Letter to Banking Committee Chairman Leach on HR 10

February 25, 1999
Press Release

February 25, 1999

Letter to Banking Committee Chairman Leach on HR 10

Page one to letter
Page two to letter

Establish Lifeline Banking 

H.R. 10 should require that banks offer lifeline bank accounts.  Consolidation promises to make financial services companies more efficient, which will allow them to save money while increasing output.  This, in turn, will allow those companies to offer better services at lower prices.  One of these services ought to be affordable, basic banking.  A bank account is the basic link to the financial mainstream and, to make one available to everyone, it ought to be provided at an affordable price. 

Specifically, the bank account should have these features: 1) an opening or minimum balance of no more than $25 when the average daily balance is no more than $1000 in any month; 2) ten free transactions, including third party checks and, both ATM and teller withdrawals; 3) non-interest bearing; 4) no requirement of account access via ATM only; 5) an appropriate regulatory agency shall establish minimal fees that will allow institutions to recover costs in providing such accounts.  In establishing fees, the agencies shall take into account the actual processing costs associated with the transactions, the limited number of transactions allowed, and the fact that the bank pays no interest on the account; 6) direct deposit of recurring government payments may be offered but not required; 7) accounts may be closed by the institution in the event of a pattern of fraudulent activity involving the account or consistent overdrafts; 8) no pre-requisites to the account may be established by the financial institution that discriminates against low-income persons, such as holding a credit card.  Nor can the financial institution mandate the account holder maintain other accounts or relationships with the institution. 

Ban ATM Fees 

H.R. 10 should require that banks stop ATM surcharge fees.  Consolidation promises to make financial services companies more efficient, which will allow them to save money while increasing output.  This, in turn, will allow those companies to offer better services at lower prices.  One of those services ought to be free ATMs.  ATMs provide depositors convenient access to their money and obstacles should not be out in there way. 

No Banking/Commerce 

H.R. 10 should prohibit affiliation between banks and non-financial commercial firms.  Affiliation between banks and commercial firms would allow all the money in the world to be linked with deposits and federal deposit insurance, thereby increasing the risk to depositors and taxpayers.  Moreover, it would give commercial firms leverage over their bank affiliates and their loan decisions, thereby allowing the corruption of the flow of capital.  To prevent that, this bill should not allow affiliation between commercial firms and banks at all. 

CRA Expansion 

 H.R. 10 should expand CRA to include all business that may affiliate with banks, thus preventing an asset drain from CRA coverage.  Thus, banks and their affiliates would each have their own CRA obligation and would have to do their business in every neighborhood in their service area.  The size of a bank's CRA obligation is determined by its assets size.  A larger bank has to make more loans in underserved areas than a smaller bank.  If a bank affiliates with a non-CRA covered entity, that entity will give the bank a place to shift assets out of the bank and out from under CRA coverage.  To maintain coverage over currently CRA obligated assets, CRA must extend to wherever assets can flow, i.e., all affiliates of a bank. 

Insurance Disclosure 

H.R. 10 should require financial services companies to disclose to whom they sell their insurance products, as defined by race, gender, income and census tract.  A financial services company will have a CRA obligation, i.e., they must serve every community within their service area.  In order to ensure that they satisfy this obligation, regulators and the public must be able to see their performance.  These provisions would enable such monitoring with regards to insurance products. 

CRA Enforcement Enhancement 

H.R. 10 should require all banks to apply for affiliation with a non-bank company and to have a "Satisfactory" or better CRA rating before they are permitted to affiliate with a non-bank company and to maintain a "Satisfactory" or better CRA rating or face fines and/or divestiture of it's non-bank affiliates.  The traditional CRA enforcement mechanism is to delay or deny bank expansion within its traditional business line if a bank fails to have a satisfactory community reinvestment history.  However, financial modernization will allow bank expansion into non-traditional business lines and these applications will avoid scrutiny.  Moreover, regulators do not treat the community reinvestment requirements today as they have been in years past.  Of the last forty applications before the Federal Reserve Board of Governors, forty have been approved and approved on time.  Consequently, the traditional CRA enforcement mechanism will probably be ineffective in future years.  Thus, enhancement of the CRA enforcement mechanism is much needed. 

