[Senate Report 104-185]
[From the U.S. Government Publishing Office]



   104th Congress 1st            SENATE                 Report
         Session
                                                       104-185
_______________________________________________________________________


                                                       Calendar No. 272


 
     ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1995

                               __________

                              R E P O R T

                                 of the

                     COMMITTEE ON BANKING, HOUSING,
                           AND URBAN AFFAIRS
                          UNITED STATES SENATE

                              to accompany

                                 S. 650

                             together with



                            ADDITIONAL VIEWS




               December 14, 1995.--Ordered to be printed
            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

  ALFONSE M. D'AMATO, New York, 
             Chairman
PAUL S. SARBANES, Maryland           PHIL GRAMM, Texas
CHRISTOPHER J. DODD, Connecticut     RICHARD C. SHELBY, Alabama
JOHN F. KERRY, Massachusetts         CHRISTOPHER S. BOND, Missouri
RICHARD H. BRYAN, Nevada             CONNIE MACK, Florida
BARBARA BOXER, California            LAUCH FAIRCLOTH, North Carolina
CAROL MOSELEY-BRAUN, Illinois        ROBERT F. BENNETT, Utah
PATTY MURRAY, Washington             ROD GRAMS, Minnesota
                                     PETE DOMENICI, New Mexico
 Howard A. Menell, Staff Director
  Robert J. Giuffra, Jr., Chief 
              Counsel
 Philip E. Bechtel, Deputy Staff 
             Director
Steven B. Harris, Democratic Staff 
    Director and Chief Counsel
      Edward M. Malan, Editor
                                 ------                                

      Subcommittee on Financial Institutions and Regulatory Relief

   RICHARD C. SHELBY, Alabama, 
             Chairman
RICHARD H. BRYAN, Nevada             ROD GRAMS, Minnesota
CAROL MOSELEY-BRAUN, Illinois        PETE DOMENICI, New Mexico
CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
JOHN F. KERRY, Massachusetts         ROBERT F. BENNETT, Utah
BARBARA BOXER, California            CHRISTOPHER S. BOND, Missouri
                                     CONNIE MACK, Florida
 Kathleen L. Casey, Staff Director
      Douglas Nappi, Counsel
  Sarah Bloom Raskin, Democratic 
              Counsel
 Martin J. Gruenberg, Democratic 
          Senior Counsel


                            C O N T E N T S

                              ----------                              
Introduction.....................................................     1
Purpose and Summary..............................................     1
History of the Letislation.......................................     2
Purpose and Scope................................................     3
    Title I--Streamlining the Home Mortgage Lending Process......     4
    Title II--Streamlining Government Regulation.................     7
    Title III--Regulatory Impact on Cost of Credit and Credit 
      Availability...............................................    14
    Title IV--Fair Credit Reporting..............................    18
    Title V--Asset Conservation, Lender Liability and Deposit 
      Insurance Protection.......................................    19
    Title VI--Miscellaneous Clarifications, Studies and Reports..    20
    Section-by-Section Analysis..................................    22
    Section 101. Coordination of TILA/RESPA......................    22
    Section 102. Elimination of Redundant Regulators.............    22
    Section 103. General Exemptive Authority for Loans...........    22
    Section 104. Reductions in Real Estate Settlement Procedures 
      Act........................................................    22
    Section 105. Co-branding and Affinity Group Endorsements.....    22
    Section 106. Exemption for Certain Borrowers.................    22
    Section 107. Alternative Disclosures for Adjustable Rate 
      Mortgages..................................................    23
    Section 115. Restitution for Violations of Truth in Lending 
      Act........................................................    23
    Section 201. Elimination of Certain Filing and Approval 
      Requirements for Certain Insured Depository Institutions...    23
    Section 202. Elimination of Redundant Approval Requirements 
      for OAKAR Transactions.....................................    23
    Section 203. Elimination of Duplicative Requirements Imposed 
      Upon Bank Holding Companies Under the Home Owners' Loan Act    23
    Section 204. Elimination of Per Branch Capital Requirement 
      for National Banks and State Member Banks..................    24
    Section 205. Elimination of Branch Application Requirements 
      for Automatic Teller Machines..............................    24
    Section 206. Elimination of Requirement for Approval of 
      Investments in Bank Premises for Well-Capitalized and Well-
      Managed Banks..............................................    24
    Section 207. Elimination of Approval Requirement for 
      Divestitures...............................................    24
    Section 208. Streamlined Nonbanking Acquisitions by Well-
      Capitalized and Well-Managed Banking Organizations.........    24
    Section 209. Elimination of Unnecessary Filing for Officer 
      and Director Appointments..................................    25
    Section 210. Amendments to the Depository Institutions 
      Management Interlocks Act..................................    25
    Section 211. Elimination of Recordkeeping and Reporting 
      Requirements for Officers..................................    25
    Section 212. Consolidation of Appraisal Subcommittee; 
      Transfer of Functions......................................    25
    Section 213. Branch Closures.................................    26
    Section 214. Foreign Banks...................................    26
    Section 215. Disposition of Foreclosed Assets................    27
    Section 221. Small Bank Examination Cycle....................    27
    Section 222. Required Regulatory Review of Regulations.......    27
    Section 223. Identification of Nonbank Financial Institution 
      Customers..................................................    27
    Section 224. Repeal of Commercial Loan Reporting Requirements    28
    Section 225. Increase in Home Mortgage Disclosure Act; 
      Disclosure Exemption.......................................    28
    Section 226. Elimination of Stock Loan Reporting Requirement.    28
    Section 227. Credit Availability Assessment..................    28
    Section 241. National Bank Directors.........................    28
    Section 242. Paperwork Reduction Review......................    28
    Section 243. State Bank Representation on Board of Directors 
      of FDIC....................................................    28
    Section 244. Consultation Among Examiners....................    29
    Section 301. Audit Costs.....................................    29
    Section 302. Incentives for Self-Testing.....................    29
    Section 303. Exemption for Savings Institutions Serving 
      Military Personnel.........................................    29
    Section 304. Qualified Thrift Investment Amendments..........    30
    Section 305. Daylight Overdrafts by Federal Home Loan Banks..    30
    Section 306. Application for Membership in the FHLB System...    30
    Section 307. FHLB External Auditors..........................    31
    Section 308. Limited Purpose Bank............................    31
    Section 309. Collateralization of Advances to Members........    31
    Section 310. Increasing Limit on Total Advances by the FHLB 
      System to Non-QTL Institutions.............................    31
    Section 311. Fair Debt Collection Practices..................    31
    Section 401. Short Title.....................................    31
    Section 402. Definitions.....................................    31
    Section 403. Furnishing Consumer Reports; Use for Employment 
      Purposes...................................................    34
    Section 404. Use of Consumer Reports for Prescreening and 
      Direct Marketing; Prohibition on Unauthorized or 
      Uncertified Use of Information.............................    36
    Section 405. Consumer consent required to furnish consumer 
      report containing medical information; furnishing consumer 
      reports for commercial transactions........................    39
    Section 406. Obsolete information and information contained 
      in consumer reports........................................    39
    Section 407. Compliance procedures...........................    41
    Section 408. Consumer disclosures............................    41
    Section 409. Procedures in case of the disputed accuracy of 
      any information in a consumers file........................    43
    Section 410. Charges for certain disclosures.................    46
    Section 411. Duties of users of consumer reports.............    46
    Section 412. Civil liability.................................    48
    Section 413. Responsibilities of persons who furnish 
      information to consumer reporting agencies.................    49
    Section 414. Investigative consumer reports..................    51
    Section 415. Increased criminal penalties for obtaining 
      information under false pretenses..........................    52
    Section 416. Administrative enforcement......................    52
    Section 417. State enforcement of Fair Credit Reporting Act..    53
    Section 418. Federal Reserve Board authority.................    54
    Section 419. Preemption of State law.........................    54
    Section 420. Action by FTC and Federal Reserve Board.........    55
    Section 421. Amendment to Fair Debt Collection Practices Act.    56
    Section 422. Furnishing consumer reports for certain purposes    56
    Section 423. Disclosure of information and consumer reports 
      to FBI for counter-intelligence purposes...................    57
    Section 424. Effective dates.................................    57
    Section 425. Relationship to other law.......................    58
    Section 501. Short title.....................................    58
    Section 502. Federal Deposit Insurance Act amendment.........    58
    Section 503. CERCLA amendments...............................    58
    Section 504. Solid Waste Disposal Act amendments.............    60
    Section 505. Effective date..................................    60
    Section 601. Electronic Fund Transfer Act clarification......    60
    Section 602. Treatment of claims arising from breach of post-
      appointment agreements.....................................    60
    Section 603. Fictitious financial instruments................    60
    Section 604. Amendments to the truth in Savings Act..........    60
    Section 605. Consumer Leasing Act amendments.................    61
    Section 606. Credit union study..............................    61
    Section 607. Report on the reconciliation of differences 
      between regulatory accounting principles and generally 
      accepted accounting principles.............................    61
    Section 608. State-by-State and metropolitan area-by-
      metropolitan area study of bank fees.......................    61
    Section 609. Prospective application of gold clauses in 
      contracts..................................................    61
Regulatory impact statement......................................    62
Changes in existing law..........................................    62
Cost of the legislation..........................................    62
Additional views of Senator Grams................................    63
Additional views of Senators Mack, Faircloth, Bennett and Grams..  6588


                                                       Calendar No. 272
104th Congress                                                   Report
                                 SENATE

 1st Session                                                    104-185
_______________________________________________________________________


     ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1995

                                _______


               December 14, 1995.--Ordered to be printed

_______________________________________________________________________


Mr. D'Amato, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 650]

                              introduction

    On September 27, 1995 the Senate Committee on Banking, 
Housing, and Urban Affairs ordered reported a bill, the 
``Economic Growth and Regulatory Paperwork Reduction Act of 
1995,'' to enhance access to capital for both consumers and 
business, and thereby increase economic growth by reducing the 
regulatory burden imposed upon financial institutions and 
financial service providers consistent with safety and 
soundness, consumer protection and other public policy goals. 
The Committee voted to report the bill to the Senate by voice 
vote.

              purpose and summary of need for legislation

    The purpose of the legislation is to strengthen our 
nation's financial institutions and to increase their 
competitiveness. This legislation is intended to allow 
financial institutions to devote additional resources to 
productive activities, such as making loans, rather than to 
compliance with unnecessary regulations.
    While no one regulation can be singled out as being the 
most burdensome, and most have meritorious goals, the aggregate 
burden of banking regulation ultimately affects a bank's 
operations, its profitability and the cost of credit to 
customers.
    Senators Shelby and Mack recognized this mounting problem 
and have been trying to roll back unnecessary regulations since 
the 102nd Congress, when they introduced S. 1129, the 
Regulatory Efficiency for Depository Institutions Act. While 
this bill was not enacted into law, some of its provisions were 
included in other legislation. In the 103rd Congress, Senators 
Shelby and Mack introduced S. 265, the Economic Growth and 
Regulatory Paperwork Reduction Act of 1993. Portions of S. 265 
were included in Title III of the Riegle Community Development 
and Regulatory Improvement Act of 1994. S. 650 is a 
continuation of this effort to streamline and rationalize 
current laws and regulations that effect our nation's financial 
institutions.

