From Consumers Union Washington, D.C. Office

March 31, 1998

Consumers Shortchanged by HR 10-
Vote To Get Consumer Provisions Considered

Dear Representative:

We are writing to urge you to help move financial services modernization in the right direction toward the consumer and public interest by voting to defeat the amendment-limiting rule on HR 10. Unless the full House has the opportunity to consider essential consumer protections or a manager's amendment is responsive to these concerns, HR 10 cannot be perfected to meet consumers' needs. If the rule passes and the bill is considered, we urge you to vote for the Dingell-LaFalce and the Leach-Bereuter-Campbell amendments, which provide important consumer and taxpayer protections. However, even with these amendments, we ask you to oppose the bill because it misses the mark for consumers.

If the rule is not defeated or a manager's amendment fails to address consumer concerns, we urge you to:

• SUPPORT -- Restoration of Consumer Protections and Fee Disclosure -- Dingell-LaFalce Amendment: To address deceptive and misleading sales practices when banks sell insurance products, HR 10 includes a package of consumer protections and directs the federal bank regulators to develop regulations implementing the protections. While this package represents a first step toward addressing marketplace abuses, section 308(g)(2) paves the way for states to completely undo these safeguards with laws, regulations, orders or interpretations that are "contrary or inconsistent" to the protections provided. Rather than strengthening the package with needed sales practice rules, such as suitability requirements, section 308 contains a standard that is unprecedented and could render the intent of the provision meaningless.

  The amendment would fix the standard to conform with all other consumer banking laws by providing that state laws would continue to apply unless they are inconsistent with the federal protections, ensuring the applicability of consistent state law. The amendment also add sales practice rules, such as suitability requirements, to the package of safeguards; require improved disclosures of fees and commissions to enhance the ability of consumers to comparison shop; would improve the requirement that banks provide life-line accounts with an enforcement mechanism; direct the Treasury, federal bank regulators and SEC to develop and report on a program to ensure all financial holding companies and affiliates meet the needs of low-income communities; and restore SEC's enforcement authority. These are all good for consumers and we urge you to vote for the amendment.

• SUPPORT Elimination of Banking and Commerce Provisions Leach-Bereuter-Campbell Amendment: The longstanding barrier between our banking commerce is still needed to prevent our taxpayer-backed banking system from being exposed to the kinds of risks that our Asian neighbors are now reeling from. Paving the way for banks to merge with industrial firms presents a threat to the safety and soundness of our bank system; could lead to concentration of economic power; and could skew credit markets by giving banks an incentive to make credit decisions based on what is good for business rather than what is creditworthy. Many argue that the 5% basket allowed is small enough to avoid risks but the threat is just as great since many large firms may come under that limit and the commercial firm can grow within the financial services holding company. A small hi-tech firm today could be tomorrow's Microsoft.

  We urge you to vote for the Leach-Bereuter-Campbell amendment because it would eliminate the 5% basket. On the other hand, we urge you to oppose the Roukema amendment which would increase the basket to 15% and create more risks to taxpayers who then may be called upon to bail out the banks when the financially weak commercial firms drain the banks of their capital.

• OPPOSE Rollback of Community Reinvestment Requirements Bachus amendment: The Community Reinvestment Act helps communities and their residents across America by helping to ensure that all our neighbors have access to the credit they need to realize the dream of homeownership or small business entrepreneurship. Since its inception in 1978, the CRA has put $400 billion in communities for their affordable housing and small business needs. To update and ensure CRA was effective and efficient, new regulations went into effect last year that address the concerns of small banks. The amendment would reduce CRA requirements for these banks, which are 87% of the banks in the country, at a time when we should be letting the new regulations work and enhancing homeownership and business opportunities in our communities.

Even if these amendments are passed, however, the bill fails to protect consumers. The bill contains provisions that would restrict the traditional authority of states over businesses operating within their borders, including sweeping preemption language that allows federal regulators to preempt important state consumer laws. In particular, section 104 would give the green light to preempt state laws, regulations, orders or interpretations that "prevent or restrict" depository institutions from engaging in any activity authorized under the bill or "any other provision of federal law." Under this standard, federally chartered banks and their affiliates could be free to ignore state consumer laws, such as prohibitions on ATM surcharges or any other laws that protect against unfair practices. This puts a stranglehold on the ability of states to apply laws to national banks and has a chilling effect on state legislatures which already have declined to act because of the threat of preemption and legal action from federal regulators.

And, adding the credit union bill (HR 1151), which helps ensure people have an alternative to high-cost banks, to the package does not alleviate the problems of HR 10.

HR 10 misses the mark for consumers. Even if the amendments to help prevent deceptive and misleading practices and provide low-cost bank accounts for many, and the amendment to eliminate banking and commerce were approved, the bill would still be weighted toward special interests. We urge you to oppose it.

Sincerely,

Mary Griffin

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