[Congressional Record Volume 140, Number 30 (Thursday, March 17, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 17, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
  COMMUNITY DEVELOPMENT BANKING AND FINANCIAL INSTITUTIONS ACT OF 1993

  The Senate continued with the consideration of the bill.
  Mr. DORGAN. Now, having said all of that, Mr. President, I really 
came to the floor not to speak about Whitewater but I felt, after 
several hours, it would be unusual to speak about the issue that was 
under consideration because everybody who jumps up today speaks about 
Whitewater, and that has pretty much been true for recent weeks.
  The bill that is under consideration is a piece of legislation that I 
intend to offer an amendment to, the Community Development, Credit 
Enhancement and Regulatory Improvement Act. We have had ample 
discussion on this legislation now for a couple of days, and I have 
talked to the folks involved in this bill and I am going to offer an 
amendment that adds to the criteria, the list of those areas eligible 
for investment, those areas in the country that have suffered the loss 
of people, out-migration.
  There are a couple of indices of economic stress. A particular one 
would be unemployment. Another would be poverty. All of us understand 
that. But there is another that often people do not recognize. Another 
important index of distress would be people leaving.
  My home county in North Dakota, Hettinger County, ND, lost 20 percent 
of its entire population in a decade. Let me repeat that because I 
think it is important. My home county lost 20 percent of its people in 
a decade. Does it have high unemployment? No. Because people left to 
find work elsewhere. There was no work there. It is a rural economy 
that used to be a plum and is now shrinking like a prune. It is 
atrophying like a major part of rural America is atrophying--because 
there is no opportunity. There is loss of jobs and people get in a car 
and move to a bigger city somewhere else.
  The result is rural counties across this country suffer severe 
economic distress and do not show up in the same statistical pattern as 
they might were they an integral part of a large inner city.
  Shortly, I intend to offer an amendment to the legislation to include 
in the criteria those areas of the country that have suffered out-
migration to the tune of 10 percent loss of their population or more in 
a decade. In my home county at least, when you lose 20 percent of your 
population, those who are in Main Street business trying to do business 
are trying to do business in a virtual depression. I want those areas 
to be eligible. I want those businesses to be eligible. I want those 
communities to be eligible as well under the conditions of this bill to 
try to provide some life and some economic hope and some opportunity to 
rural America once again.
  So, Mr. President, I will shortly offer that amendment to this piece 
of legislation.
  I yield the floor.


                        baucus-wallop amendment

  Mr. BAUCUS. Mr. President, I rise to thank Senators Riegle and 
D'Amato for considering and proceeding to a unanimous voice vote on the 
Baucus-Wallop amendment to section 107 of S. 1275. I urge them to work 
to hold this amendment in the conference with the House on this 
legislation.
  Section 107 sets forth the selection criteria to be used by the 
Community Development Financial Institutions Fund in choosing 
recipients of financial assistance to be provided by the fund. The 
purpose of the fund is to promote economic development in distressed 
communities.
  Under section 107, the Administrator and five-member advisory board 
of the fund have the sole discretion to apportion $382 million of 
financial assistance to new and existing community development 
financial institutions. The selection process is based on 12 factors 
outlined in the statute.
  The Baucus-Wallop amendment adds language to the statute insuring 
that the fund consider whether an applicant financial institution is, 
or will be, located,

       * * *in a community that has experienced a sudden and 
     significant loss in total employment since the 1990 Census or 
     a major dislocation in its primary employment base.

  It is the intent of this amendment to make applicants in communities 
that are ineligible for designation as an empowerment zone or an 
enterprise community under the Internal Revenue Code eligible for equal 
consideration in the selection process.
  I will continue to work with the Clinton administration and my 
colleagues on the Finance Committee to modify the criteria for 
eligibility for designation as an empowerment zone or enterprise 
community under the Internal Revenue Code. In particular, I am 
concerned about the strict reliance on 1990 census data for 
determination of whether a community satisfies threshold population and 
poverty requirements.
  Plant closings and other calamities since the 1990 census have left 
many rural communities in Montana, Wyoming, and other States in severe 
economic distress. This includes record levels of unemployment and 
substantial reductions in family income in owns primarily dependent on 
a single industry such as timber or mining. It is important that we not 
overlook these areas merely because the snapshot taken by the 1990 
census does not reveal the true nature of the problems that currently 
exist.
  Mr. KENNEDY. Mr. President, I support S. 1275, the Community 
Development, Credit Enhancement and Regulatory Improvement Act.
  I commend the leadership of Senator Riegle and the Banking Committee 
in bringing this important legislation before the Senate. I am pleased 
to note that it also has President Clinton's strong support.
  Title I of the bill recognizes the need to foster community banking 
in our poorest communities. It recognizes and enhances the role of 
community development financial institutions throughout America in 
providing access to financial services in cities and rural areas.