                       HISTORY OF THE LEGISLATION

    On March 30, 1995, Senators Shelby and Mack introduced S. 
650, the ``Economic Growth and Regulatory Paperwork Reduction 
Act of 1995.'' The bill was cosponsored by Senator D'Amato, the 
Chairman of the Committee on Banking, Housing, and Urban 
Affairs, Senators Bryan, Bennett, Faircloth, Bond, Gramm and 
Senate Majority Leader Dole.
    As introduced, the bill amended a variety of different 
banking laws in a number of ways, including streamlining 
disclosure requirements, eliminating duplicative regulation, 
unnecessary filing and recordkeeping requirements, and removing 
outdated barriers on the provision of financial services.
    The Subcommittee on Financial Institutions and Regulatory 
Relief (the ``Subcommittee'') held hearings on S. 650 on May 2 
and May 3, 1995. Testifying before the Subcommittee on May 2 
were: Federal Reserve Governor Susan Phillips, Federal Deposit 
Insurance Corporation Chairman Ricki Tigert Helfer, Treasury 
Assistant Secretary for Financial Institutions Richard S. 
Carnell, Comptroller of the Currency Eugene A. Ludwig, and 
Office of Thrift Supervision Acting Director Jonathon Fiechter.
    On May 3rd, the Subcommittee heard testimony from three 
panels representing the views of the Department of Housing and 
Urban Development; the financial services industry; and 
community and consumer groups. Testifying before the 
Subcommittee on the first panel was the Secretary of the 
Department of Housing and Urban Development Henry G. Cisneros.
    The Secretary was followed by a second panel consisting of: 
James M. Culberson, Jr., Chairman of the Board of First 
National Bank and Trust, Asheboro, North Carolina on behalf of 
the American Bankers Association; Richard Mount, President and 
CEO of Saratoga National Bank, Saratoga, California on behalf 
of the Independent Bankers Association of America; Billy Don 
Anderson, President and CEO of Valley Federal Savings Bank, 
Sheffield, Alabama on behalf of America's Community Bankers; 
Ralph Rohner, Dean of Catholic University School of Law, 
Washington, D.C. on behalf of the Consumer Banker's 
Association; Warren R. Lyons, President of AVCO Financial 
Services, Irvine, California on behalf of the American 
Financial Services Association; and John Davey, Senior Vice 
President of Draper & Kramer, Inc, Chicago, Illinois on behalf 
of the Mortgage Bankers Association.
    Testifying before the Subcommittee on the third panel were 
the following representatives of consumer and community groups: 
Michelle Meier, Counsel for the Consumer's Union on behalf of 
the Consumers Union and Consumers Federation of America, 
Washington, D.C.; Frances Smith, Director of Consumer Alert, 
Washington, D.C.; Tess Canja, Member of the Board of Directors 
of the American Association of Retired Persons, Port Charlotte, 
Florida; George Butts, Executive Board Member of ACORN, 
Philadelphia, Pennsylvania; Gale Cincotta, Chairman of National 
People's Action, Chicago, Illinois; Irvin Henderson, Chairman 
of the National Community Reinvestment Coalition, Washington, 
D.C.; Allen Fishbein, Chairman of the Center for Community 
Change, Washington, D.C. Also testifying on the third panel 
were Catherine Bessant, Senior Vice President of NationsBank, 
Washington, D.C. and Benson F. Roberts, Vice President for 
Policy of Local Initiatives Support Coalition, Washington, D.C.
    On September 27, 1995 the Senate Committee on Banking, 
Housing and Urban Affairs (the ``Committee'') considered and 
ordered reported S. 650. The Committee accepted, by voice vote, 
a Committee Print in the form of a substitute offered by 
Chairman D'Amato. During the Committee's consideration of this 
bill, an amendment offered by Senator Shelby was adopted by 
voice vote. Most of these new provisions can be found in Titles 
IV, V and VI of the bill.
    The Committee also adopted amendments, by voice vote, that: 
substantially amend the Fair Credit Reporting Act (``FCRA''); 
increase the systemwide cap on Federal Home Loan Bank advances 
to members that are not ``Qualified Thrift Lenders'' from 30 to 
40 per cent of total advances; permit credit card banks to take 
deposits of less than $100,000 for the purpose of securing a 
depositor's credit card; exempt certain stored value devices 
from the Electronic Fund Transfer Act; provide the Federal Home 
Loan Bank System with greater flexibility to accept certain 
federally-guaranteed secondary mortgages as collateral for 
Federal Home Loan Bank advances; provide for a study of credit 
union regulation; and clarify existing FDIC and RTC policy 
regarding payment of damages for breach of contracts.

                  purpose and scope of the legislation

    The bill as ordered reported by the Committee contains six 
Titles that substantially amend a number of statutes. While the 
bill is amendatory in nature, it does have a unifying goal and 
basic purpose: to minimize unnecessary regulatory impediments 
for lenders, in a manner consistent with safety and soundness, 
consumer protection, and other public policy goals, so as to 
produce greater operational efficiency. The Committee hopes 
that the removal of unnecessary regulatory compliance 
requirements will permit financial institutions to focus more 
of their resources on their core business--lending--and thereby 
enhance access to capital for both consumers and businesses 
(particularly smaller businesses that are more dependent on 
credit for growth and operating funds). Following is a title-
by-title summary of the certain salient issues in S. 650 as 
ordered reported by the Committee.

Title I: Streamlining the home mortgage lending process

    Title I substantially amends the two Federal laws that 
directly implicate the home mortgage lending process: The Truth 
in Lending Act (``TILA'') and the Real Estate Settlement 
Procedures Act (``RESPA''). These laws require disclosures 
related to the terms of the loan agreement. Some of those 
disclosures need to be modernized to reflect the current 
marketplace and to eliminate unnecessary burdens, particularly 
on small lenders.
    Lenders do not bear the compliance cost of implementing 
TILA and RESPA alone; these costs are passed on in the form of 
higher credit costs, so indirectly borrowers ultimately pay 
these costs. The Subcommittee heard testimony regarding the 
effect of compliance costs on consumers,\1\ the potential for 
``information overload'' that results from the enormous amount 
of detail required to be disclosed under the law,\2\ and the 
significant amount of time required to complete the 
paperwork.\3\ In addition, the Subcommittee heard testimony 
about the need to ensure that consumers continue to receive 
necessary and adequate disclosure.\4\
    \1\ ``The consumer resents me taking the time to explain all these 
forms. Also, because of the additional costs in terms of time and paper 
imposed by these regulations, we have had to implement a processing fee 
for our real estate loans of $100 which we did not previously charge.'' 
Testimony of James M. Culberson, Jr. on behalf of the American Bankers 
Association, Hearing on S.650 before the Financial Institutions and 
Regulatory Relief Subcommittee (``S.650 Hearing''), May 3, 1995. 
(hereinafter, ``ABA testimony''.)
    \2\ ``The lengthy and complex disclosures required under both the 
Real Estate Settlement Procedures Act and the Truth in Lending Act mean 
that the average consumer is at a loss. He or she will find it almost 
impossible to discriminate among essential information, useful 
information, and useless information. When every possible term and 
contingency and relationship have to be disclosed, and disclosed at 
different times using different forms, consumers suffer ``information 
overload.'' Without a clear idea of what's critical and what's 
peripheral, they may ``blank out'' and fail to assimilate the 
essential. * * *'' Testimony of Francis B. Smith, representing Consumer 
Alert, S.650 Hearing, May 3, 1995 (hereinafter, ``Consumer Alert 
Testimony''.)
    \3\ ``More time is spent filling out RESPA disclosures for real 
estate application than is spent addressing the customer's real needs. 
By the time all the paperwork is completed, applicants are so 
overwhelmed that they sign the documents without reading them.'' ABA 
Testimony, supra note 2.
    \4\ ``I found two pieces of paper that were related to the consumer 
protection laws that S. 650 will seriously eviscerate--the Truth in 
Lending statement and the HUD-1 settlement statement that was used to 
walk the parties through the mortgage transaction, two documents in a 
mound of over 107 pieces of paper that have been criticized today. The 
other documents protect the private parties, including the lender and 
the settlement attorneys by requiring the borrower to sign documents 
immunizing them from future liability. I think that this problem, the 
mountains of paperwork, is a problem that this Committee should look 
at, not by eviscerating the modest consumer protection laws that just 
begin to address the problem but by moving forward on true reform 
legislation * * *'' Testimony of Michelle Meier, on behalf of 
Consumer's Union and Consumer Federation of America, S. 650 Hearings, 
May 3, 1995. (Hereinafter, ``Consumer's Union Testimony''.)
---------------------------------------------------------------------------
    While the Committee believes that both these laws were 
passed for commendable purposes and do provide certain 
necessary consumer protections, the disclosure requirements of 
TILA and RESPA could be improved by streamlining and 
integration. Rather than attempting a wholesale revision and 
integration of these two laws, the Committee decided to provide 
greater flexibility at the regulatory level to accomplish the 
same goals.
    The bill as ordered reported from Committee centralizes 
much of the rulewriting authority for TILA and RESPA 
disclosures in the Federal Reserve Board. Currently, the 
Federal Reserve Board writes the implementing regulations for 
TILA and the Department of Housing and Urban Development is 
responsible for rulemaking under RESPA. The bill as reported 
consolidates much of the rulemaking authority for both laws in 
the Federal Reserve Board, and provides the Fed with the 
authority to eliminate, simplify, modify and improve the 
disclosure requirements of TILA and RESPA where greater 
uniformity in disclosures can be obtained, in furtherance of 
the purposes of these two laws. This integration of rulemaking 
to obtain uniformity in the disclosure requirements was 
supported by a number of witnesses that testified before the 
Subcommittee. Chairman Helfer of the Federal Deposit Insurance 
Corporation said in her testimony that:

        (w)e believe that granting the Federal Reserve Board 
        the authority to conform TILA with RESPA, where 
        possible, will reduce regulatory burden for financial 
        institutions and avoid confusion and complexity for 
        consumers.\5\
    \5\ Testimony of Ricki Helfer, Chairman, FDIC Board, S. 650 
Hearings, May 2, 1995. (Hereinafter ``Helfer Testimony''.)

    The OCC generally supported ``the overall goal of 
simplifying and coordinating Truth-in-Lending and Real Estate 
Settlement Procedures Act disclosures,'' \6\ but did not 
support the approach taken in the legislation. The Department 
of Treasury also did not support the approach that S. 650 
adopted, but supported the goal, stating that:
    \6\ Testimony of Eugene A. Ludwig, Comptroller of the Currency, S. 
650 Hearings, May 2, 1995.

          Action to harmonize the workings of the Truth in 
        Lending Act and RESPA is clearly appropriate. 
        Eliminating duplicative and needlessly burdensome 
        disclosures and unworkable requirements in the home 
        mortgage lending process would reduce the cost of loan 
        originations and relieve consumers from information 
        overload * * *  Indeed, we believe that simplifying, 
        consolidating, and coordinating all the disclosures 
        required in the home purchase and finance process and 
        eliminating needless requirements would best serve the 
        interests of consumers and the industry.7
    \7\ Testimony of Richard S. Carnell, Assistant Secretary of the 
Treasury, S. 650 Hearings, May 2, 1995.


---------------------------------------------------------------------------
Another witness voiced strong support for:


        Coordinating the disclosures and reducing the 
        complexity of disclosures required under the Real 
        Estate Settlement Procedures Act and TILA. It is 
        important that Congress give the bank regulatory 
        agencies statutory guidance to limit the extent of 
        disclosures required under TILA and RESPA and to 
        coordinate them with one another. As the immense TILA 
        compliance commentary demonstrates, absent clear 
        language from Congress to limit the scope of compliance 
        documentation, the rule and related examiner guidance 
        can easily become an overwhelmingly technical 
        document.8
    \8\ Testimony of Billy Don Anderson, on behalf of America's 
Community Bankers, S. 650 Hearings, May 3, 1995.


