, bank applicants, and other parties out of the
loop. Right now those groups and individuals are able to file
suit challenging the merger during the 15-day period whether or
not the DOJ decides to file the suit. Eliminating that waiting
period effectively removes any pre-consummation judicial review
for any party.
The 15-day waiting period provides the only tool community
groups have to ensure that a Federal financial supervisory
agency complies with this responsibility under the CRA.
Specifically, the CRA requires such agencies to consider a bank
merger applicant's record and meet the requirements and the
needs of its community. Repealing the 15-day period provides
regulatory relief to banks and other financial institutions at
the expense of their communities. I would appreciate our
colleagues joining us in support of our amendment, which does
nothing more than strike the provision that removes the 15-day
waiting period. Banks preparing to complete a proposed merger
will not be injured by waiting 15 days, but community groups
and individuals who are not given the opportunity to contest a
proposed merger certainly will be.
I would think my colleagues, in light of the climate that
we're in as it relates to corporate reform and knowing that
community groups are always at a disadvantage as it relates to
the CRA, notice the ability to organize and to present their
grievances should cause us to be convinced that leaving in the
15-day period is in line with the horrific acts of the past
that we've seen corporate--corporate involvement. We've seen
unclean hands come to the table, and I believe the 15-day
period is instructive, it is helpful, it balances this bill to
include relief for the consumer. And I would hope that we would
not want to pass this bill out of Judiciary where we are
supposed to protect the rights of consumers under the
Department of Justice by not having this provision in the
legislation.
With that, I will yield back my time.
Chairman Sensenbrenner. The gentleman from Alabama, Mr.
Bachus?
Mr. Bachus. Mr. Chairman, an identical amendment to this
one----
Chairman Sensenbrenner. The gentleman is recognized for 5
minutes.
Mr. Bachus. Thank you. An identical amendment to this one
was offered by Ms. Schakowsky at the Financial Services
Committee markup of this legislation, and it was defeated on a
rollcall vote. Section 607 amends the Bank Holding Company Act
by eliminating an existing minimum 15-day waiting period for
banks and bank holding companies to merge with or acquire
another bank or bank holding company. Currently, the Bank
Holding Act provides a 30-day waiting period which may be
reduced to 15 days upon a concurrence of the Attorney General
and the relevant banking agency. As a result, this section
provides the Attorney General and Federal banking agencies more
flexibility in processing acquisitions and mergers that do not
significantly adversely--have adverse effects on competition.
The Justice Department is supportive of the additional
flexibility provided by this section. The provision does not
preclude challenges to acquisitions and mergers based on CRA.
It only provides for expedited processing of acquisition or
merger requests that the DOJ and responsible bank agencies deem
not to pose a significant adverse effect on competition.
I disagree with the gentlelady on her interpretation of the
provision, of this provision. She says that the provision in
its current stage will wipe out a party's ability--a party that
think it's aggrieved to file suit to challenge a merger order
by the regulator. Actually, the provisions of the bill and the
way they stand will not wipe out anyone's ability to challenge
a decision of merger on CRA grounds.
The only preclusion will be to challenge the Justice
Department on antitrust grounds. In fact, section 1848 of the
Bank Holding Company Act gives the right for an aggrieved party
to obtain a review of such an order, a merger order, and
specifically will be maintained for CRA. So in that regard, Mr.
Chairman, the purpose of this language, in fact, was brought to
us by the Federal Reserve because it requires both notices as
well as the Department of Justice to sign off on the antitrust
issues.
I yield back the balance of my----
Mr. Conyers. Mr. Chairman?
Chairman Sensenbrenner. The gentleman from Michigan.
Mr. Conyers. What we're doing here is saying that community
organizations don't need 15 days to review a merger. Of course,
the Department of Justice doesn't have any problem. They've got
hundreds of lawyers, so 15 days one way or the other isn't
going to mean that much, Mr. Bachus. What it does affect,
though, are consumer organizations and people in minority
communities who want to get information of fair lending
practices, and people in rural areas, by the way, which you
have some familiarity with. They're all--they're all getting
wiped out. So, I mean, we are talking a couple of weeks.
