Deposit insurance reform passes House; bankruptcy bill stalls

<p>WASHINGTON-Credit union lobbyists believe that there is some hope left for two key bills: bankruptcy reform (H.R. 333) and deposit insurance reform (H.R. 3717). Last week, after two hours of debate, the bankruptcy reform conference committee could not arrive at a compromise on the final sticking point: the clinic violence provision, or so-called Schumer amendment. The deposit insurance reform legislation got another boost, passing the House by a decisive 408 to 18 vote. Rougher waters are expected up ahead in the Senate. NAFCU Director of Legislative Affairs Brad Thaler said early last week, “This [meeting of the bankruptcy conferees], in some sense, may be a last big showdown on bankruptcy.” However, after the meeting, NAFCU sources said the outlook was much more promising. New York Senator Charles Schumer (D) has been duking it out with pro-life Congressman Henry Hyde (R-Ill.) over the clinic violence provision. However, the two are “committed to working it out,” NAFCU said. The clinic violence amendment, introduced by Schumer, is the lone remaining hurdle for H.R. 333. The provision would prevent those committing violent acts against clinics from discharging fines imposed on them resulting from their acts in bankruptcy court. Pro-lifers are working to tone down Schumer’s language. Congressman Jim Sensenbrenner (R-Wis.) spent most of a news conference Tuesday before the conference committee meeting arguing that the Schumer provision is unnecessary. “There is not a single reported instance where an abortion protestor filed bankruptcy and been able to discharge debts based on violent acts,” he said. He also said he is concerned the provision would ensnare nonviolent protestors and infringe on First Amendment rights. It would harm the rights of striking laborers, environmental groups, and animal-rights organizations, the conference committee chairman charged. Thaler postulated, “I don’t think they want to have this debate in the fall. I think they feel that if they have this debate now, in that sense, it’s not going to resonate that heavily in the elections.” He pointed out that members of Congress do not want to be debating this issue at election time this fall, indicating the self-imposed Memorial Day Recess deadline for debate already passing, because of the highly volatile issues of tightening bankruptcy filing requirements in a slow economy and the clinic violence provision, which is the lone remaining hurdle for the bill. “Most Republicans want a bankruptcy bill, but they also realized the reality is after the fall they may not be in charge of the House anymore,” he said. With the start of the 108th Congress in 2003, the bill has to start the legislative process all over again. He also predicted that if the Democrats win the House, they will not push the issue. “Now is kind of the deadline for them to do it or to drop it,” Thaler concluded. CUNA Vice President and Senior Legislative Counsel Gary Kohn spoke with both sides last week. “[Senator Schumer] indicated that he feels he’s making some movement and he questions whether the other side is, and then I spoke to the other side and they questioned whether Senator Schumer is making movement,” Kohn said. “But the bottom line is that Chairman Sensenbrenner, who is chair of the conference committee, does feel that they’re making some progress, which is why he’s hopeful and has scheduled this meeting.” “I think it would be premature to predict that if they don’t come out with a resolution on Wednesday that the bill is dead for the year,” Kohn said early last week. “There is still plenty of time left.” “I remember some of the same rhetoric about difficulties in resolving the homestead issue leading up to the last substantive meeting of the conference committee.What people say in public for effect and what actually is being negotiate are two different things,” CUNA Senior Vice President of Government Affairs John McKechnie echoed. “I just think that they’re so close and there’s so much interest in getting a positive resolution, I have to think that things are going to move, even if it’s below the surface.” The New York Credit Union League, in partnership with the New York Retail Federation placed advertisements-not attack ads, Kohn emphasized-suggesting Schumer could “make a difference” in getting the bill out of conference. NAFCU wrote bankruptcy conferees last Monday urging them to “swiftly pass” the bankruptcy reform legislation (H.R. 333/S. 420), which is “well balanced and go[es] a long way towards reforming the current bankruptcy system.” The letter signed by NAFCU President and CEO Fred Becker, explained that credit unions are member owned, non-profits that are forced to pass bankruptcy losses onto its members. “As