    The bill as ordered reported by the Committee provides the 
Federal Reserve Board with the discretion to exempt certain 
classes of loans from the requirements of TILA. The Committee 
believes that there may be instances where the protections 
afforded under TILA do not provide a meaningful benefit to 
consumers.
    Another concern with respect to RESPA is the effect that 
Section 8 of that law has had on mortgage delivery services. 
Section 8 was intended to prohibit the payment of kickbacks for 
referrals of settlement service business. This practice, which 
occurred in certain limited circumstances, ultimately inflated 
the settlement costs of borrowers. The ``purposes'' section of 
RESPA indicates that it was Congress' intent to protect 
consumers from ``unnecessarily high settlement charges caused 
by abusive practices that have developed in some areas of the 
country(,)'' and to eliminate ``kickback or referral fees that 
tend to increase unnecessarily the costs of certain settlement 
services.''
    Clearly, under-the-table payments for referrals from 
ostensibly unrelated parties are not acceptable. RESPA, 
however, provides limited guidance for determining what 
constitutes a prohibited payment, and has been broadly 
construed by HUD. As a result, some believe that Section 8 has 
impeded the modernization of mortgage marketing in a number of 
ways. It has been suggested that Section 8 has discouraged 
vertical integration of the mortgage market, and impeded co-
branding and affinity group marketing arrangements. The 
Committee is aware that consumers often are members or 
customers of groups based on shared affinity, interest or 
hobby, or due to educational, vocational, professional, 
mercantile, or other common interests. Examples of common 
interests can include university alumni, professionals, buyers' 
clubs, and the like. Such affinity groups can use their 
endorsements and the right to feature, or co-brand, their name 
or other trademarks to negotiate lower costs or other benefits 
for financial and other products for their members.
    The Committee heard testimony from witnesses who raised 
concerns about the impact that RESPA has had on attempts to 
modernize delivery systems for financial products.9
    \9\ ``(t)here are serious questions to be considered, including, 
for example, the suggestion by some parties to real estate transactions 
that RESPA may be stifling innovation and technological advancement 
from which the public might benefit.'' Testimony of Federal Reserve 
Board Governor Susan Phillips, S. 650 Hearings, May 2, 1995. 
(Hereinafter, ``Phillips Testimony''.)
---------------------------------------------------------------------------
    One specific concern that has been raised is the effect 
that Section 8 has had on equity loan marketing. Section 8 was 
enacted before the growth of the home equity and mortgage 
refinancing markets. Home equity loans and refinancings are 
typically marketed differently from home purchase loans--for 
instance, equity lending does not rely on real estate agents as 
an integral part of the marketing process. As one witness at 
the Subcommittee's hearings noted:


          The lack of a real estate agent's involvement in the 
        home equity and refinancing situations has led to the 
        development of other distribution and promotional 
        channels by lenders in these businesses. The 
        application of RESPA to these loans has severely 
        hampered the development of these alternative loan 
        distribution channels--much to the detriment of both 
        the industry and consumers.10
    \10\ Statement of the American Financial Services Association, S. 
650 Hearing, May 3, 1995.

    In light of these concerns, the bill as reported by the 
Committee incorporates provisions designed to permit co-
branding and affinity group marketing, and exclude subordinate 
lien mortgages from Section 8 of RESPA. These provisions were 
included in order to allow greater flexibility in marketing 
mortgage-related products, while preserving the meaningful 
consumer disclosures that RESPA provides. It is worth noting 
that a driving concern that lead to the expansion of RESPA to 
subordinate lien financings was the concern over certain 
abusive high-cost mortgage lending practices.11 This 
consumer protection issue was again recognized as a concern and 
addressed in the ``high cost mortgage'' provisions that were 
enacted as part of the Riegle Community Development and 
Regulatory Improvement Act of 1994.
    \11\ H. Rep 102-760, 102d Cong., 2 Sess., p. 159 (1992).
---------------------------------------------------------------------------
    Section 115 amends Section 108 of TILA. Section 108 
prescribes the rules for account adjustments in situations 
where there is inadequate disclosure of finance charges or the 
annual percentage rate. TILA currently requires the federal 
financial supervisory agencies to order restitution to 
consumers of amounts charged but not adequately disclosed. For 
loans consummated before April 1, 1980, if the full 
reimbursement of underdisclosed finance charges would have a 
significantly adverse impact on the safety and soundness of the 
creditor, an agency could order partial reimbursement not 
having such an impact. For loans consummated on or after April 
1, 1980, the agency is required to order full reimbursement, 
but may permit payments over time in order to minimize the 
impact on the institution.
    In some cases where finance charges are inadequately 
disclosed by a small lending institution, the supervisory 
agency could be required to order restitution in an amount far 
in excess of the institution's capital. The Committee believes 
the relevant regulatory agency should not be required to impose 
automatically a restitution that would result in the failure of 
the institution.
    Section 115 provides greater flexibility needed to 
reconcile consumer protection and safety and soundness 
concerns. This section will allow an agency to order partial 
restitution if the agency made a factual determination that 
full restitution would cause the creditor to become 
undercapitalized.
    The Committee recognizes, however, that GAAP rules as they 
are applied to regulatory reporting (i.e., call reporting) may 
also play a role in the regulator's determination of whether to 
order full or partial restitution. The total amount of 
restitution, whether full or partial and whether paid 
immediately or over time, must be booked by the institution in 
accordance with GAAP. Therefore, while payment over time may 
benefit liquidity, an institution would, however, still be 
required to follow GAAP. This change to TILA does not affect 
the GAAP rules.

