[Congressional Record Volume 140, Number 29 (Wednesday, March 16, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: March 16, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
COMMUNITY DEVELOPMENT BANKING AND FINANCIAL INSTITUTIONS ACT OF 1993
Amendment No. 1528
(Purpose: To authorize a study of the effects on small business
concerns in the forest products industry of designating the northern
spotted owl as a threatened species)
Mr. PACKWOOD. Mr. President, I send an amendment to the desk and ask
for its immediate consideration.
The PRESIDING OFFICER. Would the Senator seek consent to set aside
the pending amendment?
Mr. PACKWOOD. I ask unanimous consent to set aside the pending
amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
The clerk will report.
The legislative clerk read as follows:
The Senator from Oregon [Mr. Packwood] proposes an
amendment numbered 1528.
Mr. PACKWOOD. Mr. President, I ask unanimous consent that the reading
of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
At the appropriate place in the bill, insert the following
new section:
SEC. . STUDY OF EFFECT OF THE NORTHERN SPOTTED OWL ON SMALL
BUSINESS CONCERNS.
(a) Definitions.--For purposes of this section--
(1) the term ``Administrator'' means the Administrator of
the Small Business Administration; and
(2) the term ``small business concerns'' has the same
meaning as in section 3 of the Small Business Act.
(b) Findings.--The Congress finds that--
(1) a critical and worsening timber supply shortage exists
within the social and economic area that generally
corresponds to the range of the Northern spotted owl,
including Western Oregon, Western Washington, and Northern
California, as a consequence of various actions by the
Federal Government aimed at stabilizing and recovering the
Northern spotted owl as well as other species thought to be
associated with old-growth forests; and
(2) numerous small business concerns rely for their
livelihood on the adequate harvest of timber from Federal and
non-Federal lands within the range of the Northern spotted
owl and related species.
(c) Business Study.--The Administrator shall conduct a
study that analyzes--
(1) the nature and extent of economic losses to small
business concerns in the forest products industry that have
occurred subsequent to the designation of the Northern
spotted owl as a threatened species pursuant to section 4 of
the Endangered Species Act of 1973, or that are reasonably
likely to occur in the future as a result of present trends;
(2) the ability of small business concerns to recoup the
fair market value of equipment and other property employed in
the harvest and processing of timber prior to the listing of
the Northern spotted owl as a threatened species; and
(3) the ability of small business concerns in the affected
area to offer alternative products or services for which
there is a ready or likely suitable market.
(d) Report.--
(1) In general.--Not later than 6 months after the date of
enactment of this section, the Administrator shall submit a
report of the results of the study conducted under subsection
(c) to the President and to the relevant committees of the
Senate and the House of Representatives.
(2) Options.--The report shall include options for Congress
and the President for compensating small business concerns
for economic losses and for promoting business transition and
diversification.
(3) Consultation.--In preparing the report, the
Administrator shall consult with small business concerns in
the forest products industry, and shall solicit comments from
the public.
Mr. PACKWOOD. Mr. President, this is a simple amendment and it calls
for a study. It does not call for expenditure of any money other than
what the study may cost.
It is an amendment to require the Small Business Administration to
conduct a study of the effects of the northern spotted owl on small
business concerns.
Numerous small business concerns rely for their livelihood on the
adequate harvest of timber from Federal and private lands in the range
of the northern spotted owl. This amendment will require the Small
Business Administration to analyze the ability of small business
concerns to recoup the fair market value of equipment used in the
harvest and processing of timber prior to the listing of the northern
spotted owl.
The Small Business Administration will also analyze the ability of
small business concerns to offer alternative products or services for
which there is a ready or likely suitable market.
Not later than 6 months after the enactment of this amendment, the
Small Business Administration must submit a report of its findings.
Mr. President, the market for used sawmill and logging equipment has
become saturated since the spotted owl was listed as a threatened
species.
This equipment is selling for a fraction, a very small fraction of
its fair market value at the time the spotted owl was listed as a
threatened species.
The Clinton administration proposes an economic and community
assistance program that will provide modest assistance through the
Rural Development Administration and Economic Development
Administration. I support that.
But, Mr. President, I am afraid that barely scratches the surface.
That is why I am calling on my colleagues to support the amendment
which directs the Small Business Administration to fully analyze the
need for assistance and the adequacy of current and proposed Federal
programs.
It is my hunch that the Small Business Administration will find an
enormous gap between what is needed and what may become available for
the future.