  CDFI's, including the 10 in Massachusetts, allow enterprises in 
distressed communities to obtain the financing that will give them a 
chance to prosper and revitalize their communities. People who wish to 
start new businesses, open stores, and build housing and shopping 
centers deserve this help. The CDFI's are on the frontline--providing 
loans and building a brighter future.
  The Community Development Financial Institutions Fund created by S. 
1275 will strengthen and energize CDFI's. It will give them vital 
technical and financial assistance to serve their communities more 
effectively. Under the bill's matching requirements, every Federal 
dollar provided to a CDFI will be matched by a private dollar, thus 
creating incentives to leverage more private capital. In doing so, this 
bill will promote broader private participation in communities that 
need the most support.
  The bill fosters the sort of public/private partnerships that have 
been the source of many of the community development successes we have 
had in Massachusetts.
  In addition to the matching requirements, S. 1275 permits private 
banks and financial institutions to become partners with CDFIs. In this 
way, the bill recognizes that government cannot, by itself, bring about 
the changes needed for these communities to grow and thrive. It will 
take commitment from every sector, and S. 1275 is an important step in 
promoting that commitment.
  Title II of the bill addresses the pernicious practices of brokers, 
lenders and other who have exploited the lack of credit and financial 
services in poor neighborhoods. People who were cash poor but with 
equity in their homes have often become targets of unscrupulous lenders 
and mortgage brokers who provide loans on unconscionable terms and are 
only too glad to foreclose on a home. When the victims week recourse in 
the courts, they find the loan has been sold to another bank, who is a 
holder in due course and thus protected by a virtually impenetrable 
defense.
  The elderly, the poor, minorities, and others who are vulnerable fall 
prey to these practices. Senators Riegle and D'Amato have led a 
bipartisan effort to end the abuses. S. 1275 makes it more difficult to 
cheat unsuspecting consumers on home-equity loans. It creates 
substantial penalties for doing so, and the penalties will follow the 
loan, no matter how many times it is sold.
  This bill also contains provisions to lower the cost of capital to 
small businesses. It will be easier for a business to obtain credit 
through capital access programs, like the one we have adopted in 
Massachusetts. Access to capital is an essential component of small 
business expansion. When we make that access easier, we promote more 
jobs, greater economic development, and higher wages.
  S. 1275 is a sound and progressive approach to many of the problems 
that low-income citizens and communities face in dealing with the 
nation's financial system. I urge my colleagues to support this 
essential bill.
  Mr. BURNS. Mr. President, I rise today in strong support of the 
Shelby-Mack amendment, which has been incorporated into S. 1275, the 
Community Development, Credit Enhancement, and Regulatory Improvement 
Act of 1994. As we are all aware, this country has gone down a very 
dangerous path of excessive regulation, the effects of which are 
chocking the ability of our businesses to compete effectively.
  Some of Congress' best efforts are turned into a regulatory nightmare 
by a bureaucracy run amock. The case in the banking industry is 
certainly a prime example and the effects have been devastating. The 
Shelby-Mack amendment will have the desired effect of reducing the 
burden that our financial institutions now face as a result of 
increased regulatory requirements. The paperwork, time, and money spend 
on complying with, in many cases, overzealous consumer oriented 
regulations has done nothing but tie the hands of, and drain valuable 
resources from, this country's financial industry.
  While title III of S. 1275 will provide some regulatory relief by 
incorporating a minor portion of the provisions contained in S. 265, 
the Economic Growth and Regulatory Paperwork Reduction Act, which I 
have cosponsored, it fails to make a real difference in reducing 
unnecessary and duplicative regulations that impede consumer access to 
credit and waste bank resources. Mr. President, the bottom line is that 
S. 1275 did not go far enough but the Shelby-Mack amendment will.
  Adoption of the amendment, along with the provisions already included 
in S. 1275, will provide the critical mass necessary to make a 
substantial reduction in the regulatory burden. All provisions have 
been carefully selected to maintain or enhance the safety and soundness 
of the banking industry.
  Mr. President, I am pleased that the amendment has been incorporated 
in the S. 1275, and I look forward to final passage.
  Mr. CAMPBELL. Mr. President, I would just like to say a few words 
about the bill S. 1275, and leave aside for a moment the amendments 
offered by my colleagues.
  I was an original cosponsor of the original bill, which set forth the 
proposal for a fund to promote community development financial 
institutions. I supported it because I believe these CDFI's can improve 
poor communities and help the people that are stuck in them, 
particularly the children.
  Mr. President, if there is one thing that I want to accomplish as a 
Member of Congress, it is to help poor kids in this country. I had a 
tough time as a youth, because there were no resources and no 
opportunities for a poor minority kid in California. I have a 
responsibility, to help provide those opportunities. This CDFI bill is 
just one small but important step on the long march to save 
disadvantaged kids.
  I want to add a note of personal thanks to Senator Riegle and his 
staff for their help in dealing with issues of particular concern to 
Indian tribes. American Indians have a particularly hard time getting 
access to credit, and this bill would help establish financial 
institutions that specifically serve Indian reservations. The manager's 
amendment includes several provisions that answer specific concerns 
from Indian tribes. First, the bill provides for a long-needed study on 
lending and investment practices on Indian reservations, to identify 
why Indians cannot get credit and to recommend ways to better serve 
Indian populations. I am sure the study will show what all Indians 
already know, that most traditional banks just do not want to deal with 
tribal governments and tribal laws.