Title II: Streamlining government regulation

    This Title contains provisions intended to eliminate or 
revise various application, notice and recordkeeping 
requirements that are currently required of insured depository 
institutions or holding companies that control such 
institutions. In developing these provisions the Committee 
consulted extensively with the relevant regulatory agencies. 
The provisions contained in this Title will provide significant 
regulatory relief, consistent with safety and soundness 
oversight. This Title will eliminate costly and time consuming 
paperwork requirements.
            Subtitle A: Eliminating unnecessary regulatory requirements 
                    and procedures
    This subtitle addresses regulatory filing requirements that 
may hamper the business operations of the affected 
institutions. These requirements may slow the implementation of 
such ordinary business decisions as executive hirings, product 
line expansion, business expansion, office premises purchase, 
or branch moves within a given neighborhood.
    Some current regulatory notice and application requirements 
govern activities that do not have any significant public 
policy implications. As a result, regulators tend to approve 
these applications in the ordinary course. Nevertheless, there 
are delays and costs associated with preparation of the 
necessary paperwork and mandated review or notice periods. For 
instance, the bill as reported will eliminate, for ATMs and in 
certain other cases, the notice requirements for branch 
closure. The bill also eliminates the branch application 
requirement for ATM's. Federal Reserve Governor Phillips 
described this latter requirement as ``an anachronism,'' 
12 and FDIC Chair Helfer testified that ``(w)e do not see 
a compelling reason for an agency to approve these facilities 
in advance or even to have prior notice of their 
establishment.'' 13
    \12\ Phillips Testimony, supra, note 9.
    \13\ Helfer Testimony, supra, note 5.
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    Consistent with this approach, the Committee also 
incorporated several provisions that would eliminate certain 
application and approval requirements that the Federal Reserve 
Board believes are unnecessary and impose undue burdens on both 
federal banking agencies and financial institutions. For 
example, the bill includes a provision that eliminates the 
approval requirement for routine entry into nonbanking 
activities that the Fed has already determined to be 
permissible under the Bank Holding Company Act. Governor 
Phillips testified that this provision would eliminate the 
filing of notices to engage in nonbanking activities by sixty 
percent or more.14
    \14\ Phillips Testimony, supra, note 9.
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    The bill also would allow bank holding companies that have 
already met the requirements of the Bank Holding Company Act to 
merge or consolidate their subsidiaries without seeking 
approval under the Bank Merger Act (BMA). The Committee agrees 
with the Board that eliminating this requirement will reduce 
unnecessary duplicative burden on institutions that have 
already received regulatory approval to become affiliates. 
Because these depository institutions are already affiliates, 
the competitive effects of a merger of these institutions are 
de minimis. The appropriate Federal banking agencies already 
have adequate authority to take appropriate supervisory action 
to address supervisory, financial and other concerns. Moreover, 
the amendment made by this section permits the appropriate 
Federal banking agency to require an application under the BMA 
in any case in which the agency believes, (based, for example, 
on concerns about financial condition, managerial, or CRA 
performance of the institutions involved in the proposal), that 
an application under the BMA is appropriate. Finally, the 
application requirement is only eliminated for a merger that is 
permissible under the interstate banking and branching 
provisions enacted by the Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994.
    Many regulatory mandates are redundant and the product of 
statutory accumulation. For instance, Section 202 clarifies 
that Oakar transactions do not require a duplicative 
application--the application required under the Bank Merger Act 
provides the same information that the appropriate regulatory 
agency needs to analyze the transaction. Section 203 eliminates 
duplicative oversight of holding companies that control both 
banks and savings associations (and is a provision that both 
relevant agencies--the Federal Reserve Board and the Office of 
Thrift Supervision--endorsed).
    The bill amends Section 32 of the Federal Deposit Insurance 
Act to limit the circumstances in which regulators must receive 
30 days advance notice of appointments of new directors or 
senior executive officers. The advance notice is retained for 
institutions that are undercapitalized or otherwise in troubled 
condition. The notice requirement is eliminated for newly-
chartered institutions and recent change-in-control situations. 
Thus, this advance notice is focused on circumstances that may 
raise capitalization concerns, while at the same time, the 
provision reduces the burden of a requirement that the FDIC 
described as ``an unnecessary impediment to the routine 
management of depository institutions.'' 15
    \15\ Helfer Testimony, supra, note 5.
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    Section 211 eliminates certain recordkeeping requirements 
under Section 22 of the Federal Reserve Act that apply to 
extensions of credit to executive officers and directors of 
depository institutions or their affiliates. As currently 
implemented in the Federal Reserve Board's Regulation O, the 
law generally requires an annual survey of loans to top 
personnel. Nevertheless, many institutions have felt compelled 
to conduct these surveys with greater frequency to avoid an 
inadvertent violation due to new hirings or promotions. Some 
institutions' compliance programs include monthly Regulation O 
surveys. Section 211 of the bill as reported contains two 
provisions that should yield significant relief. The Federal 
Reserve Board, which is responsible for promulgating and 
implementing Regulation O, supported both of these provisions 
in its testimony before the Subcommittee.
    This section removes the restriction on officers, directors 
and principal shareholders of member banks participating in 
non-preferential benefit or compensation plans. This provision 
allows officers, directors and principal shareholders to 
receive extensions of credit pursuant to a benefit or 
compensation program so long as the benefit or compensation 
program is widely available to employees of the member bank and 
does not give preference to any officer, director, or principal 
shareholder of the member bank, or to any related interest of 
such person, over other employees of the member bank. 
Restricted access plans would continue to violate Section 22(h) 
of the Federal Reserve Act. Participation in such plans does 
not raise the safety-and-soundness concerns that underlie many 
of the restrictions and reporting requirements that apply to 
bank officers and directors.
    Section 211 also amends Section 22(h) of the Federal 
Reserve Act to provide the Federal Reserve Board with 
regulatory discretion to exempt certain directors and officers 
of subsidiaries of companies that control member banks from the 
loan-tracking requirements of Regulation O. The Committee 
believes that maintaining updated records of the identities of 
all these persons, and their related interests, represents a 
substantial recordkeeping burden. For large banks, this would 
mean tracking hundreds of directors and executive officers on a 
national and international basis. In those situations where the 
executive officer or director of a subsidiary of a company that 
controls a member bank does not have authority to participate, 
and does not participate, in major policymaking functions of 
the member bank and the assets of such subsidiary do not exceed 
10 percent of the consolidated assets of a company that 
controls the member bank and such subsidiary (and is not 
controlled by any other company), the Committee believes that 
the costs of complying with these recordkeeping requirements 
outweigh the benefits of Regulation O's application.
    The bill as ordered reported by the Committee strikes a 
balance between these legitimate regulatory burden problems and 
the safety and soundness concerns that arise in connection with 
any proposed modification of Section 22 of the Federal Reserve 
Act or Regulation O. The Federal Reserve Board's exemptive 
discretion is therefore limited by two conditions: the officer 
and director in question must not have a policymaking role in 
the member bank; and the assets of the affiliate must not 
exceed 10% of the consolidated assets of the holding company. 
In providing this discretion, the Committee's intent is to 
provide significant recordkeeping and loan-tracking relief, in 
a manner consistent with safety-and-soundness protections.
    The bill makes certain improvements to the International 
Banking Act of 1978 as amended by the Foreign Bank Supervision 
Enhancement Act of 1991 (FBSEA). FBSEA was enacted in response 
to certain criminal scandals involving foreign banks in the 
1980's, most notably the BCCI scandal. FBSEA strengthened 
federal regulation of foreign banks' operations in the United 
States by, for the first time, requiring the Federal Reserve 
Board to review all foreign bank applications for branches and 
agencies. FBSEA set forth standards to guide the Board's 
review, the most significant of which was to determine whether 
the foreign bank applicant is subject to comprehensive 
supervision or regulation on a consolidated basis by the 
appropriate authorities in its home country. If a foreign bank 
is not subject to such supervision, the Fed could not approve 
its application to operate branches and agencies in the United 
States.
    While the FBSEA's intent (to improve supervision of foreign 
banks operating in this country) clearly remains a public 
policy priority, the implementation of the law has made it 
impossible for foreign banks from many countries to enter the 
United States through branches and agencies. Concern over this 
and the prolonged approval process prompted some Members of the 
Banking Committee in September 1994 to request a report by the 
FRB on its implementation of the FBSEA. The FRB responded to 
this request on January 20, 1995 with a report on foreign bank 
applications under FBSEA including information regarding the 
processing of applications by the FRB and steps it had taken to 
streamline the process and make it more transparent.
    In its report the FRB noted that the provisions of FBSEA 
require the FRB to make a positive determination that a 
particular foreign bank currently is subject to comprehensive 
consolidated supervision before the FRB can approve an 
application for branches or agencies in the United States. The 
U.S. standard, it noted, was stricter than the minimum 
standards for the supervision of international banks proposed 
by the Basle Committee on Banking Supervision. The FRB noted it 
might be appropriate to amend FBSEA so as to provide itself 
with some flexibility on the comprehensive consolidated 
supervision or regulation standard as embodied in the Basle 
standards if the foreign bank's home country was actively 
working toward meeting those standards. This legislation was 
drafted with the help and approval of the Board's staff to give 
the Board discretion on this standard without sacrificing the 
safety of the U.S. banking system. Other amendments to the 
International Banking Act in this bill are intended to 
streamline and improve the coordination of exams consistent 
with diligent and efficient oversight of foreign bank 
activities, and to ensure that foreign banks continue to 
receive parity of treatment with domestic banks with regard to 
the cost and frequency of examinations.
            Subtitle B: Eliminating unnecessary regulatory burdens
    This subtitle is intended to provide relief from many of 
the data collection and data production requirements that 
impose significant burdens on depository institutions, 
particularly smaller institutions. Again, the Committee's 
paramount concern in considering the provisions of this 
subtitle was regulatory relief, consistent with safety and 
soundness. The bill as reported reflects the safety-and-
soundness concerns that the Treasury, OCC, the Federal Reserve 
Board and the OTS voiced regarding the expansion of the 
examination cycle for small banks to 24 months.
    Section 223 of the bill as ordered reported eliminates a 
1992 law (31 U.S.C. 5327) mandating that the Treasury 
Department issue regulations requiring each depository 
institution to identify all non-bank financial institution 
customers (such as broker-dealers, investment bankers and 
currency exchangers).
    While the Treasury grappled with implementing the 1992 law, 
Congress enacted the Money Laundering Suppression Act of 1994. 
The 1994 law requires the registration of non-banks that are 
money transmitters with the Treasury Department. The Conference 
Report accompanying the 1994 law expresses the Conferees' 
opinion that ``money transmitters'' (which provide, among other 
activities, check cashing, currency exchanges, money 
transmitting or remittance services, or issue or redeem money 
orders) are ``particularly vulnerable to money laundering 
schemes because their level of compliance with the Bank Secrecy 
Act is generally lower'' than depository institutions'.16 
Treasury is currently developing the money transmitter 
registration form and the identification, by depository 
institutions, of non-bank financial institution customers is no 
longer necessary.
    \16\ H. Rep. 103-652, 103rd Cong., 2d Sess. (1994).
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    If Treasury, acting through FinCEN, attempts to implement 
the 1992 law requiring depository institutions to report non-
bank customers to the government, the Treasury rapidly will be 
overloaded by unnecessary new reports. Also, since the existing 
definition ``Financial Institutions'' is extremely broad, the 
government will again be faced with many reports on legitimate 
entities that are not useful to law enforcement. The 
elimination of the requirement that depository institutions 
provide another layer of routine reports has broad support. In 
fact, the Director of FinCEN has indicated that his Agency is 
proceeding toward completion of the money transmitter 
registration requirement and believes that the 1992 law is no 
longer necessary. Therefore, the Committee has approved 
elimination of this potentially burdensome mandate and remains 
opposed to any modification of the ``identification'' law short 
of complete repeal for the reasons expressed above.
    S. 650 as introduced eliminated the $3000 monetary 
instrument identification requirement of Section 5325 of the 
Bank Secrecy Act. In 1988, Congress passed a law requiring 
banks to retain information on individuals that purchase 
certain monetary instruments with over $3000 in cash. In 1990, 
the Treasury Department finalized a regulation requiring banks 
to record information on these purchases and retain them in a 
centralized log for five years. All of the information was to 
be made available to law enforcement upon request. In the four 
years of the regulations' existence, there is little evidence 
that banks were ever asked to provide these logs to law 
enforcement. Therefore, in 1994 Treasury's FinCEN eliminated 
the log requirement. FinCEN undertook this action because it 
believed that ``almost all of the information required . . . is 
kept in the normal course of business.'' It also pointed out 
that the elimination of the log requirement reflected ``a 
judgment that records already kept by the industry effectively 
meet law enforcement needs (to monitor and check for possible 
money laundering).''
    The Committee fully supports the efforts made by FinCEN in 
1994, to substantially reduce the bank requirement that all 
cash purchases of travelers checks, bank checks and cashiers 
checks over $3000 be recorded in a centralized log for five 
years. However, concern over the law's mandate that a 
purchaser's identification be verified forced many institutions 
to continue to use these logs. Section 234 of S. 650 as 
introduced eliminated the statutory mandate that gave rise to 
the monetary log requirement. This provision was included due 
to concerns that the elimination of the monetary log regulation 
(while a major regulatory reduction) might not obviate the need 
to maintain the information that the statute mandated in some 
form.
    Since S. 650's introduction, FinCEN has expressed its 
belief that this confusion can be addressed by clarifying 
ambiguities as to whether verification information can be 
recorded directly on the purchased instrument. If an 
institution can verify and record the identification offered by 
the purchaser without recording that information on a separate 
database or document, ambiguity would be resolved. The 
Committee concurs with that regulator's assessment and has 
therefore eliminated the provision that would have repealed 
Section 5325. The Committee urges FinCEN to fully address the 
uncertainties that remained after the repeal of the monetary 
instrument log.
    The bill as reported provides significant relief for small 
depository institutions from the data collection and reporting 
requirements of the Home Mortgage Disclosure Act (``HMDA''). 
During the Subcommittee hearings on S. 650, a number of 
industry witnesses and regulators testified to the burden that 
HMDA compliance imposes on small institutions. The 
disproportionate burden that HMDA places on small institutions 
was acknowledged by the Congress that enacted this law when it 
included a small bank exemption. The $10 million asset-size 
threshold has not been increased since the law's enactment over 
twenty years ago, despite the effect of inflation and a general 
upward trend in asset size within the industry over that time.
    The $50 million threshold contained in this bill will only 
slightly diminish the volume of loan data reported. As FDIC 
Chair Helfer testified, raising the threshold would exempt 33% 
of FDIC-regulated institutions, but only 6% of the loan data; 
she testified that ``the resulting cost savings to smaller 
institutions, however, would be material.'' 17 The 
increase of the HMDA threshold to $50 million was supported by 
both the FDIC and the Federal Reserve Board, the two primary 
federal regulators of small banks, but was opposed by Treasury 
and HUD. The change in the threshold applies to depository 
institutions only and is in no way meant to change the current 
threshold that is used for non-depository lending institutions.
    \17\ Helfer Testimony, supra, note 5.
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    Both the FDIC and the Federal Reserve Board also supported 
the repeal of Section 477 of FDICIA which requires an annual 
report on small business and small farm loans. The Committee 
believes the costs of producing this report are unnecessary in 
light of other existing requirements that mandate the reporting 
of similar data. Eliminating section 477, therefore, does not 
affect the public availability of this kind of lending data. 
Section 477 replicates, in large part, the requirements of 
Section 122 of FDICIA which mandates the collection of call 
report data on credit availability for small businesses and 
small farms.
            Subtitle C: Regulatory micromanagement
    Title II of the bill also includes a provision that 
requires at least one of the two appointed members of the FDIC 
Board have State bank supervisory experience. This provision 
originally required that one of the appointed members be a 
state bank supervisor. This requirement could be problematic in 
that the laws of many states preclude state office holders from 
serving in federal office. In addition, the original provision 
raised succession questions with respect to supervisors who 
lost or left their state position, and concerns were voiced 
that the significant responsibilities of state supervisor would 
limit the state supervisor's ability to focus on their FDIC 
responsibilities. The Committee wanted to address these 
concerns while still ensuring that the FDIC Board include a 
member with state bank regulatory expertise and sensitivity to 
the issues confronting the dual banking system. The Committee 
believes that the current Section 243 strikes a proper balance 
between these concerns.