Let me use a couple examples if I might, Mr. President.
Sawmills. You hardly think in terms of used equipment as a sawmill,
but a used sawmill will sell now for about 5 percent of its former
market value. There is no timber. A sawmill is of no use if there is no
timber. The best you can do is scrap it and hopefully use the equipment
that is in it at some other mill that may have access to timber
someplace else in the country.
Or you are an independent contracting log truck driver. You own your
own truck--and this is very common. You own usually one truck. You
repair it yourself; you work 8, 10, 12 hours a day hauling logs under
contract. The log truck is not good for anything else. You do not use
it to haul asphalt. You do not use it to deliver bread. You use it to
haul logs.
When the Federal Government, because of the Endangered Species Act
and the spotted owl, stops the harvest of logs, you, through no fault
of your own, have lost in essence all of the value of your truck.
So all I am asking with this amendment is that the Small Business
Administration do a study of these effects. I am not asking that money
be appropriated. I am not asking that the Federal Government buy the
trucks or buy the mills. I am simply asking that we have a study so
that we might know the effect in, and they are usually rural areas--
small town areas, might know the effect of these Federal actions on
these small businesses.
I thank the Chair. I hope that the amendment would be adopted.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. PACKWOOD. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. PACKWOOD. Mr. President, I ask unanimous consent that Senator
Gorton be added as a cosponsor of the pending amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
TITLE I, SUBTITLE B
Mr. D'AMATO. Our amendment includes language directing the Federal
Reserve Board to prohibit acts or practices in connection with mortgage
lending that it finds to be associated with abusive lending practices
or otherwise not in the interest of the borrower. I believe it would be
helpful if we took this time to elaborate on this provision and how we
intend it to be applied by the Federal Reserve.
Mr. RIEGLE. Certainly. I am extremely concerned about evidence that I
have received indicating that lenders are repeatedly refinancing home
equity loans, rolling the borrower from one loan into another. In the
process, the lender extracts points and fees on each new loan while
extending little in the way of new money.
I am including for the Record a case that I have received from the
National Consumer Law Center as an example. In this instance, an
elderly Massachusetts couple wound up refinancing their loan 8 times in
39 months. Each refinancing included a prepayment penalty of 6 months
interest as well as other fees. They finally repaid the loan through
yet another refinancing with a different lender. By the end of the
process, they had received a total of $48,630. For use of that amount,
they paid $85,410.
In the version of subtitle B of title I of S. 1275 reported by the
Banking Committee, we attempted to address this problem by preventing
lenders who refinanced loans covered by the legislation from charging
points or fees on any portion of the loan refinanced. The lender could
only charge points on new money originated.
This approach is problematic, however, as it eliminates the incentive
for a lender to refinance even when the terms of the new loan are
clearly more advantageous to the borrower. Even worse, it seemingly
encourages refinancings that enlarge the outstanding balance in order
to generate fee income.
Given these problems, we have removed this restriction from the
legislation and replaced it with a directive to the Federal Reserve
Board. The directive instructs the Board to prohibit ``acts or
practices with regard to refinancings of mortgages that the Board finds
to be associated with abusive lending practices.''
To illustrate such practices, I have included for the Record a flyer
that was sent to the elderly Massachusetts couple to whom I have
already referred. As I mentioned, this couple refinanced their loan
eight times in 39 months, incurring prepayment penalties and fees each
time. The flyer shows how the lender encouraged these transactions. In
bold type, the solicitation offers to the borrower a ``$5,000
guaranteed increase to your loan.'' What the borrower receives,
however, is not a $5,000 increase, but a new loan that generates $5,000
in new money. At the same time, the transaction generates prepayment
penalties on the old loan, as well as origination fees on the new loan.
The directive also instructs the Board to prohibit practices
associated with refinancing that are ``otherwise not in the interest of
the borrower.'' As you are aware, we gave considerable thought to
preventing the charging of points and fees on any refinancing that is
not in the interest of the borrower in this legislation. We abandoned
this language for fear that a vague standard in this area would lead to
endless litigation. I would expect, however, that the Board could
identify standards that could be applied. Clearly, there are
refinancings that are undoubtedly in the interest of the borrower. When
a 15-percent mortgage is replaced with a 10-percent mortgage of similar
term with no points and fees, the borrower is certainly better off.