  Also, the manager's amendment sets up procedures that require CDFI's 
serving reservations to consult with tribal governments about their 
lending practices. Too many times in the past, scam artists have taken 
advantage of special rules on Indian reservations to enrich themselves 
and their buddies, while Indians ended up with nothing. This bill gives 
Indians the chance for some oversight to avoid those kinds of abuse.
  I think this bill can help kids, whether they are in inner cities, or 
in depressed rural areas, or on Indian reservations. I hope we can pass 
this bill and get on with the job.
  Mr. MACK. Mr. President, I rise today to thank Senator Riegle and 
D'Amato for working out an amendment by Senator Shelby and myself which 
was cosponsored by Senators Durenberger, Packwood, Gregg, Coverdell, 
Hutchison, Helms, Bond, Burns, Gramm, Bennett, and Faircloth. I am 
confident that given enough time all 51 of the cosponsors of S. 265, 
the regulatory relief bill that this amendment was based upon, would 
have cosponsored the amendment, and I would like to thank everyone 
involved.
  Year after year Congress has passed well meaning legislation that by 
itself does not impose significant regulatory burdens. While no single 
regulation is most burdensome, and most have meritorious goals, the 
aggregate burden of the litany of banking regulations ultimately 
affects bank's operations and their ability to serve customers 
effectively.
  The regulatory relief provisions in this legislation take several 
steps toward rolling back some of the layers of regulatory burdens that 
we have placed upon our financial institutions over these years. This 
legislation is a good start toward unlocking the billions of dollars 
that are spent every year on regulatory compliance and getting our 
Nation's financial institutions back in the business of making loans.
  I believe that it is important that we continue to streamline this 
crush of Federal regulations and reverse the tide of new unnecessary 
burdens imposed on these institutions. I look forward to working with 
my colleagues toward this worthy goal.
  Mr. CHAFEE. Mr. President, I want to congratulate the bill managers--
Senators Riegle and D'Amato--for their fine work in bringing the 
Community Development, Credit Enhancement, and Regulatory Improvement 
Act to the floor. It is a good bill, and one that I support and am 
pleased to cosponsor.
  Briefly, Mr. President, the legislation has three major components. 
First, it contains important community development provisions to help 
spur lending in low-income, underserved urban areas. Second, it 
includes small business capital formation provisions--provisions that I 
cosponsored. Third, it includes important paperwork reduction items and 
regulatory improvements to help both banks and their customers, 
especially small businesses.
  I have been pressing for action in each of these three areas, and I 
am pleased that the Senate is preparing to approve them as part of S. 
1275.
  I am disappointed, however, that legislation that I introduced, the 
Small Business Assistance and Credit Crunch Relief Act, S. 950, could 
not be incorporated into this measure.
  Negotiations to do just that have been underway for 2 days, and this 
afternoon Chairman Riegle and I agreed that it is best to consider my 
bill at a later time. I do hope, however, that the Senate will take up 
S. 950 later this spring; it is a good bill that is supported by the 
National Federation of Independent Business, the U.S. Chamber of 
Commerce, and the Smaller Businesses Association of New England. It 
would have a major impact in reducing the credit crunch that is 
plaguing New England and much of the Nation.
  Let me briefly describe three of the highlights of my bill.
  First, it would freeze all new banking regulations until the 
appropriate agency conducts a regulatory impact analysis and concludes 
that the benefits of the new regulations outweigh the costs to small 
banks of implementing and complying with them.
  Second, it would permit banking regulators to suspend regulations 
that it determines are unnecessary, or have the effect of discouraging 
small banks from lending to creditworthy small businesses.
  Third, it would reward small banks that have received the highest 
rating under the standards established under the Community Reinvestment 
Act--a rating of ``outstanding''--by creating a safe harbor for CRA 
protests. Further, regulators would be directed to significantly reduce 
the onerous paperwork requirements under CRA for banks with the highest 
CRA rating.
  Unfortunately, I was unable to reach an accommodation to have my bill 
incorporated into S. 1275. I plan to continue my efforts to have the 
measure approved in the not too distant future.
  Finally, Mr. President, I understand that the bill managers want to 
wrap up this bill. Accordingly, I will conclude my remarks by saying 
that I support the legislation, and am especially enthusiastic about 
those provisions that will help reinvigorate our inner cities and help 
small businesses.
  Mr. WALLOP. Unnecessary regulations are killing American 
competitiveness and limiting the ability of the economy to grow. Today, 
the Federal Government is the biggest hurdle that a struggling 
businessman must face in order to be successful. Regulations cost all 
Americans between $880 billion and $1.6 trillion annually, or between 
$8,388 and $17,134 per household.