the number of bankruptcy filings continues to rise, bankruptcy losses prove more devastating to credit unions than other financial institutions,” the letter read. While lawmakers have been debating bankruptcy reform for several years, filings have risen to record levels. According to data released by the Administrative Office of the U.S. Courts, bankruptcy filings broke the record for filings in a 12-month period, rising 15.1% in the 12-month period ending March 31, 2002. Filings jumped from the same period last year totaling 1,307,857 to 1,504,806 for this year. Bankruptcy filings for the first quarter of 2002 rose 3.3% from first quarter last year (366,841 to 379,012). First quarter 2002 was the highest first quarter ever and second highest for any three-month figure. The largest number of filings is under chapter 7, which means a fresh start for debtors. Bankruptcy filings have certainly increased because of poor economic conditions, but the effect is compounded because of bankruptcy lawyers using scare tactics in advertising regarding the bankruptcy legislation presently in Congress. The bill includes, among other items, means testing for chapter 7 filers, mandatory financial education prior to filing, and voluntary reaffirmations for credit unions, all of which the credit union community supports. Deposit insurance reform doesn’t seem to have the roadblocks bankruptcy reform has. Deposit insurance reform legislation, which credit unions groups have not been outright lobbying but paying close attention to, passed the House last Wednesday by a vote of 408-18. The bill was passed under suspension of the rules requiring a minimum two-thirds vote, which it obviously received. House Financial Services Committee Chairman Mike Oxley (R-Ohio) said in his opening statement on the House floor, “It is 21st century legislation for a 21st century banking industry. And while the purpose of deposit insurance remains the same, industry growth, bank expansion from new powers, and the integration of banking and securities activities require that the scope and coverage of deposit insurance evolve so as to reflect the realities of a modern financial services industry. Moreover, the presence of federal deposit insurance continues to be a key consideration for consumers in their decisions about where they do their banking and what level of deposit risk they are willing to assume.” An article by Dow Jones Newswires reported that only five million of the 90 million households with insured accounts hold more than $100,000 in deposits, regulators estimated. Half of those were able to obtain full coverage by keeping multiple accounts. Next stop for the bill is the Senate, but the atmosphere will not be so friendly there. Senate Banking Committee Ranking Member Phil Gramm (R-Texas), a former economics professor, has gone on the record against a deposit insurance coverage increase, a key part of the bill, and would even support a decrease in coverage. Of the federal banking regulators, only the Federal Deposit Insurance Corp. Chairman Donald Powell came out in support of the legislation. The rest opposed it. Fortunately for reform supporters, Gramm is retiring at the end of this session so they may have better luck next year if a new law is not put in place this year. Under the new legislation, deposit insurance would increase to $130,000 for most accounts; Individual Retirement Accounts would receive $260,000 of coverage and municipal deposits would be covered up to $2 million, down from the original $5 million proposed. Other provisions in the bill include merging the Bank and Savings Association Insurance Funds, creating a range for the equity ratio rather than the set 1.25% target, and other items. According to a new report by the Congressional Budget Office (CBO), H.R. 3717 would save American taxpayers $700 million between 2003 and 2012. The bill would also increase the costs of resolving failed financial institutions and the premiums paid by the insured institutions. CBO estimated that FDIC insured deposits would increase by $325 billion or 10%; only about $33 billion, or 1% would be from new deposits attracted to the banks; the remainder would come from current deposits not already covered. Similar numbers for NCUA were not included in the report. A statement from the House Financial Services Committee last week noted CUNA’s support for equality for credit unions in the bill. “We feel strongly that for reasons of competitive fairness, any increase for banks and thrifts in federal deposit insurance coverage must also apply to credit unions,” CUNA President and CEO Dan Mica was quoted as saying in the release. “CUNA is grateful that Rep. Bachus’s deposit insurance reform legislation treats credit unions equally on this important issue.” [email protected]</p>