At the same time, however, there are also refinancings that clearly
are not in the interest of the borrower. Lenders who convince borrowers
to pay substantial prepayment penalties and origination fees in order
to obtain new loans on substantially similar terms and without
significant new money originated are simply rolling the borrower to
generate fee income.
These sorts of practices must be stopped. We have attempted to draw
bright lines in this legislation in order to minimize any impact on the
rest of the mortgage market. In areas that did not lend themselves to
clear statutory tests, we instead have relied on the Board to address
abusive lending practices. There should be no mistake about our
intentions, however. These abusive lending practices are going on, and
we want them stopped. I expect that the Board will act as we have and
stop unscrupulous lenders from strip mining the equity out of
borrowers' homes.
Mr. D'AMATO. I have one other question. The bill provides for civil
penalties for failure to comply with any requirement under section 129
of truth in lending. Would a violation of a Federal Reserve Board
regulation promulgated under section 129 constitute a violation for
which civil liability may be found?
Mr. RIEGLE. Absolutely, it is well established that a violation of a
regulation promulgated under a statutory provision is a violation of a
requirement under that provision.
Mr. D'AMATO. I thank the chairman for his explanation. I agree with
his analysis.
Mr. RIEGLE. I ask unanimous consent that flyers and a case study of
the Massachusetts couple to which I previously referred be printed in
the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Case Study--Mr. and Mrs. H
Mr. H is 77 years old and Mrs. H is 70. They have lived in
their home in Mattapan, Massachusetts for 25 years. In
September 1986, the H's entered into the first in a series of
seven high interest rate mortgage loans with Financial
Enterprises Corporation. The H's were referred to FEC by a
loan broker because they sought to consolidate their car loan
and a credit card bill. At the time, they owned their
$140,000 home free and clear of liens.
The September 1986 mortgage was at an initial rate of 16.5%
and was purportedly for the amount of $20,650. Of the $20,650
proceeds of the loan, $800 was paid to Bernard Shuster as an
attorney fee and $700 was paid to the loan broker. Bernard
Shuster was president and chief operating officer of the
company. The loan note contained a penalty of six months
interest in the event of prepayment during the loan term.
Almost immediately after the loan was made and at all times
during the course of dealing between the H's and FEC, FEC
sent the H's monthly notices informing them they were
eligible for guaranteed new loans for additional small
amounts of cash. The notices did not inform the H's that the
new loans would require a prepayment of their prior loan with
a resulting prepayment penalty. Copies of some of the
advertisements are attached.
In response to the advertisements the H's went to FEC for
the following series of refinancings:
a. On December 31, 1986, the H's obtained additional cash
in the amount of $1,553.21. In addition, the principal paid
in the new loan included a prepayment penalty of six months
interest and an attorney fee of $500 paid to Bernard Shuster
for a total new obligation of $23,000 at 16.5% interest.
b. The H's went to FEC for refinancing on February 5, 1987
and obtained additional cash in the amount of $10,091.62. In
addition, the new loan included a prepayment penalty of six
months interest and an attorney fee of $250 payable to
Bernard Shuster for a total new obligation of $33,700 at
16.5% interest.
c. The H's went to FEC for refinancing on September 1, 1987
and obtained additional cash in the amount of $5,083.68. In
addition, the new loan included a prepayment penalty of six
months interest and an attorney fee of $500 payable to
Bernard Shuster for a total new obligation of $39,400 at
16.5% interest.
d. The H's went to FEC for refinancing on September 9, 1988
and obtained additional cash in the amount of $4,382.48. The
new loan included a prepayment penalty of six months interest
and an attorney fee of $500 payable to Bernard Shuster for a
total new obligation of $45,000. At the time of this
transaction, the initial interest rate for the loan increased
to 17% even though prevailing interest rates had decreased.
e. The H's went to FEC for refinancing on March 16, 1989
and obtained additional cash in the amount of $3,296.45. The
new loan included a prepayment penalty of six months interest
and an attorney fee of $500 payable to Bernard Shuster for a
total new obligation of $50,000. At the time of this
transaction, the initial interest rate for the loan increased
to 18.5% even though prevailing interest rates had
decreased.
f. The H's final loan with FEC for refinancing was made on
June 26, 1989. They obtained additional cash in the amount of
$5,072.53. The new loan included a prepayment penalty of six
months interest and an attorney fee of $850 payable to
Bernard Shuster and a $125 fee for document preparation for a
total new obligation of 57,800 at 18.5% interest.