  These high and unproductive costs are evidence of an increasingly 
arrogant bureaucracy that has managed to insert its influence into 
every facet of our lives. I can not tell you the number of times I have 
heard Americans express their fear of government--the fear that they 
will lose their freedom and their ability to control their own lives. 
And the fear that their government will get them.
  We must cut regulations and free Americans to prosper, instead of 
creating new government programs. That is why I rise in support of the 
Mack-Shelby paperwork reduction provisions that have been included in 
the manager's amendment. The regulatory relief provisions originally in 
this bill do not go far enough. These additional provisions will make a 
real difference in reducing unnecessary and duplicative regulations and 
will go a long way towards eliminating invidious, anticompetitive 
regulations.
  But we can not stop here. One of the worst regulatory burdens on 
small banks is the Community Reinvestment Act, or ``CRA''. Although CRA 
began with the laudable goal of ensuring that financial institutions 
meet the needs of their local communities, the act has had the 
practical effect of requiring banks to maintain excessive records to 
document CRA compliance. CRA was not intended to impose burdensome 
recordkeeping on banks, but it has created some of the most onerous 
paperwork requirements that any bank faces.
  Small, community banks are especially hard-hit by these regulations. 
With fewer personnel and smaller monetary resources, these banks face 
the formidable task of documenting all community lending activities. 
These compliance costs absorb real resources that could obviously be 
better spent by making important and necessary loans in the community.
  The Nation's 10,000 community banks spend over $1 billion annually to 
comply with the administrative costs of CRA. If we want to help 
distressed communities we should be using this $1 billion to make loans 
to the local communities instead of wasting it on unnecessary 
regulations.
  It does not take a rocket scientist to know that small, rural banks 
must invest in their communities if they are going to stay in business. 
They are the economic backbone of their communities, providing the 
necessary money for a local business to expand or for a family to build 
its first home. By requiring small banks to meet the standards set for 
urban areas, we are suppressing the economic growth and investment that 
occurs naturally in the course of business. In rural communities the 
impact is devastating.
  The administration has recognized the negative credit impact caused 
by CRA. Bank regulators are now trying to develop new standards that 
eliminate the burdens of the CRA. In fact, 39 senators recently sent a 
letter to Comptroller Ludwig, applauding the administration's 
recognition of a need for a two-tiered approach to address the 
differences between community banks and larger money center banks.
  But the new regulations do not go nearly far enough to alleviate the 
paperwork burden. To meet a more streamlined examination process, a 
community bank must show that it has a loan-to-deposit ratio of at 
least 60 percent. This ratio unfortunately fails to take into account a 
number of relevant characteristics that make it difficult for small, 
rural banks to meet a 60 percent national standard. For example, rural 
banks in Wyoming have expressed concern that they may not have the 
loans available to meet the 60 percent ratio. If adopted ``as is'', it 
is clear that the CRA paperwork issue would not be resolved for half of 
the small community banks in Wyoming and other States--the very banks 
that are most in need of relief.
  I understand that the regulators are addressing much needed reforms. 
However, I want to make it clear, Mr. President, that if they modify 
the regulations and do not recognize the differing needs of banks in 
small communities from those in large, we will have to act 
legislatively.
  I had intended to offer an amendment to this effect today. My 
amendment would have incorporated the language contained in S. 1698, 
the Rural Community Bank Paperwork Relief Act of 1993 which I 
introduced with Senators McCain and Boren, and which is also supported 
by Senator Mack. This amendment would have allowed independently 
chartered banks in small towns to ``self certify'' that they are 
meeting local credit needs. A small bank will be presumed to meet CRA 
requirements if they qualify under a State loan to deposit ratio, and 
certifies that it is meeting the credit needs of the entire community.
  I have been persuaded to wait until the regulatory process has 
progressed further before acting. However, I urge the regulators to act 
expeditiously to address the paperwork burdens of CRA and to free up 
much needed resources. Or we will act for them.
  Mr. SARBANES. Mr. President, I rise in support of S. 1275, the 
Community Development, Credit Enhancement, and Regulatory Improvement 
Act.
  I would like to begin by commending Senator Riegle, the chairman of 
the Banking Committee, and Senator D'Amato, the ranking member, for the 
cooperative and bipartisan manner in which they have worked to bring 
this important piece of legislation to the floor. This bill was 
reported out of the Banking Committee last September 23 by an 18 to 1 
vote, reflecting the broad support within the committee for the bill.
  I was pleased to be an original cosponsor of this legislation. Title 
I of the bill would promote the growth of community development 
financial institutions, as well as address abuses that have taken place 
in the home equity lending market. Title II would facilitate the 
development of a secondary market for small business loans similar to 
that for residential mortgages, thereby making credit more easily 
available for small business. Title III contains a number of provisions 
designed to improve the efficiency of financial regulation in response 
to concerns raised by financial institutions about excessive paperwork 
and regulatory burdens, while not weakening safety and soundness.
  I would like to focus my remarks on subtitle A of title I of the 
legislation, which is the Community Development Banking and Financial 
Institutions Act.