Title III: Regulatory impact on cost of credit and credit availability

    This Title contains a series of amendments to various laws 
and regulations that impose limitations on the manner in which 
depository institutions, and other financial intermediaries, 
conduct their business. Certain regulations are necessary for 
safety-and-soundness, anti-discrimination, or other public 
policy purposes. This Title seeks to preserve these vital 
safeguards. In considering the provisions of this Title, the 
Committee sought the advice and comments of the regulatory and 
enforcement agencies in order to assure that the amendments 
would not weaken their ability to pursue necessary public 
policy goals.
    Section 301 amends certain provisions governing the scope 
and mechanics of the independent audit function for insured 
depository institutions. This provision eliminates the 
independent auditor attestation requirement for safety and 
soundness compliance, and allows the agencies the discretion to 
waive the requirement that all members (but not less than a 
majority) of the independent audit committee be outside 
directors in the case of hardship.
    The accountant's attestation for compliance with safety and 
soundness requirements imposes significant costs on banks. The 
attestation review process duplicates the regulatory 
examination procedures. The Treasury Department, the Federal 
Reserve Board, the OCC and the FDIC support this provision. The 
provision leaves intact the independent auditor attestation 
requirement for internal controls, as that second review is 
seen as ensuring the integrity of the safety and soundness 
exams conducted by regulators.
    Many smaller institutions in less populated areas have 
difficulty recruiting and retaining competent outside directors 
to sit on their independent audit committees. This provision 
allows the appropriate Federal banking agency to waive the 
requirement that the committee be comprised entirely of 
``outside directors'' (but no fewer than a majority of outside 
directors) if the agency determines that the institution has 
encountered hardships in retaining and recruiting a sufficient 
number of competent outside directors to serve on the internal 
audit committee of the institution. In determining hardship, 
the agency must consider such factors as the size of the 
institution, and whether the institution has made a good faith 
effort to elect or name additional competent outside directors 
to the board of directors of the institution who may serve on 
the internal audit committee. The Treasury Department, the 
Federal Reserve Board, OCC, OTS and FDIC all support the 
general intent of this provision.
    This section also authorizes regulators to designate 
certain information included in the annual management report 
privileged and confidential. The granting of such a designation 
does not alter or provide an exemption from any requirement 
under the federal securities laws, or any rules and regulations 
promulgated thereunder, to file audited financial statements 
and the complete reports of independent auditors.
    Section 302 creates a civil and administrative enforcement 
privilege for ``self-tests'' conducted by a financial 
institution to determine fair lending compliance under the Fair 
Housing Act and the Equal Credit Opportunity Act. The purpose 
of this provision is to encourage institutions to undertake 
candid and complete self-tests for possible fair lending 
violations and to act decisively to correct any discovered 
problems. The privilege ensures that such self-test efforts 
will not be used against an institution if that institution has 
undertaken remedial action. This provision does not change the 
mandatory referral requirement for ``pattern or practice'' 
violations of ECOA or FHA. This privilege augments, and does 
not supplant, other evidentiary privileges that may attach to 
the results of a self-test, such as the attorney-client 
privilege. Waiver of the self-testing privilege does not 
constitute a waiver of any other privilege that may be 
available. A report or result of a self-test is considered 
privileged if a creditor conducts or authorizes an independent 
third party to conduct a self-test of any aspect of a credit 
transaction by a creditor, in order to determine the level or 
effectiveness of compliance; and has identified any possible 
violations of this title and has taken, or is taking, 
appropriate corrective action to address the possible 
violations.
    The privilege can be lost or waived where a person with 
lawful access to the results voluntarily releases them. This 
refers to officers, employees or contractors of financial 
institution who are authorized to review and handle the self-
test results; the privilege is not waived by inadvertent or 
unauthorized release of the results, such as by someone 
breaking into the lender's paper or electronic files. The 
privilege can also be waived if a person with lawful access 
cites or uses the results to counter charges that the lender is 
not in compliance with the law. Moreover, self-test results may 
be obtained in the narrow context of assessing an appropriate 
sanction for violations already (or concurrently) adjudicated 
or admitted; this should not be construed as authorizing 
expansive ``fishing expedition'' discovery demands at the 
outset of litigation or administrative enforcement actions.
    A department, agency or civil litigant may challenge a 
privilege asserted under this section in a judicial or 
administrative law forum of competent jurisdiction (including 
procedures to handle the privilege challenge confidentially).
    Substantially similar regulations from the Board and HUD 
are essential for this privilege to operate consistently under 
both statutes, but broad consultation among affected 
departments and agencies is to be part of the regulation 
writing process. Creditors and other lenders may invoke this 
privilege for self-tests that were undertaken prior to this 
section's enactment, but not if a formal complaint has been 
filed involving matters covered by the self tests, or the 
privilege has been waived under the rules of this section.
    Section 304 contains amendments to various statutory 
provisions that unduly restrict the portfolio holdings of 
thrifts, including the ``Qualified Thrift Lender'' test. The 
mortgage market has changed dramatically in recent years, and 
there is a diminished need for institutions focused almost 
entirely on home lending; currently, thrifts only originate 
about 25% of home mortgages. These new provisions are intended 
to give thrifts the ability to diversify their portfolios, in a 
manner consistent with their established lines of business. 
Greater portfolio diversity will promote healthier and more 
profitable portfolios. Chairman Greenspan and OTS Director 
Fiechter support providing thrifts with greater flexibility to 
invest in other products. The Treasury Department is also 
supportive of greater flexibility for certain thrifts.
    Title III contains a number of provisions intended to 
streamline and improve the business operations of the Federal 
Home Loan Banks and the FHLB system. Section 305 would require 
that the FHLBs receive the same treatment for daylight 
overdrafts incurred through their use of the Fedwire as all 
other users of the Fedwire. The Federal Reserve established 
daylight overdraft rules in order to diminish concerns about 
the potential for a systematic crisis due to the default on an 
overdraft position. Because short-term intraday overdrafts are 
inevitable, the Federal Reserve Board has established ``net 
debit caps,'' which allow Fedwire users a certain level of 
overdraft activity prior to the imposition of overdraft fees. 
These caps are based on the capital and credit quality of the 
user. The current daylight overdraft rules require the FHLB 
system to pay fees for daylight overdrafts without the benefit 
of net debit caps. Thus, the FHLBs are treated as if they pose 
more risk than other Fedwire users, and ignores the AAA-rated 
credit quality that the FHLB system and the individual banks 
enjoy.
    Section 306 explicates the FHLBs' authority to approve 
applications for membership. Prior to approving applications of 
CAMEL 3, 4, or 5-rated institutions, however, the FHLB must 
notify the Federal Housing Finance Board (FHFB). This provision 
was included in recognition of the significant role that the 
individual banks currently play in the membership screening 
process (currently the FHFB authorizes the FHLBs to carry out 
this responsibility for most CAMEL 1 and 2-rated institutions). 
Each FHLB has extensive credit policies and procedures in place 
to protect itself and the FHLB system from risk. The provision 
does not alter existing membership requirements regarding 
financial condition.
    Section 307 will allow the FHLBs to jointly select external 
auditors rather than the FHFB. The provision does not alter the 
FHFB's ability to examine the banks or establish independent 
audit contract requirements to ensure consistency in financial 
reporting.
    Section 309 will provide the Federal Home Loan Banks with 
greater flexibility in accepting appropriate collateral for 
advances. With respect to collateral requirements for advances 
the primary concern has been, and continues to be, assuring 
that System advances are secured with collateral that will 
provide sufficient protection against a possible default. The 
Committee believes that subordinate mortgages on improved 
residential property that have a secure form of credit 
enhancement do provide a sufficiently secure collateral source. 
Section 310 increases the Systemwide cap on advances to members 
that are not Qualified Thrift Lenders from 30% to 40%. This 
amendment was adopted in recognition of the changing nature of 
the System's membership (the System may reach this 30% limit 
sometime during the 1996 calendar year), and to allow the 
system to continue to fulfill its role as a source of liquidity 
for home financing while proposals for modernizing the System 
are considered. Currently, 16 percent of the total advances of 
the Federal Home Loan Bank system go to non-qualified thrift 
lenders (i.e., banks). However, the Federal Home Loan Bank 
system currently has more members that are banks than savings 
associations. Once the 30 percent limit is exceeded, non-
qualified thrift lenders who are members of the Federal Home 
Loan Bank system will not be able to get advances from the 
system to permit them to originate mortgages. The Committee 
believes that the System continues to play an important policy 
role in providing community-based lenders with economical 
wholesale credit and related assistance.
    Section 308 eliminates the 7 percent cap on the annual 
asset growth of limited purpose banks, and allows limited 
purpose banks to take deposits under $100,000 for the purpose 
of securing a credit card. The growth cap, enacted in the 
Competitive Equality Banking Act of 1987, was intended as a 
temporary measure. At the time it was enacted, it was expected 
that Congress would shortly legislate in the area of bank 
powers. While banks have received additional powers and 
authorities through both legislative and regulatory action, the 
restriction on financial service providers' growth remains in 
place. Section 308 also clarifies that limited purpose credit 
card banks may accept collateral in connection with the 
issuance of secured credit cards. A secured credit card is a 
credit card for which the borrower has posted collateral, such 
as a savings or time deposit, to secure credit advances. Such 
programs provide needed credit to consumers who might otherwise 
be unable to qualify, including persons attempting to establish 
a credit history and individuals who previously have had credit 
problems. The amendment would also protect the safety and 
soundness of limited purpose credit card banks by clarifying 
that there is no restriction on such institutions accepting 
collateral for their extensions of credit.
    Title III includes two amendments to the Fair Debt 
Collections Practices Act. Both changes provide needed 
clarification of the statute. The first amendment clarifies the 
requirements of Section 807(11). This subsection requires debt 
collectors to disclose clearly in all communications made to 
collect a debt or to obtain information about a consumer, that 
the debt collector is trying to collect a debt and is 
contacting the consumer for that purpose. The FTC staff has 
interpreted this subsection to require this disclosure only in 
the first communication with the debtor. Nevertheless, some 
Courts have interpreted this language as requiring the 
inclusion of this disclosure in every communication. This 
construction of the statute has resulted in numerous technical 
violations. The FTC has recommended narrowing this requirement 
to the initial communication, oral or written, in its last 
several reports to Congress on the FDCPA.
    The second provision amends Section 809(b) of the FDCPA. 
This provision of the FDCPA provides that a consumer has 30 
days to request a verification of a debt, and if such 
verification is requested the collector must cease collection 
activities. The FTC has recommended that Congress clarify that 
collection activity may take place without a verification 
request.

Title IV: Fair credit reporting

    Title IV of the bill as ordered reported contains a series 
of amendments to the FCRA. The provisions of this Title are 
derived from S. 709, a bill introduced by Senators Bond and 
Bryan earlier this Congress, and is substantially similar to S. 
783, a bill amending the FCRA, that the Committee reported and 
the Senate passed during the 103rd Congress.18 A number of 
problems in the FCRA's implementation and interpretation have 
arisen in the years since the law's enactment. Many of these 
problems are a result of ambiguities in the statute; other 
problems have arisen as the credit reporting industry has grown 
in the wake of information technology advances that have 
occurred over the last twenty years.
    \18\ See, S. Rep. 103-209, 103rd Cong., 1st Sess. (Star print). 
Congressional Record, May 2-4, 1994 (S 4965-4984; S 5026-5046; S 5129-
5146).
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    To generalize, the chief concerns that are implicated by 
the FCRA are: 1. the accuracy of consumer reports and problems 
associated with resolving disputed information; 2. the privacy 
concerns raised by unfettered access to consumers reports; 3. 
operational concerns implicated by differing statutory schemes 
regulating the credit reporting industry at the state level; 
and 4. ambiguities as to what constitutes a ``consumer report'' 
for the purposes of the FCRA that have hampered the business 
operations of both credit reporting bureaus and credit report 
users.
    Currently, the FCRA requires that credit reporting agencies 
reinvestigate disputed information in a ``reasonable period of 
time.'' Many consumers have complained in the past about time 
delays in resolving disputes. These delays can often lead to an 
unwarranted denial of credit. The industry has made a serious 
effort to address these concerns, and has used available 
technology to expedite the resolution of disputes. Title IV 
would establish a specific reinvestigation time schedule for 
disputed information.
    The FCRA prohibits credit bureaus from providing consumer 
reports to users that do not have a ``permissible purpose'' for 
obtaining the report; however, there is no correlative 
permissible purpose obligation imposed on credit report users. 
Title IV specifies that users of credit reports establish, on 
general or specific basis, a permissible purpose for obtaining 
a credit report.
    While Title IV would clarify the circumstances under which 
a credit report may be obtained, it would also clarify that 
credit bureaus may provide certain products, such as 
``prescreened'' lists,\19\ direct marketing mailing lists and 
credit reports provided for commercial purposes, consistent 
with the FCRA. By so doing, Title IV clarifies ambiguities that 
currently exist as to when and how credit bureaus may provide 
such products. Similarly, Title IV will clarify that affiliates 
within a Holding Company structure can share any application 
information (last year's bill was limited to credit 
applications) and consumer reports, consistent with the FCRA. 
Under current law, such information can be deemed a ``consumer 
report'' and the information sharing entity can be deemed a 
``consumer reporting agency,'' thereby implicating all the 
restrictions of the FCRA. The affiliate sharing provisions of 
this Title will allow affiliates to share such information 
without being deemed a consumer reporting agency.
    \19\ ``Prescreened'' lists are mailing lists used to market 
financial products, particularly credit cards. These lists are compiled 
by screening credit bureau records for individuals who meet certain 
specifications established by the requesting party. This Title would 
allow consumers to ``opt-out'' of inclusion in this process and 
provides safeguards against the disclosure of consumer-specific credit 
history information.
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    Title IV also clarifies the circumstances in which a 
furnisher of information to a credit bureau can be liable for 
providing inaccurate information. S. 783 adopted a ``known or 
should have known'' standard; Title IV attempts to provide 
greater certainty for information furnishers, and liability 
attaches only when the furnisher is actually notified of an 
inaccuracy. This provision exempts information furnishers from 
civil liability for providing inaccurate information in 
circumstances where the mandated notice has not been provided 
by the consumer.