Copies of the loan disclosures for each transaction are
attached. Between each refinancing the H's made all payments
due on the loans as scheduled. Nevertheless, due to
prepayment penalties invoked by FEC, at the time of each and
every refinancing, the principal claimed due on the prior
loan was actually greater than the principal loaned by FEC to
the H's in that prior loan. For example, even though the H's
made 12 payments on the September 1, 1987 loan before
refinancing on September 9, 1988, FEC claimed that the
balance owed on the prior loan had increased from an initial
balance of $39,400 to $40,117.52, presumably because of
prepayment penalties. FEC repaid itself that amount in the
refinancing of September 9, 1988.
By bifurcating the loan transaction into seven
transactions, FEC not only benefitted by invocation of hidden
prepayment penalties which consecutively ratcheted up the
principal of each loan, but also, FEC principal Bernard
Shuster collected $3,900 in attorney fees for work performed
which would not have been due in a single transaction.
Sometime after June 26, 1989, FEC gave the H's name to a
loan broker without their authorization. The broker called
the H's out of the blue and offered to arrange a loan for
them at a lower rate than their loan with FEC. In November,
1989, that loan broker arranged a mortgage loan for the H's
with a third party lender. FEC, after invoking additional
prepayment penalties, was paid at least $64,800 from the
proceeds of that loan.
Over a thirty-nine month period, FEC advanced the H's no
more than $48,629.97. Over that same period, FEC was repaid
at least $85,410.14. (By way of comparison that payback on a
39 month loan of that size would have an effective APR of
38%.) Each and every transaction between the H's and FEC was
fully secured by a mortgage taken by FEC on the H's
residence. The H's residence had a fair market value in
excess of $140,000. By June 26, 1989, FEC held seven open
mortgages. (Retention of open but paid mortgages has long
been used in the industry to scare off companies willing to
provide alternate financing at lower rates. See Bookhart v.
Mid-Penn Consumer Discount Co., 559 F. Supp. 208 (E.D. Pa
1983)). None of the abusive loan terms in the series of
transactions can be justified by market forces, because full
security based on the value of the H's residence meant that
FEC could obtain repayment by foreclosure if the H's couldn't
pay. (FEC, has in fact, commenced approximately 250
foreclosures in Massachusetts and has threatened many more.)
Although the series of transactions started out with
relatively modest payments of $310.54, the final transaction
involved payments of more than $1,000, an amount which
exceeded 60% of the H's fixed income. Although the H's made
payments for several years on the last in the series of
transactions, (because Mr. H returned to manual labor),
payments could not be made after Mr. H became too disabled to
work. The third party lender which paid off FEC is now
foreclosing.
____
[Flyer No. 1]
You Qualify for a $5,000 Guaranteed Increase in Your Loan
Dear Valued Customer: Now that the Fall is approaching, we
are pleased to offer you a guaranteed addition to your
present loan--to use in any way you see fit.
This is the ideal time to make those final improvements to
your home before the winter arrives. You may need to upgrade
your heating system, obtain a new roof, new siding,
insulation or replacement windows.
Or . . . perhaps you would like to purchase a car,
consolidate your outstanding debts or pay for the coming
year's tuition costs . . . We will increase your present loan
for any worthwhile reason.
This exceptional offer is valid only to you for 60 days
upon receipt of this letter. If you would like to take
advantage of this offer please call Steve Burns at our toll
free number 1-800-538-6900.
If you satisfy some basic conditions, we can have the money
in your hands in days.
Sincerely,
Steve Burns,
Financial Enterprises.
____
[Flyer No. 2]
You Qualify for a $7,500 Guaranteed Increase in Your Loan
Dear Valued Customer: Now that the Spring is approaching,
we are pleased to offer you a guaranteed addition to your
present loan--to use any way you see fit.
This is an excellent opportunity to get additional cash
that can make your life better . . . major home improvements,
remodeling, vacation or almost any personal or business
reason where extra cash can help. And best of all, you can
receive additional funds in three business days!!!
Or . . . perhaps you would like to purchase a car,
consolidate your outstanding debts or pay for the coming
year's tuition costs. We will increase your present loan for
any worthwhile reason.
This exceptional offer is valid only to you for 60 days
upon receipt of this letter. If you would like to take
advantage of this offer please call Steve Burns on our toll-
free number, 1-800-538-6900.