  Subtitle A of title I would establish a Community Development 
Financial Institutions Fund to promote the economic development of 
underserved communities by providing financial and technical assistance 
to new and existing community development financial institutions.
  The legislation provides that community development financial 
institutions would include community development banks and credit 
unions, minority-owned banks, community development loan funds, 
microenterprise funds, and community development corporations. Eligible 
institutions must have a primary mission of community development. 
Traditional commercial banks would be able to form a community 
partnership with community development financial institutions to work 
cooperatively to revitalize communities.
  The Community Development Financial Institutions Fund would be a 
wholly owned Government corporation which would provide financial 
assistance to eligible institutions through equity investments, 
deposits, credit union shares, loans, and grants. It could provide 
technical assistance directly, through grants, or by contracting with 
organizations that possess expertise in community development.
  The fund would be directed by an Administrator appointed by the 
President and confirmed by the Senate. A five-member advisory board 
would consist of representatives of community groups, local and 
regional governments, community development organizations, and the 
banking industry. The subtitle authorizes $382 million over 4 years.
  The bill leverages private and public resources. Assistance from the 
fund, other than technical assistance, must be matched dollar for 
dollar by the private sector. Criteria for selection include community 
need, community representation, ability to leverage private funds, past 
performance, extent of targeting to low income people, and the strength 
of the institution's strategic revitalization plan.
  Insured depository institutions that receive assistance as community 
development financial institutions would be subject to all existing 
safety and soundness laws and regulations.
  I would like to take a moment to discuss the South Baltimore 
Community Development Credit Union, a small credit union which serves 
the neighborhoods of south Baltimore, as an example of the kind of 
institution that might benefit from this legislation.
  The South Baltimore Community Development Credit Union was originally 
chartered in 1967 to serve low income people in its surrounding 
neighborhoods. It was one of seven community development credit unions 
established in Baltimore at that time. Over the course of its nearly 
25-year history it has weathered some difficult times, and today is the 
only one of the original seven community development credit unions in 
Baltimore still operating. It currently has a membership of over 1,400 
people and approximately $980,000 in assets.
  The credit union serves as a means by which people of modest income 
can pool their savings and gain access to credit that otherwise would 
not be available to them. For example, I am aware of a couple which had 
been renting the same house in south Baltimore for over 20 years. The 
owner of the house wanted to sell the house to the couple. Both members 
of the couple work, however, and their income was too high for them to 
qualify for subsidized loan programs sponsored by the city. Yet they 
had difficulty obtaining credit from traditional commercial banking 
institutions.
  Through the South Baltimore Community Development Credit Union to 
which they belong they were able to obtain a $10,000 purchase mortgage 
for their house and a $5,000 home improvement loan. This is an 
opportunity that only the credit union made available to them.
  A major constraint on the credit union's ability to serve the south 
Baltimore community is that its only office is located in southwest 
Baltimore. As a result, people in southeast Baltimore have to go across 
town to get to the credit union, which is a significant obstacle to 
membership in the credit union.
  The credit union would like to be able to establish a full time 
public office in southeast Baltimore, but lacks both the capital and 
technical management expertise that would be required. The 
establishment of a Community Development Financial Institutions Fund to 
provide financial and technical assistance to institutions such as the 
South Baltimore Community Development Credit Union, as well as to 
leverage support from the private sector, might make that possible.
  The credit union estimates a potential additional membership of as 
many as 20,000 people in southeast Baltimore.
  Mr. President, I believe this legislation holds great potential for 
communities in this country lacking adequate access to credit and 
financial services. I urge my colleagues to give it their support.
  Mr. DeCONCINI. Mr. President, I rise today to offer my support for S. 
1275, The Community Development, Credit Enhancement and Regulatory 
Improvement Act. This multifaceted legislation touches many important 
areas which needed to be addressed. This bill will increase access to 
capital, which in turn will assist in the continued growth of this 
Nation's economy. The establishment of Community Development Financial 
Institutions will infuse many distressed areas of this Nation with much 
needed capital. The securitization of small business loans will allow 
small businesses, which are so vital to economic growth, greater 
ability to acquire loans and do so at lower interest rates. In short, I 
believe this legislation will put money back into our communities and 
will enhance this country's already promising economic outlook.
  Other very important provisions are the consumer protection measures 
contained in title I, subtitle B, the Home Ownership and Equity 
Protection Act. I have been contacted by many constituents, including 
many members of the Arizona Association of Mortgage Brokers, who 
initially raised concerns over portions of this section of the bill. I 
shared many of those concerns, particularly the proposed prohibition on 
balloon payments. However, the 5-year limitation on the prohibition 
offered by Senator Riegle and Senator D'Amato has resolved my concern. 
This modification allows the bill to address the egregious violations 
of the Truth in Lending Act, while at the same time, continuing to 
allow many people to obtain money for a myriad of reasons, including 
sending their children to college, or remodeling their homes.