Title V: Asset conservation, lender liability and deposit insurance 
        protection

    Title V contains provisions that would amend Federal 
banking and environmental law to clarify the liability of 
lenders for environmental clean-up of property that secures 
financing. This title will also clarify the liability of 
federal agencies that assume the ownership of foreclosed 
contaminated property through conservatorships or 
receiverships. The problem of massive potential liability, 
particularly for clean-ups undertaken pursuant to the CERCLA, 
or as it is more commonly known, the ``Superfund'' law, is 
largely the result of case law that has limited the ``secured 
creditor exemption'' contained in CERCLA.\20\
    \20\ The Eleventh Circuit Court of Appeals deemed a secured 
creditor liable merely because it had the capacity to influence a 
borrower's environmental disposal decision. U.S. v. Fleet Factors 
Corp., 901 F.2d 1550 (11th Cir. 1990). (cert. denied, 498 U.S. 104 
(1991)).
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    Another line of case law has stripped lenders of the 
secured creditor protection contained in Superfund when lenders 
have foreclosed on collateralized property--thereby stripping 
the exemption of its value by denying creditors their right to 
remedy default by exercising their security interest.\21\ As a 
result, lenders risk being targeted as convenient ``deep 
pockets,'' and subject to substantial liability for remedial 
costs, not because they caused environmental contamination or 
did not take proper precautions, but simply because they 
exercise a security interest.
    \21\ See, U.S. v. Maryland Bank & Trust Co., 632 F.Supp. 573 (D.Md. 
1986); Guidice v. BFG Electroplating and Manufacturing Co., 732 F.Supp. 
556 (W.D. Pa. 1989).
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    Costs for environmental clean up by banks can easily be $10 
million to $100 million. They average $30 million.\22\ Many 
lenders have altered their lending practices to avoid potential 
draconian joint and several liability for Superfund clean-ups. 
Many small businesses and potential homeowners do not receive 
financing because lenders fear potential liability. 88% of 
banks changed their lending procedures in an effort to avoid 
environmental liability; 62.5% have rejected loan applications 
on the possibility of environmental liability; 45% discontinued 
financing of certain types of loans (service stations, chemical 
business). One-third of the members of the Petroleum Marketers 
Association had loans denied.\23\
    \22\ Anderson, Eugene and Jordan Stanzler. ``Insurers May Cover 
Toxic--Waste Cleanups.'' American Banker; May 9, 1990.
    \23\ Letter dated July 24, 1991 to John Fogarty, EPA from Edward 
Yingling on behalf of the American Bankers Association, commenting on 
CERCLA ruling.
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    The Senate passed similar legislation in 1991 as part of S. 
543, the Federal Deposit Insurance Corporation Improvement Act. 
The Senate approved a lender liability amendment to the Federal 
Housing Enterprises Regulatory Reform Act of 1992. Last year, 
the Banking and Environment Committees worked together and 
crafted language for inclusion in the Superfund Reauthorization 
bill. It is the hope of the Committee that the staffs of these 
two Committees will be able to continue to cooperate on this 
issue.
    The provisions contained in Title V are closely modeled on 
the final language agreed to in that Superfund bill, with 
several adjustments. Most significantly, this bill would 
clarify lender liability rules not only with respect to 
Superfund, but also with respect to the underground tank 
provisions of the Solid Waste Disposal Act. In this regard, 
this bill is similar to the lender liability provisions (Title 
II) of S. 1124 that Senators D'Amato, Shelby, Bond, Bennett and 
Domenici offered last year. The need for remedial legislation 
has become more pressing in light of the Supreme Court's denial 
of certiorari in Kelly v. Environmental Protection Agency.\24\ 
This case effectively precluded the EPA's handling of the 
lender liability problem through rulemaking.
    \24\ 15 F.3d. 1100 (4th Cir. 1994).
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Title VI: Miscellaneous clarifications, studies and reports

    Title VI includes a number of regulatory clarifications, 
studies, and statutory improvements that are intended to 
provide more cost-effective delivery of financial services. 
These provisions were among those that the Committee adopted 
during its September 27th mark-up. Section 601 clarifies that 
stored value devices, such as certain ``smart cards'', are not 
subject to requirements of the Electronic Fund Transfer Act 
(``EFTA'') to the extent that such devices are used as a cash 
equivalent such as when they are used as media for the storage 
of monetary value and to deliver funds for the payment for 
goods or services. Transactions in which value is 
``downloaded'' onto a stored value card from an asset account 
would be subject to the EFTA to the extent that any such 
transfer from an account is currently subject to this law. The 
Committee intends this clarification to allow the development 
and utilization of this nascent cash-equivalent technology, and 
not to diminish any protections that may attach to credit and 
debit cards as currently used to access consumer credit and 
asset accounts, respectively. The Committee believes that as 
the private sector continues to develop stored value card 
technology, it should also attempt to educate customers on the 
prudent use of this technology. For multipurpose cards that 
involve stored value features as well as debit card or credit 
card features, the clarification set forth in Section 601 
applies only to the stored value feature and does not affect 
the application of existing law to the debit card or credit 
card features of the card.
    Section 602 of the bill clarifies Section 11 of the Federal 
Deposit Insurance Act to make explicit what is already implicit 
by virtue of the text and structure of the statute and the 
underlying regulations (particularly the provisions concerning 
administrative claims and the priority of administrative 
expenses). It is the intent of this provision to give meaning 
and legally-binding effect to current FDIC and RTC policies 
which provide that any breaches of contracts entered into by 
the FDIC or RTC as receiver after appointment will be paid as 
administrative expenses of the receivership. This provision is 
also consistent with existing interpretations and policies of 
the federal banking agencies. Since this provision makes no 
change in current law as interpreted and applied, the substance 
of this provision should apply in pending litigation, appeals 
and administrative actions.
    Section 603 closes a loophole in counterfeit law. 
Fictitious financial instruments are not reproductions of 
actual negotiable instruments; rather the instruments 
themselves are fictitious.25 Federal prosecutors have 
determined that the manufacture, possession, or utterance of 
these instruments does not violate the counterfeit or bank 
fraud provisions contained in chapters 25 and 65 of the United 
States Code.
    \25\ Fictitious financial instruments have been called many names, 
including ``Prime Bank Notes'', ``Prime Bank Derivatives'', ``Prime 
Bank Guarantees'', ``Japanese Yen Bonds'', ``Indonesian Promissory 
Notes'', ``U.S. Treasury Warrants'', and Philippine Victory Bonds''.
---------------------------------------------------------------------------
    Fictitious financial instruments have caused hundreds of 
millions of dollars in losses to financial institutions, mutual 
funds and private individuals. The National Council of Churches 
and the Salvation Army are amongst the organizations that have 
lost significant sums of money in such schemes. In recent 
years, tax rebellion and militia groups, such as the Posse 
Comitatus and its splinter groups such as We the People and the 
Juris Christian Assembly fund their activities with fictitious 
financial instruments. Organized crime syndicates in West 
Africa have used fictitious financial instruments to finance 
drug smuggling operations.
    This legislation also corrects a drafting error made when 
Congress passed the Counterfeit Deterrence Act of 1992. While 
attempting to raise criminal penalties imposed for 
counterfeiting, Congress actually lowered these penalties. This 
provision will restore counterfeiting sentences in accordance 
with Congressional intent in 1992.
    Section 604 of the bill as ordered reported amends the 
Truth-in-Savings Act, while retaining most of the disclosure 
requirements that benefit consumers. The overwhelming majority 
of depository institutions did provide most of the disclosures 
required under Truth in Savings prior to the law's enactment, 
and continue to pursue good-faith compliance efforts. In fact, 
the industry spent nearly $500 million modifying compliance 
programs and disclosure materials to ensure that TISA's 
technical mandates were met. In light of the fact that TISA 
compliance has been integrated into the industry's compliance 
programs, the Committee decided to retain the APY and other 
TISA disclosures. Nevertheless, the Committee is mindful that 
the requirements of TISA compliance present a variety of 
potential technical pitfalls, and attendant liability. In light 
of these continuing concerns, the Committee decided to amend 
the law so that it would have an administrative remedial 
enforcement scheme.

                      SECTION-BY-SECTION ANALYSIS

Section 101. Coordination of TILA/RESPA

    Section 101 provides the Federal Reserve Board (the Board) 
with the authority to modify the disclosure requirements of the 
Real Estate Settlement Procedures Act (RESPA) and the Truth in 
Lending Act (TILA) in order to achieve uniformity between the 
two laws. The purpose is to streamline, integrate and improve 
regulations, thereby reducing costs to lenders (including 
timing and content requirements) and improving the quality of 
disclosures.

Section 102. Elimination of redundant regulators

    Section 102 of the bill would transfer RESPA rulewriting 
authority to the Board with the exception of Sections 8 and 9 
of RESPA, which prohibit referrals, kickbacks and unearned fees 
and directed purchases of title insurance, respectively. This 
section clarifies that the appropriate federal banking 
regulators maintain enforcement authority over financial 
institutions' compliance with RESPA and that the Department of 
Housing and Urban Development (HUD) retains both rulewriting 
authority over Sections 8 and 9 of RESPA and general 
enforcement authority over non-financial institutions.

Section 103. General exemptive authority for loans

    Section 103 provides the Board with the discretion to 
exempt from some of the requirements of TILA certain classes of 
loans that do not provide a ``meaningful benefit'' to consumers 
in the form of useful information or protection. Factors for 
consideration by the Board include: the size of the loan, the 
sophistication of the borrowers, whether the loan is secured by 
a principal residence, and whether the goal of consumer 
protection would be undermined.

Section 104. Reductions in Real Estate Settlement Procedures Act

    Section 104 amends RESPA to clarify that the notice 
regarding sale of loan servicing does not have to include an 
estimate of the percentage of loan servicings the lender 
expects to sell annually. The provision also exempts 
subordinate lien mortgages from Section 8 of RESPA and 
clarifies that the definition of the term ``business credit'' 
under RESPA shall be the same as under TILA.

Section 105. Co-branding and affinity group endorsements

    Section 105 clarifies that Section 8 of RESPA does not 
prohibit endorsements by persons or affinity groups not 
otherwise involved in providing settlement services in 
connection with a settlement transaction. Section 8 would still 
prohibit the payment of referral fees to settlement service 
providers.

Section 106. Exemption for certain borrowers

    Section 106 gives the Board the authority to allow 
sophisticated borrowers to waive the disclosures required under 
TILA. Sophisticated borrowers are defined as individuals with 
net assets in excess of $1,000,000 or annual earned income of 
more than $200,000. The Board has the authority to increase 
both thresholds for inflation. The provision also requires that 
the waiver be handwritten, dated and signed.

Section 107. Alternative disclosures for adjustable rate mortgages

    This provision would allow lenders (in consumer credit 
transaction not under an open-end plan) to choose between 
providing consumers with a 15 year historical table charting 
fluctuations in interest rates based on a $10,000 loan; or 
disclosing to the consumer the fact that annual percentage 
rates may increase or decrease substantially as well as what 
the maximum interest rate and payment would be based on a 
$10,000 loan.

Section 115. Restitution for violations of Truth in Lending Act

    Section 115 provides regulators with the discretion to 
determine the appropriate restitution remedy to be imposed on 
an institution for TILA violations, consistent with safety and 
soundness. The provision gives regulators more discretion in 
imposing full restitution when such restitution plan would 
force an institution to become undercapitalized. The provision 
would allow regulators a choice between ordering partial 
restitution and ordering full restitution to be paid out over 
time to avoid adverse impact.

Section 201. Elimination of certain filing and approval requirements 
        for certain insured depository institutions

    Section 201 would allow bank holding companies that seek to 
merge or consolidate existing subsidiaries to do so without 
seeking approval under the Bank Merger Act (BMA) unless 
required to do so by the responsible agency within 10 days 
after receipt of notice of the proposed transaction. Under 
current law, banks owned by the same bank holding companies 
must seek approval from the appropriate federal banking agency 
for the surviving institution under the BMA before merging 
subsidiary banks. Approval under the BMA is based on standards 
identical to those already applied under the BHCA when the bank 
holding company acquired (either at the time of the merger or 
previously) the subsidiary banks.

Section 202. Elimination of redundant approval requirement for OAKAR 
        transactions

    Under current law, the merger of a bank and a savings 
association requires approval under two separate statutory 
provisions that apply the identical statutory review factors--
the Bank Merger Act and the Oakar Amendment. This provision 
would remove the duplicative approval requirements under the 
Oakar amendment for the merger of a bank and a savings 
association if approval was already sought under the BMA. The 
provision does not alter other provisions of the Oakar 
Amendment relating to paying of assessments into the 
appropriate insurance fund or requirements that institutions 
meet capital requirements.