If you satisfy some basic conditions, we can have the money
in your hands in days.
Sincerely,
Steve Burns,
Financial Enterprises Corp.
Mr. WOFFORD. Mr. President, I support the Community Development
Banking and Financial Institutions Act. I believe it will spur lending
in underserved areas and I believe it will help the private sector to
create jobs.
The manager's amendment to S. 1275 includes an amendment, the Rural
Capital Formation Amendment, that I and Senator Leahy have proposed.
The purpose of this amendment is to make sure that the benefits of this
legislation are felt in our rural communities. It will specifically
give new and small rural community development banks more flexibility
in meeting the matching requirements.
I thank the committee chairman, the distinguished Senator from
Michigan, and the ranking member, the distinguished Senator from New
York for their assistance and cooperation.
Mr. RIEGLE. Mr. President, I thank the distinguished Senator from
Pennsylvania for his support and his attention to the capital needs of
our Nation's rural communities. I am pleased to have worked with
Senator Wofford and Senator Leahy in making this improvement to the
legislation.
Mr. PACKWOOD. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. DODD. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DODD. Mr. President, I ask unanimous consent that I may be able
to proceed as in morning business for 10 minutes.
The PRESIDING OFFICER. Is there objection?
Mr. PACKWOOD. Mr. President, I am not going to object. My amendment
is pending.
I ask unanimous consent to add Senator Hatfield as a cosponsor of my
amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. PACKWOOD. I have no objection to the Senator speaking.
The PRESIDING OFFICER. The Senator from Connecticut is recognized.
Mr. DODD. I thank the Chair.
(The remarks of Mr. Dodd pertaining to the introduction of S. 1939
are located in today's Record under ``Statements on Introduced Bills
and Joint Resolutions.'')
Mr. DODD. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. PACKWOOD. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. PACKWOOD. Mr. President, I withdraw the amendment that I have
previously offered.
The PRESIDING OFFICER. The amendment is withdrawn.
The amendment (No. 1528) was withdrawn.
Amendment No. 1529
(Purpose: To authorize a study of the effects on small business
concerns in the forest products industry of designating the northern
spotted owl as a threatened species)
Mr. PACKWOOD. Mr. President, I send to the desk another amendment
that may have the wrong number on it. I think it has the same number as
the other amendment.
The PRESIDING OFFICER. Without objection, the pending amendment will
be set aside.
The clerk will report.
The assistant legislative clerk read as follows:
The Senator from Oregon [Mr. Packwood] proposes an
amendment numbered 1529.
Mr. PACKWOOD. Mr. President, I ask unanimous consent that reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection it is so ordered.
The amendment is as follows:
At the appropriate place in the bill, insert the following
new section:
SEC. . STUDY OF EFFECT OF THE NORTHERN SPOTTED OWL ON SMALL
BUSINESS CONCERNS.
(a) Definitions.--For purposes of this section--
(1) the term ``Administrator'' means the Administrator of
the Small Business Administration; and
(2) the term ``small business concerns'' has the same
meaning as in section 3 of the Small Business Act.
(c) Business Study.--The Administrator, in consultation
with the Secretary of the Interior, shall conduct a study
that analyzes--
(1) the nature and extent of economic losses to small
business concerns in the forest products industry that have
occurred as a result of the designation of the Northern
spotted owl as a threatened species pursuant to section 4 of
the Endangered Species Act of 1973, or that are reasonably
likely to occur in the future;
(2) the ability of small business concerns to recoup the
fair market value of equipment and other property employed in
the harvest and processing of timber prior to the listing of
the Northern spotted owl as a threatened species; and
(3) the ability of small business concerns in the affected
area to offer alternative products or services for which
there is a ready or likely suitable market.
(d) Report.--
(1) In general.--Not later than 6 months after the date of
enactment of this section, the Administrator and the
Secretary of the Interior shall submit a report of the
results of the study conducted under subsection (c) to the
President and to the relevant committees of the Senate and
the House of Representatives.
(2) Options.--The report shall include options for Congress
and the President for compensating small business concerns
for economic losses and for promoting business transition and
diversification.
(3) Consultation.--In preparing the report, the
Administrator and the Secretary of the Interior shall consult
with small business concerns in the forest products industry,
and shall solicit comments from the public.