  No one disputes that among the hundreds of individuals and 
organizations who are in the business of lending money, there is a 
small but detrimental minority who prey on those in need and seek 
nothing more than a quick financial windfall. The Banking Committee 
received testimony about people, typically low income and minority 
homeowners, being bilked into terrible financial deals by lenders who 
specialize in fraud and dishonesty. Of the many concerned Arizonans 
involved in the mortgage industry who contacted me, all were deeply 
troubled by the practice of reverse redlining and the irreparable 
damage it creates, not only to the homeowners but also to an otherwise 
reputable industry. People who conduct business in this fashion should 
be dealt with in the most serious manner possible. While I support the 
committee in its attempt to eliminate lending abuses, I was concerned 
that a legitimate and viable avenue of obtaining money was being 
eliminated with the flat prohibition on balloon payments. While it is 
clear that short-term balloon payment mortgages frequently place 
individuals at great risk of foreclosure, balloon payment mortgages of 
a longer, more appropriate term, should not, in my view, be prohibited.
  A letter submitted to the Banking Committee by the Southern Arizona 
Legal Aid, Inc., stated that:

       [v]irtually all of the thousands of loans in litigation 
     required short-term balloon payments, due as little as 13 and 
     never more than 37 months after the closing dates.

  People who enter these short-term agreements are often forced into 
foreclosure when they are unable to acquire the funds needed to payoff 
the balloon. Those who can obtain funds often do so at an even higher 
interest rate, and the homeowner is caught in a treacherous financial 
treadmill. The problem is a very real one and I believe that this bill 
addresses that problem. However, in addition to strengthening consumer 
protection in this area, this bill also retains the balloon payment 
mortgage as a viable option, provided the loan is for at least 5 years 
in length. The 5-year provision allows legitimate lenders and consumers 
to utilize balloon payments. Those hoping to get rich quick are now 
forced to invest for at least a period of 5 years. Frankly, I do not 
believe this is an investment they will be willing to make. 
Furthermore, the enhanced disclosure provisions of this bill will help 
to insure that consumers who do select balloon payment mortgages are 
fully aware of the terms of their mortgages prior to entering into 
them.
  In short, this bill strikes the proper balance between recognizing 
the value role that lenders play, while attempting to stop the 
predatory lending practices of a minority of lenders. I commend the 
Banking Committee for the fine job they have done on this bill and 
their willingness to listen to these concerns and others, all of which 
the committee has addressed in a very fair and equitable fashion. I 
believe this bill is a good one, and I strongly support its passage.
  Mr. SPECTER. I would like to inquire of the chairman of the Senate 
Banking Committee and the ranking member of that committee of the 
status of the limitations on so-called nonbank banks placed on those 
institutions by congressional action in 1987.
  Mr. D'AMATO. Let me respond to my colleague from Pennsylvania and a 
former member of the Banking Committee. You raise a good point. In 
1987, a 7-percent growth cap was placed on these institutions. This 
limitation curtails the flow of credit to consumers and small 
businesses. I can see no safety or soundness ground for this limit, 
especially when applied to adequately capitalized and well-run 
institutions. It is time for us to reexamine the need for this 
restriction.
  Mr. RIEGLE. I would also be delighted to respond to the inquiry from 
the Senator from Pennsylvania and a former valued member of the Banking 
Committee. I have received a March 16, 1994, letter from the Treasury 
Undersecretary Newman advising me of their views regarding the 
operation of nonbank banks. As you know, the Competitive Equality 
Banking Act of 1987 [CEBA] prohibited the creation of new nonbank 
banks. The CEBA legislation also required existing nonbank banks to 
comply with certain grandfather restrictions, including limiting a 
nonbank bank's annual asset growth to 7 percent. The Treasury letter, 
which I shall place in the Record to appear at the conclusion of my 
remarks, expresses concerns about modifying the 7-percent asset growth 
restrictions that apply to nonbank banks.
  I would like to take the Treasury's concerns on this matter under 
advisement before we consider this matter.
  Mr. BENNETT. I would like to add my voice of support to those of my 
colleagues. This growthcap was put in place, originally, with the 
intent that overall banking reform would take place shortly. However, 
this has not come to pass and the outlook for positive developments on 
this issue appears dim. Artificially restricting the growth of American 
industry is unwise and I firmly oppose it. I hope that we will do the 
right thing in this instance and take the opportunity to address the 
concerns raised by Frank Newman's letter in the Banking Committee this 
year.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                   Department of the Treasury,

                                   Washington, DC, March 16, 1994.
     Hon. Donald W. Riegle, Jr.,
     Chairman, Committee on Banking, Housing, and Urban Affairs, 
         U.S. Senate, Washington, DC.
       Dear Mr. Chairman: I am writing to oppose any amendment 
     weakening the 7 percent limit on annual asset growth by 
     grandfathered ``nonbank banks.''
       Most companies that control FDIC-insured commercial banks 
     must comply with the Bank Holding Company Act, which 
     generally does not permit them to engage in activities 
     unrelated to banking (e.g., manufacturing locomotives or 
     operating department stores).