Section 203. Elimination of duplicative requirements imposed upon bank 
        holding companies under the Home Owners' Loan Act

    Currently, bank holding companies that own savings 
associations are subject to duplicative review, examination and 
reporting requirements under the Bank Holding Company Act 
(BHCA) and the Savings and Loan Holding Company Act (SLHCA). 
This provision would eliminate the application of the SLHCA to 
bank holding companies that are subject to the BHCA. It does 
not alter any requirements applicable to savings associations 
that are controlled by bank holding companies. The provision 
also ensures that OTS has a consultive examination role and a 
cooperative enforcement role with the Federal Reserve Board 
over bank holding companies that control savings associations.

Section 204. Elimination of per branch capital requirement for national 
        banks and State member banks

    Section 204 strikes the requirement that national and state 
member banks have aggregate capital in an amount no less than 
the aggregate minimum capital that would be required if each 
branch were a separately chartered national bank. Modern bank-
wide capital requirements have made these branch-related 
capital rules obsolete.

Section 205. Elimination of branch application requirements for 
        automatic teller machines

    Section 205 clarifies that an ``ATM'' or ``remote service 
unit'' is not considered a ``branch'' for purposes of federal 
bank branching laws and is therefore not subject to prior 
approval requirements or geographic restrictions.

Section 206. Elimination of requirement for approval of investments in 
        bank premises for well capitalized and well managed banks

    Section 206 would allow well-capitalized and well-managed 
banks to invest an amount less than or equal to 150% of the 
bank's capital and surplus in bank premises without prior 
federal approval. The bank would be required to provide notice 
to the appropriate federal regulator within 30 days of the 
investment. Current law allows banks to invest up to 100% of 
capital in bank premises without prior federal approval.

Section 207. Elimination of approval requirement for divestitures

    Section 207 eliminates the presumption that a bank holding 
company controls those shares that it divests of any company to 
a third party that is financed by a subsidiary of the BHC, or 
where there is an officer or director common to the company and 
the investor. Although the presumption was intended to prevent 
sham divestitures, the Board believes it can detect sham 
transactions through the examination process without the 
application burden the presumption imposes on the banking 
industry.

Section 208. Streamlined nonbanking acquisitions by well-capitalized 
        and well-managed banking organizations

    Section 208 permits well-capitalized and well-managed bank 
holding companies, without prior approval, to commence 
permissible nonbanking activities and to make acquisitions of 
companies engaged in permissible nonbanking activities that are 
limited in size. The Board would still receive advance notice 
so that it may require an application if it chooses and both 
the Federal Trade Commission (FTC) and the Department of 
Justice (DOJ) would continue to receive notice for purposes of 
conducting competitive analysis of any proposal.

Section 209. Elimination of unnecessary filing for officer and director 
        appointments

    Section 209 narrows the requirement that any newly 
chartered or troubled institutions, or institution that has 
undergone a change in control in the last two years, file a 
notice 30 days before appointing a new officer or director. The 
provision would only require prior notice and approval for 
troubled institutions.

Section 210. Amendments to the Depository Institutions Management 
        Interlocks Act

    Section 210 restores the authority of federal banking 
agencies to grant additional exemptions from the prohibitions 
on officer and director interlocks between unaffiliated banking 
organizations, as long as the exemption wouldn't result in a 
monopoly or substantial lessening of competition. Also, the 
asset thresholds that provide an exemption for banks and bank 
holding companies from the prohibitions on management 
interlocks are also increased from $1 billion to $2.5 billion 
and $500 million to $1.5 billion, respectively. This section 
would further give the federal banking agencies the authority 
to adjust these thresholds annually to account for inflation or 
market changes. This section also eliminates the termination 
date on grandfathered interlocks.

Section 211. Elimination of recordkeeping and reporting requirements 
        for officers

    Section 211 makes several changes to the preferential 
lending restrictions of 22(h) of the Federal Reserve Act. 
Without changing any of the core restrictions on insider 
lending, section 211 would allow executive officers, directors, 
or principal shareholders to receive extensions of credit 
pursuant to a benefit or compensation program that is widely 
available to employees of the member bank and does not give 
preference to such executive officers, directors or principal 
shareholders over other employees of the member bank. Section 
211 would also allow the Board to exempt from the restrictions 
of section 22(h) executive officers and directors of 
subsidiaries that control member banks, if such executive 
officers and directors do not have authority to participate, 
and do not participate in major policymaking functions of the 
member bank; and the assets of such affiliate do not exceed 10 
percent of the consolidated assets of a company that controls 
the member bank and such subsidiary (and is not controlled by 
any other company).

Section 212. Consolidation of Appraisal Subcommittee; transfer of 
        functions

    Section 212 would consolidate the administrative functions 
of the Appraisal Subcommittee into the Federal Financial 
Institutions Exam Council (FFIEC). The Appraisal Subcommittee 
of the FFIEC was created in 1989 to develop and monitor state 
licensing and regulation of real estate appraisers. While the 
Subcommittee is established within the FFIEC and the 
subcommittee's members are appointed from staff of the bank 
regulatory agencies and HUD, the subcommittee's administrative 
functions have been managed independently of the FFIEC due to 
the appropriated nature of the $5 million dollar start-up loan 
provided to the subcommittee from the Treasury. This section 
would also require that the subcommittee repay the outstanding 
amount on the Treasury loan by the year 1998 and phases out the 
grant authority to the Appraisal Foundation in that same year.

Section 213. Branch closures

    Section 213 would clarify the branch closure notice 
requirements of Section 42 of the FDIA. This section largely 
codifies exceptions already adopted in an interagency policy 
statement on branch closures promulgated by the federal banking 
agencies. Under this section, excluded from the notice 
requirements are: ATM's; and relocations of branches or 
consolidations of one or more branches into another branch so 
long as the relocation or consolidation occurs within the 
immediate neighborhood and does not substantially affect the 
nature of the business or customers served. Branches closed in 
connection with emergency acquisitions or branches receiving 
other assistance from the FDIC are also excepted from the 
notice requirements.

Section 214. Foreign banks

    Section 214 gives the FRB greater discretion in considering 
foreign bank applications. The FRB would no longer be compelled 
to deny an application solely because a bank is not subject to 
consolidated comprehensive supervision or regulation, a 
standard which exceeds the current international standard. The 
FRB is given the discretion to approve an application, with 
such conditions as it deems appropriate, as long as the home 
country is actively working toward and making progress in 
establishing arrangements for the comprehensive consolidated 
supervision or regulation of the applicant foreign bank. In 
addition, if the appropriate authorities in the home country 
are not making demonstrable progress in establishing 
arrangements for comprehensive consolidated supervision or 
regulation of such foreign bank, the FRB can terminate the 
foreign bank's state agencies or branches and recommend 
termination of its federal branches and agencies located in the 
United States.
    In approving an application under this provision, the FRB 
is required to consider whether the foreign bank has adopted 
and is implementing procedures to combat money laundering. The 
FRB may also take into account whether the home country of the 
foreign bank is developing a legal regime to address money 
laundering or is participating in multilateral efforts to 
combat money laundering.
    These amendments have two overarching goals. The first is 
to strike an appropriate balance between preserving prudently 
firm statutory standards and correcting unwarranted barriers to 
entry in the current approval process. The second is to 
encourage further progress toward comprehensive consolidated 
supervision by countries that do not currently accord such 
supervision.
    This section also makes changes in current law to ensure 
the United States continues to provide parity of treatment for 
foreign branches and agencies of foreign banks with respect to 
exam fees. After the expiration of a three year moratorium, the 
International Banking Act requires the FRB to charge foreign 
banks with respect to the exams it conducts of their branches 
and agencies. Under this section, the FRB may only assess and 
collect foreign bank exam fees to the same extent it would 
charge state chartered member banks. Since the FRB does not 
presently charge state chartered member banks for their exams, 
it has expressed concern that current law will lead to 
disparate treatment between state chartered member banks and 
foreign banks. The foreign banks would be charged twice and 
state member banks only once for their examinations. This 
section also changes current law that requires annual on site 
examinations of foreign banks by providing they should be 
examined on site as frequently as would a national or state 
chartered bank by its appropriate regulator. These amendments 
do not preclude regulators from conducting on-site examinations 
more frequently if they deem it necessary. Finally, a strict 
time table is set up for final action by the FRB on foreign 
bank applications. The FRB is required to act within 180 days 
of receipt of the application. The FRB may extend this period 
for 180 days after providing notice of and the reasons for the 
extension.

Section 215. Disposition of foreclosed assets

    Section 215 provides bank holding companies with the same 
flexibility as national banks by providing the Board with the 
authority to approve applications to hold foreclosed stock an 
additional five years. Under current law, bank holding 
companies are accorded up to five years to dispose of 
foreclosed assets. National banks, however, can hold foreclosed 
stock or real estate up to 10 years. The five-year extension 
would be dependent on the bank holding company showing the 
Board a good faith attempt to dispose of the foreclosed assets 
or a demonstration that disposing of the foreclosed shares 
during the initial five year period would have been detrimental 
to the bank holding company.

Section 221. Small bank examination cycle

    Section 221 provides the federal banking agencies with the 
authority to examine Camel 2 institutions of up to $250 million 
in assets every 18 months. Current law allows federal banking 
regulators the discretion to examine Camel 1 institutions of up 
to $250 million and Camel 2 institutions up to $100 million (or 
up to $175 million after September 1996) on an 18-month exam 
cycle.

Section 222. Required regulatory review of regulations

    Section 222 requires the FFIEC and the appropriate federal 
banking agencies to review all banking regulations every ten 
years to identify outdated or unnecessary regulatory 
requirements. After formal notice and comment, the FFIEC or the 
appropriate federal banking agency is then directed to publish 
the comments, eliminate any unnecessary regulations and report 
to Congress a summary of the comments and any need for 
legislative change.

Section 223. Identification of nonbank financial institution customers

    Section 223 eliminates a 1992 law that authorized Treasury 
to issue a regulation requiring each insured depository 
institution to identify any customer that is a non-bank 
financial institution (broker-dealers, investment bankers, 
currency exchangers, etc). The Money Laundering Suppression Act 
of 1994 requires specified non-bank financial institutions to 
register with Treasury, thus making, in large part, the 1992 
law unnecessary and duplicative.

Section 224. Repeal of commercial loan reporting requirements

    Section 224 repeals Section 477 of FDICIA that requires the 
Board to annually report data on small business and small farm 
loans.

Section 225. Increase in Home Mortgage Disclosure Act; disclosure 
        exemption

    Section 225 would increase the current exemption for small 
depository institutions (banks, thrifts, and credit unions) 
from $10 million to $50 million. Additionally, the provision 
would allow depository institutions to keep HMDA information at 
its home office, give notice in its branches of the 
information's availability and provide the information within 
15 days of request by a consumer.

Section 226. Elimination of stock loan reporting requirement

    Section 226 eliminates the requirement that domestic 
financial institutions and their affiliates file consolidated 
reports on extensions of credit that are secured, in the 
aggregate, directly or indirectly by 25% or more of any class 
of shares an insured depository institution. This provision 
would still apply to foreign banks (branches and agencies 
thereof) and their affiliates.

Section 227. Credit availability assessment

    Section 227 requires the Board to conduct a study on small 
business lending every five years in consultation with the 
federal banking regulators, the Administrator of the Small 
Business Administration and the Secretary of Commerce and 
report to Congress on its findings.

Section 241. National bank directors

    Section 241 provides Comptroller with the authority to 
waive the residency requirement on national bank directors. As 
a general matter, current law requires that a majority of a 
national bank's directors must be residents of the state in 
which the bank is located.

Section 242. Paperwork reduction review

    This section amends Section 303(a) of the Community 
Development and Regulatory Improvement Act to further provide 
that the federal banking regulators conduct a review of the 
extent to which existing regulations require insured depository 
institutions and credit unions to maintain unnecessary internal 
written policies and eliminate those requirements where 
appropriate.

Section 243. State bank representation on Board of Directors of FDIC

    Section 243 provides that one of the appointed board 
members of the FDIC must have state bank supervisory 
experience.