Mr. PACKWOOD. Mr. President, there is a slight change. I am indebted
to both Senator Baucus and Senator Chafee and their staffs for calling
this to my attention. We made a slight change in the bill. The findings
have been stricken out, and the findings, of course, are not critical
to the bill. Then we have added the words, after ``Administrator,''
referring to the Small Business Administrator, in various places, ``in
consultation with the Secretary of the Interior.''
And on page 2 of the bill, line 25, the wording has been changed from
``* * * forest products industry that have occurred subsequent to the
designation''--that has been changed to ``* * * forest products
industry that has occurred as a result of the designation.''
And those are the only changes in the bill, other than other
references to the Secretary of the Interior acting in conjunction with
the Small Business Administrator.
I am delighted Senator Baucus and Senator Chafee called this to my
attention.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. RIEGLE. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. RIEGLE. Mr. President, I ask unanimous consent that the pending
amendment be set aside.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 1523, As Modified
Mr. RIEGLE. Mr. President, I want to send an amendment to the desk
that will address an earlier amendment, amendment No. 1523, which was
previously agreed to.
I now want to send an amendment to the desk that will modify
amendment No. 1523.
I might just say, by way of explanation, this is to conform to the
changes that Senator Shelby and Senator Mack have sought and that we
have worked out on a bipartisan basis within the committee.
The PRESIDING OFFICER. Without objection, the amendment will be so
modified.
The modification is as follows:
On page 20 of the Riegle amendment, No. 1523, strike out
lines 11 and 12 and insert between lines 17 and 18 the
following:
(3) The appropriate Federal banking agency may require an
institution with total assets in excess of $9,000,000,000 to
comply with this section notwithstanding the exception
provided by this subsection, if it determines that such
exemption will create a significant risk to the affected
deposit insurance fund if applied to that institution.''.
On page 25 of the Riegle amendment, No. 1523, strike lines
8-14 and insert the following:
SEC. 337. INSIDER LENDING.
(a) Loans To Executive Officers By Member Banks.--Section
22(g)(2) of the Federal Reserve Act (12 U.S.C. 375a(g)(2)) is
amended by striking ``With the specific prior approval of its
board of directors, a member'' and inserting ``A member''.
(b) Extensions of Credit To Executive Officers, Directors,
and Principal Shareholders of Member Banks.--Section 22(h)(8)
of the Federal Reserve Act (12 U.S.C. 375b(h)(8)) is
amended--
(1) by striking ``Member Bank.--For'' and inserting the
following: ``Member Bank.--
``(A) In general.--Except as provided in subparagraph (B),
for''; and
(2) by adding at the end the following:
``(B) Exception.--The Board shall have the authority by
regulation to suspend the applicability of any or all of this
subsection, except for the provisions of paragraph (2), with
respect to any individual who is a director or an executive
officer of a subsidiary of the company that controls the
member bank, if the Board finds that such individual does not
actually participate in major policymaking functions of the
member bank.''.
On page 132 of the committee substitute strike lines 21 and
22 and insert the following:
``(2) in subparagraph (C), by striking ``and its composite
condition was found to be outstanding;'' and inserting ``and
its composite condition--
``(i) was found to be outstanding; or
``(ii) in the case of an insured depository institution
that has total assets of less than $175,000,000, was found to
be outstanding or good;''.
Mr. RIEGLE. Mr. President, I urge the adoption of the amendment, as
modified.
The PRESIDING OFFICER. The Chair would rule that it is implicit
within the consent. The Chair would rule that that action has taken
place; that the modification has been agreed to.
Mr. RIEGLE. All right. So that now we have perfected the underlying
amendment with the change just sent to the desk.
The PRESIDING OFFICER. The Senator is correct.
Mr. RIEGLE. I move to reconsider the vote by which the amendment, as
modified, was agreed to.
Mr. D'AMATO. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Amendment No. 1530
(Purpose: To improve reporting requirements on monetary instruments and
transactions)
Mr. RIEGLE. Mr. President, I now rise on behalf of Senator Bryan and
Senator Bond to ask unanimous consent that the Anti-Money Laundering
Act be included as an amendment to this bill. The language is modeled
after S. 1664. I now send that amendment to the desk.
The PRESIDING OFFICER. The clerk will report the amendment.
The assistant legislative clerk read as follows:
The Senator from Michigan [Mr. Riegle], for Mr. Bryan, for
himself, Mr. Bond, Mr. Riegle, and Mr. D'Amato proposes an
amendment numbered 1530.