Consumer Disclosure 

H.R. 10 should require that financial services companies prevent consumer confusion and coercion.  Selling non-bank products through banks may give those products the erroneous appearance of bank security.  To prevent that, this bill would require these companies to disclose which products it sells are not FDIC insured or guaranteed and are subject to risk of lost value.  Moreover, sales activities would have to be conducted in an area separate from where banks take deposits and make loans and financial services companies would have to set compensation structures that promote suitable sales.  Finally, it would create a process for consumers who lose money when financial services companies violate these rules to recover those losses. 


H.R. 10 should require that financial services companies prevent coercion.  Since banks have the power to approve loans, they will have leverage to pressure loan applicants to buy other products and services from the bank or its affiliates.  To prevent that, this bill would establish anti-coercion rules which require sales people to wait to make sales until after the loan is made in order to prevent banks from taking advantage of loan applicants.  Furthermore, it would also establish suitability rules to ensure that the products that consumers purchase meet their financial needs.  Finally, it would create a process for consumers who lose money when financial services companies violate these rules to recover those losses. 


H.R. 10 should update the Fair Credit Reporting Act (FCRA) to prohibit sharing of consumer information between affiliates of a financial services company.  Because of the vast array of products and distribution streams, financial services companies will have the opportunity to do business with individual customers in a variety of arenas.  This, in turn, will give them the opportunity to build impressive dossiers on those individuals, threatening their privacy.  This bill will protect that privacy. 

Specifically, it should close off loopholes in the FCRA that permit financial institutions to disclose important financial information without the customer's knowledge or consent and create data pools exempt from the protections of the FCRA.  It should change the opt-out feature of the law to an opt-in opportunity, which ensures consumers control over how and when personal financial information is shared.  Second, it should give consumers the power to determine their rights and what information the institutions hold on them.  Finally, it should obligate banks and other financial firms to protect the confidentiality of customer's financial and personal information and hold these institutions legally responsible when a bank or other financial firm violates the confidentiality standards because of a breakdown or failure to protect the data. 

State Preemption 

H.R. 10 should set federal consumer protections as a floor.  Generally, where in opposition, federal law trumps state law.  In this case, it may have the disastrous effect of weakening or destroying consumer protections. Instead, it should ensure, regardless of federal consumer protection, that the state consumer protections are still effective. 

No Insurance Re-domestication Giveaway 

H.R. 10 should protect policy holders in mutual to stock insurance conversions.  Currently, H.R. 10 allows mutual insurance companies to change jurisdictions, evade consumer protections and consumer compensation mandated in their home jurisdictions and reap financial windfalls for themselves, their executives and stock holders. 

 To protect consumers, this bill should instead require insurance companies to provide real, tangible compensation to policy holders in an M.C. conversion.  It should require insurance companies to provide policy holders a means to share in future profitability of the M.C. entities.  Moreover, it should tighten limits on executive compensation in stocks and options. Furthermore, it should forbid management from waiving dividends to the M.C.   Also, it should limit stock sales to outsiders.  It should require approval of a majority of all voting eligible policy holders for a conversion plan.  Furthermore, it should mandate that the conversion plan be approved only if it's in the best interest of policy holders.  This bill should also require SEC-type disclosure to policy holders of the risk posed by the proposed conversion.  It should also require insurers to set aside funds to ensure that policy holders have adequate means to communicate with each other before a vote on the conversion.  Finally, it should abolish the requirement that a bond be posted before a court challenge to a conversion. 

Repeal Bank Exemption from Broker/Dealer Rules 

H.R. 10 should repeal the exemption for banks from SEC broker/dealer rules.  Those rules are designed to set a standard of behavior for securities brokers and dealers in order to protect consumers.  That this business will be handled in a bank does not offer any additional protection to consumers.  Consequently, the SEC broker/dealer rules ought to apply regardless of who performs the service.