       Nonbank banks, although FDIC-insured, escaped the Bank 
     Holding Company Act's limits through a loophole that Congress 
     closed in 1987 by enacting the Competitive Equality Banking 
     Act (``CEBA''). CEBA passed the Senate by a 79-11 vote on 
     March 27, 1987, by a 96-2 vote and on August 4, 1987.
       CEBA prohibited the creation of new nonbank banks. It also 
     required existing nonbank banks to comply with certain 
     grandfather restrictions in order for their parent companies 
     to remain exempt from the Bank Holding Company Act. One of 
     the most important of these grandfather restrictions limits a 
     nonbank bank's annual asset growth to 7 percent.
       Congress recognized that exemption from the Bank Holding 
     Company Act could give nonbank banks and their parent 
     companies significant (and in the view of CEBA's proponents, 
     unfair) advantages in competing with other FDIC-insured 
     commercial banks.
       In opting for grandfathering rather than strict conformity 
     with the Bank Holding Company Act, Congress ``placed 
     considerable weight on the fact that . . . nonbank banks . . 
     . are generally quite small.'' It sought to prevent what the 
     legislative history described as ``the abuse of grandfather 
     privileges that would occur if grandfathered companies 
     changed the character of the institutions involved through 
     aggressive asset growth.'' S. Rep. No. 19, 100th Cong., 1st 
     Sess. 12 (1987). The asset-growth restriction was designed to 
     ``help prevent existing nonbank banks from changing their 
     basic character . . .; from drastically eroding the 
     separating of banking and commerce; and from increasing the 
     potential for unfair competition . . . and other adverse 
     effects.'' It also sought to ``give the owners of nonbank 
     banks an incentive to support, rather than obstruct, 
     additional legislation.''
       Allowing unlimited asset growth by nonbank banks would 
     disrupt the balance struck in CEBA. It would erode the Bank 
     Holding Company Act's separation of banking and commerce, 
     allow nonbank banks to significantly increase their share of 
     total bank assets, and increase the competitive advantages 
     nonbank banks and their parent companies have over other 
     FDIC-insured banks and regulated bank holding companies.
       And this fundamental change in CEBA would occur through an 
     isolated, nongermane Floor amendment--rather than, as CEBA 
     contemplated, through comprehensive legislation, enacted 
     after appropriate hearings, allowing ``all banks or bank 
     holding companies to compete on a more and equal basis'' with 
     companies controlling nonbank banks. 12 U.S.C. 
     Sec. 1843(f)(3)(A).
       This change would, moreover, provide a windfall to a 
     limited group of companies that already have special 
     privileges--the two dozen firms with grandfather rights under 
     CEBA.
       Limiting any amendment to well-capitalized nonbank banks 
     would not alter the basic issues. Any undercapitalized 
     institution would face even stricter asset-growth 
     restrictions under section 38(e)(3) of the Federal Deposit 
     Insurance Act. And being well-capitalized would not address 
     the competitive-equity concerns that prompted the CEBA 
     restriction.
       We do not believe a convincing case has been made for 
     weakening the 7 percent limit under the circumstances, and we 
     would accordingly oppose such an amendment.
           Sincerely,
                                                  Frank N. Newman,
                                                  Under Secretary.

  Mr. METZENBAUM. Mr. President, I sponsored an amendment to the 
Community Development, Credit Enhancement, and Regulatory Improvement 
Act of 1993--S. 1275--which will give consumers the information they 
need to correct mistakes on their credit history that may prevent them 
from opening bank accounts.
  I have worked for years to reduce the hurdles consumers face in 
trying to gain access to the banking system. In addition to the 
financial hurdles, many consumers are denied checking accounts based on 
false and inaccurate information used to characterize them as bad check 
writers. More and more banks are relying on companies that for a fee, 
will provide information about a consumer's checking account history. 
Oftentimes the information provided simply indicates whether the 
consumer has a positive or negative history. The underlying facts used 
to make such a characterization are not given and are often difficult 
to obtain. All too often the information is false or inaccurate. 
Nonetheless banks refuse to open accounts for consumers blacklisted by 
these companies. Merchants refuse to accept their checks.
  Under current law, consumers have a right to look at the files 
consumer reporting agencies have on them and get factual mistakes 
corrected. Unfortunately, this right is useless because these files 
often contain only summary subjective information about the consumer. 
The facts upon which a so-called negative characterization about the 
consumer are based are not included.
  Consumer Action, a California advocacy organization released figures 
in 1991 showing that two-thirds of surveyed California financial 
institutions refuse to open checking accounts for people who are listed 
with Chexsystems, a checking account verification company. Chexsystems 
maintains a negative database of the names of people which have been 
reported to Chexsystems by their banks. Banks call Chexsystems with the 
names of all people who want to open new accounts. In most cases people 
who appear on the Chexsystems database are denied checking accounts 
when they try to open such accounts at banks that subscribe to the 
Chexsystems service.