Mr. RIEGLE. Mr. President, I ask unanimous consent that the reading
of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The text of the amendment is printed in today's Record under
``Amendments Submitted.'')
Mr. RIEGLE. Mr. President, I urge the adoption of the amendment.
Mr. BOND. Mr. President, I rise today in support of this amendment to
add S. 1664, the Anti-Money Laundering Act of 1993, to S. 1275. This
amendment will reduce the number of currency transaction reports which
banks have to file under the Bank Secrecy Act. Senator Bryan, Chairman
Riegle, and I introduced S. 1664 on November 17, 1993.
I believe that this bill, added to S. 1275, the Community
Development, Credit Enhancement and Regulatory Improvement Act of 1993,
will help relieve bank regulatory burden improve compliance under the
Bank Secrecy Act and better money laundering deterrence efforts.
Action must be taken to relieve the banking industry of the burden of
unreasonable regulatory requirements it now faces. The bank regulators
currently require all kinds of burdensome compliance reports,
activities and documents that cost significant amounts of time and
resources. Consequently, banks, are generating too many reports and
other paperwork of questionable value, instead of making loans.
In particular, to help combat money laundering, banks have to file a
Currency Transaction Report [CTR] for all currency transactions over
$10,000. The American Bankers Association estimates that it cost banks
almost $130 million to file 9.2 million CTR's with the Internal Revenue
Service in 1992. The utility to the Government of this massive number
of reports has yet to be proven.
This amendment will help to reduce drastically the number of useless
CTR's which are filed with the Government, thus reducing, in part, bank
regulatory burden. The Anti-Money Laundering Act of 1993 would create
mandatory exemptions for transactions between depository institutions,
transactions with any U.S. Government or agency, and transactions with
any business or category of business where CTR's have little or no
value for law enforcement purposes. In addition, Treasury would have
the discretion to exempt transactions between a depository institution
and its qualified business customers who most frequently engage in
transactions which are subject to reporting requirements under the Bank
Secrecy At.
I am well aware of the serious problem this situation has created for
the banking industry and have been in consultation with my colleagues
on the Senate Banking Committee to find solutions. Bank regulatory
reform is one of my highest priorities. I also consider it a key to
economic growth.
A companion bill, H.R. 3235, has already been acted on in the House.
I ask my colleagues for their support on this bipartisan measure to
relieve bank regulatory burden.
Mr. BRYAN. Mr. President, I want to acknowledge with respect to the
pending amendment the work of several of my colleagues who have made
this amendment possible.
I ask unanimous consent that the chairman of the committee, Senator
Riegle; the ranking member, Senator D'Amato; and my senior colleague,
Senator Reid, be added as cosponsors to the amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BRYAN. Mr. President, I appreciate that.
statement on the anti-money laundering act of 1994
Mr. President, Senator Bond, Senator Riegle, Senator D'Amato, and I
are offering an amendment to S. 1275, the Community Development Credit
Enhancement, and Regulatory Act of 1993 which will greatly improve our
efforts to combat money laundering.
This amendment will reduce the number of currency transaction reports
banks are required to file, while making the process more effective at
identifying suspicious customer transactions.
This amendment is based on the text of S. 1664 and a House companion
bill (H.R. 3235) introduced by Congressman Gonzalez.
I want to commend Congressman Gonzalez for his leadership in this
area.
Yesterday, the Senate Banking, Housing, and Urban Affairs Committee
held a hearing on this antimoney laundering legislation.
The testimony gave compelling evidence as to why this measure is
necessary.
The Department of Treasury, General Accounting Office and various
industry groups testified in favor of the legislation. The Bank Secrecy
Act is widely viewed as an important part of the Federal Government's
efforts against money laundering, particularly as it relates to the
drug trade.
In theory, Federal investigators use currency transaction reports
[CTR's] to identify large cash transactions which are the results of
illegal activity.
While Federal antimoney laundering enforcement has had some
successes, there are serious problems with the current system. One of
the major problems investigators face is the sheer volume of CTR's
filed--10 million annually--more than they could ever hope to have the
resources to investigate fully.
A study conducted on behalf of the Independent Bankers Association of
America [IBAA] found that community bank employees spent over 2 million
hours each year complying with the Bank Secrecy Act.
The study calculated the compliance costs at nearly $60 million.
The excessive number of reports filed, many of which clearly have no
bearing on Federal money laundering enforcement, place a great strain
on both Federal investigators and the business which must file the
CTR's.