Mr. Bachus. Mr. Conyers, out of respect for the gentlelady
from Texas and you----
Mr. Conyers. And the gentlelady from California.
Mr. Bachus.--I don't have any strong feelings about this
amendment and would ask--I'm not going to urge its adoption
because I have to defend the Financial Services Committee, but
if I--an affirmative vote certainly wouldn't--I don't think it
would have much effect.
Chairman Sensenbrenner. Does the gentleman from Michigan
yield back his time?
Mr. Conyers. Yes, sir.
Chairman Sensenbrenner. The question is on agreeing to the
amendment offered by the gentlewoman from Texas, Ms. Jackson
Lee. Those in favor----
Ms. Jackson Lee. California.
Chairman Sensenbrenner.--will say aye. Opposed, no?
The ayes appear to have it. The ayes have it and the
amendment is agreed to.
Are there further amendments to the bill? If not, the Chair
notes the presence of a reporting quorum. The question occurs
on reporting the bill favorably as amended. Those in favor will
say aye? Opposed, no?
The ayes appear to have it. The ayes have it and the bill
as amended is reported favorably. Without objection, the bill
will be reported favorably to the House in the form of a single
amendment in the nature of a substitute, incorporating the
amendment adopted here today. Without objection, the Chairman
is authorized to move to go to conference pursuant to House
rules. Without objection, the staff is directed to make any
technical and conforming changes, and all Members will be given
2 days, as provided by the House rules, in which to submit
additional dissenting, supplemental, or minority views.
Additional Views
We support the version of H.R. 3951 as reported out of the
Committee on the Judiciary, however, we wish to provide
additional views regarding section 607 of the bill as it was
reported out of the Financial Services Committee. This section
amends section 11(b) the Bank Holding Company Act of 1956, 12
U.S.C. Sec. 1849(b), and section 18(c)(6) of the Federal
Deposit Insurance Act, 12 U.S.C. Sec. 1828(c)(6), by
eliminating the minimum waiting period for banks and bank
holding companies to merge with or acquire other banks or bank
holding companies. Section 607 was struck from the bill in the
Committee on the Judiciary and we which to share our strong
support for the decision to eliminate this provision.
Community organizations raised strong concerns about
section 607 which repeals the pre-merger, mandatory 15-day
waiting period with the Attorney General's approval. During the
course of a bank merger process, both the Federal financial
supervisory agency and the Department of Justice review the
merger proposal for competitive concerns. After a Federal
banking agency approves a merger, DOJ has 30 days to decide
whether to challenge the merger approval on antitrust grounds.
At a minimum, the merging banks must wait 15 days before
completing their merger. Currently, banking law allows 3rd
parties (other than Federal banking agencies or DOJ) to file
suit during the post-approval waiting period. As proposed,
section 607 would eliminate the minimum 15-day waiting period
when DOJ indicates it will not file suit challenging the merger
approval order.
We believe that this provision is anti-Community
Reinvestment Act (``CRA'') and strips the organizations' right
to seek judicial review of Federal bank merger approval orders.
Without such review, community organizations will be deprived
of impartial means and mechanisms for ensuring that CRA
performance obligations are taken into account when considering
merger approvals. Community-based organizations use such suits
to obtain information about the merger and ensure that the
merger will not result in disproportionate branch closures in
low-income or minority communities. We believe they play an
important role in the public interest and would like to
reaffirm our desire that the mandatory 15-day waiting period
remain and that section 607, therefore, remain stricken from
the bill.
In addition, we must express concern about an amendment
that was suddenly raised and passed at the mark-up that
eliminates merger filing requirements for credit unions. Due to
the small size and limited offices of most credit unions, we
remain concerned about closures that could result without any
input from the communities affected.
John Conyers, Jr.
William D. Delahunt.
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