  A Consumer Action survey revealed that of the 56 financial 
institutions surveyed, 54 clear new account applicants through 
Chexsystems. Of those 54, two-thirds--36 banks--automatically deny new 
accounts to any one who appears on the Chexsystems database, regardless 
of the reasons their names appear there.
  Take for example the case of Raymond J. Sheehy. Mr. Sheehy attempted 
to open a checking account with Wells Fargo Bank in July 1991 but was 
denied the account. Mr. Sheehy was denied an account at Wells Fargo 
even though the bank's records showed that Mr. Sheehy had maintained an 
account in good standing with the bank for 5 years. The account was 
closed when Mr. Sheehy left California for Hawaii. Mr. Sheehy was told 
that his account was denied because there was a problem with 
Chexsystems. Nothing more. With great difficulty, Mr. Sheehy later 
learned from Chexsystems that Tinker Credit Union had reported to 
Chexsystems that Mr. Sheehy's account with them showed an entry of NSF 
or not sufficient funds. No further details were given. Mr. Sheehy 
notified Chexsystems that the NSF reported by Tinker Credit Union was 
incorrect. Chexsystems nonetheless continued to report this incorrect 
information.
  My amendment adds to the list of information that must be disclosed 
to a consumer by a consumer reporting agency. An agency that reports a 
negative characterization about the consumer, must now disclose the 
information upon which such characterization is based. Specifically, 
the agency must disclose the dates, original payees, and dollar amounts 
of any checks upon which is based any negative information about the 
consumer. Without such facts, the consumer burdened with false or 
inaccurate information is unable to dispute and/or correct such 
information.
  For example, if a consumer reporting agency indicates that the 
consumer has had high not sufficient funds NSF activity in the past, 
the agency must now disclose to the consumer the specific facts upon 
which such a characterization is based.
  This disclosure requirement would be triggered regardless of the 
manner in which negative information is communicated or retained by the 
agency. For example, if an agency only contains files on consumers who 
have allegedly had bad account relationships in the past, the fact that 
the consumer's name appears in the file would implicitly convey 
negative information about the consumer and thereby trigger the new 
disclosure requirement. Under such circumstances, the consumer would 
have the right to learn the specific facts surrounding such a 
characterization.
  My amendment will make the current fair credit reporting law more 
meaningful. It will prevent consumers from being blacklisted from the 
banking system because of negative information about the consumer of 
which the consumer is not aware. It will make consumer reporting 
agencies more accountable for the information and characterizations 
they report.
  Mr. HATFIELD. Mr. President, during the recent recession we have come 
to realize the poignant effects of poor credit availability on the 
Nation's economy, and especially upon small businesses. I support the 
bill before us today because it takes important steps toward addressing 
this problem. Not only does it use new tools to promote private 
lending, but it allows for better use of existing sources of capital by 
cutting burdensome regulations on insured financial institutions.
  Access to capital is a financial phrase for a simple concept--the 
ability to get money to worthy private investments in hard hit areas 
such as those impacted by the timber shortage. The promotion of capital 
and technical assistance through the establishment of community 
development financial institutions could have a powerful impact in the 
places across the country where funds are toughest to get. It is 
reassuring for the integrity of this idea that existing institutions 
will participate and that Federal assistance from these funds must be 
matched dollar for dollar by non-Federal funding.
  The Capital Access Program--CAP--which is enhanced in this bill, is 
something that the State of Oregon has played a special role in. 
Enacting this program in its 1989 legislative session, Oregon has one 
of the first and most successful programs in the country. The CAP 
promotes business lending by creating reserve funds consisting of 
contributions by the lenders, borrowers, and the State--controlled in 
our case by the Oregon Economic Development Department. This gives 
banks more flexibility to make loans that they might not otherwise make 
to small businesses. In Oregon, a total of over 330 loans have been 
made since 1991, averaging $24,600 per loan. This is crucial capital 
for small business development that would not be possible without this 
program.
  Another very important part of S. 1275 is the title reducing some of 
the regulatory burdens on our insured financial institutions. Redtape 
has been strangling the ability of these institutions to expand lending 
in the consumer and small business sectors of our economy. This is 
critical in states such as Oregon, where small businesses employ 63 
percent of the private workforce. The bill before us includes 
provisions, cosponsored by many of us over the last year, which 
streamline regulation without impacting on the safety and soundness of 
our insured financial institutions.
  For example, a small bank in Madras, OR, handling a Small Business 
Administration loan for a manufacturer must deal with 11 different 
governmental agencies and 25 different regulations during the 
transaction. This type of duplicative regulation must be trimmed away 
if we want to encourage lenders to do what they do best. It is 
encouraging to see the Senate taking action today to cut redtape while 
staying vigilant that the banking system stay safe and stable.
  Last week, we passed a bill to enhance the competitiveness of 
business in America. At that time, the Senate passed an amendment that 
I offered to promote business research and assistance at universities 
across the country. This week, we are taking the next step toward 
competitiveness by making much needed credit more available and by 
removing some of the regulatory roadblocks to efficient business 
development.

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