Filing CTR's consumes many hours of valuable employee time and
requires substantial investments in equipment and tracking systems.
Generally, financial institutions and other businesses subject to the
Bank Secrecy Act willingly absorb the expense of filing CTR's as part
of the cost of doing business, and part of their responsibility in
controlling money laundering.
There is, however, a limit to the burden that these private
businesses can be expected to bear.
In addition, the Federal Government has a responsibility to ensure
that the efforts of the businesses filing CTR's are not wasted, and
that the requirements of the Bank Secrecy Act produce useful
information which can lead to tangible results in money laundering
enforcement.
The amendment we are introducing today will both increase the
effectiveness of the Bank Secrecy Act and reduce its burden on private
businesses.
Our amendment establishes a system of exemptions under which
transactions that are clearly of no interest for law enforcement
purposes, such as transactions between banks, or between a bank and a
Government agency, do not trigger CTR's.
It also provides institutions the option of developing a list of
regular business customers who, with the approval of the Treasury
Department, would also be exempt from CTR's.
The amendment requires the Secretary to implement rule changes which
will reduce the volume of CTR's filed by depository institutions by at
least 30 percent, a goal which we believe could be easily met by
careful implementation of the new system of exemptions.
In addition to reducing the overall volume of unnecessary CTR's, the
amendment closes a number of loopholes which launderers are using to
get around the current detection system.
Mr. President, the Bank Secrecy Act has a laudable goal: to fight
money laundering.
Unfortunately, the current regulations for reporting cash
transactions are a bureaucratic maze, creating confusion and
inefficiency in both financial institutions and law enforcement
agencies.
The reforms we are proposing in this measure will go a long way to
both reducing unnecessary paperwork while, at the same time, expanding
the effectiveness of our Federal money laundering enforcement efforts.
Mr. President, this amendment accomplishes two purposes which we all
can support. It deals with strengthening provisions in the antimoney-
laundering statutes to require that some areas which are currently
exempted and have provided loopholes--which has been difficult for the
law enforcement community--are added to the law; and the testimony from
the Treasury Department and others expressing their support of those
strengthening provisions to eliminate existing loopholes.
In addition, Mr. President, also it addresses a concern with respect
to the preparation of the currency transaction report. Under the
current law with respect to financial institutions, currency
transactions which exceed $10,000 generate under the law what is called
a CTR, or currency transaction report.
This enables law enforcement to monitor certain types of activity and
to thereby ferret out money laundering. Unfortunately, this effort has
been hampered because the generation of these CTR's has simply
overwhelmed the ability of the law enforcement community to effectively
monitor. Currently, some 10 million currency transaction reports are
generated each year.
The testimony is that about 40 percent of those reports deal with
regular, well-established businesses that in no way address the concern
that the bill in its original form, enacted some years ago, was
designed to address. Nevertheless, there are many people that are
required to generate these CTR's that contribute to this overwhelming
volume.
This amendment mandates the reduction in the volume of currency
transaction reports by 30 percent within a period of 6 months after the
law goes into effect. So that provides areas which are standard
exemptions, all fully approved and supported by Treasury, and a
category of discretionary exemptions, the effect of which enhances the
law enforcement community to monitor those transactions, which may
raise questions of possible illegal activity, and also to lighten the
burden on the financial community which currently estimates the cost of
preparing each one of these reports to be about $3 to $4 a copy.
As I have indicated previously, this currently results in some 10
million of these reports going into a data processing center in
Detroit. That is simply beyond the ability of the law enforcement
community to effectively and adequately monitor.
I want to acknowledge again the support of the distinguished chairman
of this committee, who appears as a cosponsor, and the distinguished
ranking member, who also appears as a cosponsor, Senator Dodd, who was
an original primary cosponsor with me.
I am pleased that this amendment has been cleared on both sides of
the aisle and will be adopted.
I yield the floor.
The PRESIDING OFFICER. Is there further debate? If not, the question
is on agreeing to the amendment.
The amendment (No. 1530) was agreed to.
Mr. D'AMATO. Mr. President, I move to reconsider the vote by which
the amendment was agreed to.
Mr. RIEGLE. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. RIEGLE. I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. RIEGLE. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. RIEGLE. With no amendments or speakers present who want to
continue this debate at this time, I will now ask unanimous consent to
speak as if in morning business on a different subject for a period not
to exceed 5 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________