Section 244. Consultation among examiners

    This provision requires consultation between safety and 
soundness and compliance examiners within an agency. The 
federal banking agencies are encouraged to appoint a ``chief 
examiner'' when examining an institution for compliance to 
ensure consultation among examiners and to resolve 
inconsistencies in recommendations.

Section 301. Audit costs

    This provision would eliminate the independent auditor 
attestation requirement for safety and soundness compliance, 
and allow the agencies the discretion to waive the requirement 
that all members of the independent audit committee be outside 
directors (but not less than a majority) in the case of 
hardship.
    Factors to be considered include the size of the 
institution, and whether the institution has made a good faith 
effort to elect or name additional competent outside directors. 
Section 301 also provides federal banking regulators with the 
discretion to designate certain information in annual 
management reports as privileged and confidential.

Section 302. Incentives for self-testing

    Section 302 creates a privilege for self-tests conducted by 
a financial institution to determine fair lending compliance 
under the Fair Housing Act (FHA) and the Equal Credit 
Opportunity Act (ECOA). A report or result of a self-test (as 
that term is defined by regulations of the Board and HUD for 
purposes of ECOA and FHA, respectively) is considered 
privileged if a creditor conducts, or authorizes an independent 
third party to conduct, a self-test of any aspect of a credit 
transaction by a creditor, in order to determine the level or 
effectiveness of compliance with FHA or ECOA; and has 
identified any possible violations of this title and has taken, 
or is taking, appropriate corrective action to address the 
possible violations.
    The provision would protect the results of a self-test from 
discovery pursuant to a civil suit or from being used by 
regulators or federal enforcement agencies in enforcing FHA or 
ECOA. The privilege may be waived by the creditor if the self-
test results are offered in defense or if the self-test results 
are voluntarily released or referred to in that specific 
proceeding. In addition, the report or results of a self-test 
are not privileged from disclosure when the report or results 
of the self-test are sought in conjunction with an adjudication 
or admission of a violation for the sole purpose of determining 
an appropriate penalty or remedy. The purpose of the privilege 
is to encourage lenders subject to ECOA and FHA to undertake 
candid and thorough self-evaluations in order to identify and 
correct possible violations early and thus to eliminate fair 
lending problems at their roots.

Section 303. Exemption for savings institutions serving military 
        personnel

    Section 303 expands the exception from the Qualified Thrift 
Lender test for savings institutions that primarily serve 
military personnel (including widows, divorced spouses, and 
current or former dependents). The provision would amend the 
existing exemption to eliminate the current date restriction on 
when the holding company must have acquired control of the 
savings institution.

Section 304. Qualified thrift investment amendments

    Section 304 would amend the Home Owner's Loan Act to 
provide thrifts more investment flexibility in becoming 
Qualified Thrift Lenders. Under current law, a savings 
association must meet both the QTL test and the IRS thrift tax 
test. Both tests have the same goal of encouraging residential 
mortgage lending, although their requirements differ.
    In order to meet the QTL test, savings associations must 
hold at least 65% of their portfolio assets in specified assets 
or ``qualified thrift investments.'' Qualified thrift 
investments under HOLA include mortgages, home equity loans, 
mortgage-backed securities, Federal Home Loan Bank stock and 
within specified limits, consumer loans. Savings Associations 
that fail to meet the QTL test are subject to severe activities 
restrictions, branching limits, dividend limits and 
restrictions on FHLBS advances.
    In order to qualify under the IRS thrift test, a savings 
association must maintain 60% of its total assets in specified 
assets such as mortgages, and government securities. Failure to 
meet the IRS thrift test results in adverse tax consequences 
such as limitations on the availability of the bad debt reserve 
deduction and recapture of existing bad debt reserves.
    Because of the differences between the two tests, savings 
associations must track their investments to ensure compliance 
under the different requirements of both tests. Given the fact 
that both tests are intended to achieve the same goal, the 
Committee believes that meeting one of the tests should be 
sufficient to qualify for the benefits that attach to the QTL 
test.
    Section 304 provides more flexibility to thrifts in meeting 
these requirements by allowing savings association to qualify 
as QTL lenders by meeting either the QTL test or the IRS thrift 
test. In addition, the section expands the type and amount of 
investments that can be counted toward the qualified thrift 
lender test by: (1) eliminating the current limitations on 
credit card and educational loans under section 5(c) of HOLA; 
(2) increasing the amount of small business loans thrifts can 
make from 10% to 20% of total assets; and (3) allowing consumer 
credit card loans, education loans and small business loans to 
be counted as qualified thrift investments for purposes of the 
65% portfolio asset requirement.

Section 305. Daylight overdrafts by Federal Home Loan Banks

    Section 305 requires the Board to establish net debit caps 
for daylight overdrafts incurred by FHLBs consistent with the 
credit quality of each FHLB and calculated in the same manner 
as fees for other users. Alternatively, the Board may exempt 
the FHLBs from fees and penalties for daylight overdrafts.

Section 306. Application for membership in the FHLB System

    Section 306 grants the FHLBs the authority to approve all 
applications for membership. Prior to approving an application 
of a CAMEL-rated 3, 4 or 5 institution, the FHLB must notify 
the Federal Housing Finance Board (FHFB). Individual banks 
currently provide the FHFB with the relevant information used 
in the analysis of approving prospective members. This section 
does not affect section 6(h) of the Federal Home Loan Bank Act.

Section 307. FHLB external auditors

    This provision allows the FHLBs to jointly select external 
auditors rather than the FHFB.

Section 308. Limited purpose bank

    Section 308 eliminates the 7 percent growth cap on the 
annual asset growth of limited purpose banks. The section also 
allows limited purpose banks to take deposits under $100,000 
for the purpose of securing a credit card. The Bank Holding 
Company Act currently provides an exemption from the definition 
of ``bank'' for limited purpose credit card banks that, among 
other things, engage only in credit card operations, have only 
one office that accepts deposits and do not accept deposits 
under $100,000.

Section 309. Collateralization of advances to members

    Section 309 will allow FHLBs to accept second mortgages 
that are insured by the federal government as primary 
collateral for advances. Under current law, FHLBs can accept 
secondary mortgages as collateral, but only in amounts equal to 
30% of the capital of the member bank.

Section 310. Increasing limit on total advances by the FHLB system to 
        non-QTL institutions

    Section 310 increases, from 30% to 40%, the limit on the 
aggregate amount of advances by the Federal Home Loan Bank 
system to members that are not qualified thrift lenders.

Section 311. Fair debt collection practices

    This provision clarifies that the Fair Debt Collection 
Practices Act requires a debt collector to disclose clearly in 
the first written communication with the debtor that the debt 
collector is trying to collect a debt and is contacting the 
consumer for that purpose. The provision also clarifies that 
unless a verification request is made, collection activity may 
take place during the 30 day period in which a consumer may 
make a request for a verification of the debt.

Section 401. Short title

    Sections 401 through 426 comprise ``the Consumer Reporting 
and Reform Act.''

Section 402. Definitions

            Adverse action
    A prior interpretation issued by the FTC [55 Fed. Reg. 
18,826 (May 4, 1990)] holds that actions taken in connection 
with credit, employment, or insurance may constitute adverse 
actions, but other actions taken pursuant to a permissible 
purpose, such as a refusal to cash a check, rent an apartment, 
or open a new account, do not. The language adopted by the 
Committee eliminates this distinction.
    Section 402(a) of the Committee bill adds to section 603 of 
the Fair Credit Reporting Act new subsection (k) which sets 
forth the definition of the term ``adverse action.'' Section 
603(k) provides that for purposes of the FCRA, when used in 
connection with action involving credit based in whole or in 
part on a consumer report, the term ``adverse action'' has the 
same meaning as the definition of ``adverse action'' set forth 
in the Equal Credit Opportunity Act. Under Section 603(k), 
``adverse action'' also includes a denial or cancellation of, 
an increase in any charge for, or a reduction or other adverse 
or unfavorable change in the terms of coverage or any amount 
of, any insurance, in connection with the underwriting of 
insurance. This portion of the definition applies to adverse 
determinations with respect to existing insurance or 
applications for new insurance.
    The definition also covers a denial of employment or any 
other employment decision that adversely affects any current or 
prospective employee. In addition, the definition covers a 
denial or cancellation of, an increase in any charge for, or 
any other adverse or unfavorable change in the terms of, any 
license or benefit described in section 604(a)(3)(D).
    Finally, the definition includes an action taken in 
connection with an application made by, or transaction 
initiated by a consumer if that action is adverse to the 
interest of the consumer. The term also includes an adverse 
change made to the terms of an account as the result of a 
review performed under section 604(a)(3)(E)(ii). However, the 
definition does not cover situations such as those where a 
creditor obtains consumer reports on its customers in 
connection with a review of its credit or other portfolio and, 
in connection with the review, a consumer's account is not 
changed, or is changed in a way that is not less favorable to 
the interest of that consumer, even if the accounts of other 
consumers are changed in a more favorable manner. Likewise, 
failure to include a consumer in a prescreening solicitation 
does not constitute adverse action.
            Firm offer
    Credit or insurance providers who obtain prescreened lists 
must provide a ``firm offer'' of credit or insurance to all 
consumers on the list.
    Section 402(b) of the bill adds to section 603 of the FCRA 
new subsection (l) which defines the term ``firm offer of 
credit or insurance.'' This definition is necessary because 
sections 404(a) and 411(b) of the bill set forth new 
requirements for prescreening which, among other things, 
provide that prescreening must involve a ``firm offer of credit 
or insurance.'' Under section 603(l), an offer of credit will 
be deemed to be a ``firm offer of credit'' if the creditor 
making the offer will honor the offer if the consumer meets the 
criteria the creditor has established for the credit being 
offered. Under the definition, a creditor may withdraw the 
offer of credit if the consumer does not qualify for the 
credit. For example, the creditor may withdraw the offer of 
credit if the consumer does not meet the criteria used to 
select the consumer for the offer of credit (i.e., those 
criteria used by the consumer reporting agency or agencies that 
performed the prescreening to select those consumers who would 
receive the offer). In addition, the creditor may withdraw the 
offer of credit if the consumer does not satisfy any other 
criteria established by the creditor before the consumer was 
selected for the offer. When a consumer responds to the offer, 
the creditor may review a consumer report on the consumer, 
information provided in the consumer's application or response, 
and any other information bearing on the creditworthiness of 
the consumer to determine whether the consumer meets the 
criteria for the credit product being offered.
    A creditor that utilizes prescreening in connection with 
credit products secured by collateral may condition the offer 
of credit on the consumer furnishing the collateral that 
secures the credit. For example, a creditor that uses 
prescreening to offer consumers credit card accounts secured by 
deposits may condition the offer of credit on the consumer 
establishing the deposit account that secures the credit and 
executing a security agreement. If the consumer responds to the 
offer of credit but fails to satisfy the security requirements 
for the credit account, the creditor may withdraw the offer of 
credit. However, the creditor must indicate to the consumer in 
the offer the type of security required for the secured credit 
product being offered.
    The definition created by new subsection (l) also provides 
the same flexibility for prescreening involving insurance. 
Under the definition, a firm offer of insurance may be 
withdrawn if it is determined that a consumer responding to the 
offer does not meet the criteria established for the insurance 
being offered.
            Credit or insurance transaction that is not initiated by 
                    the consumer
    This term is used throughout the Committee bill to describe 
prescreening transactions.
    Section 402(c) of the bill adds to section 603 of the FCRA 
new subsection (m) which clarifies the scope of the phrase 
``credit or insurance transaction that is not initiated by the 
consumer'' for purposes of the prescreening provisions set 
forth in the bill. Section 603(m) makes it clear that the 
prescreening provisions of the FCRA do not apply where a 
consumer report is obtained by a creditor in connection with 
reviewing or collecting an existing account of the consumer for 
safety and soundness purposes, even if the creditor 
subsequently decides to change the credit available to the 
consumer. Thus, for example, a credit card issuer may obtain a 
consumer report on a consumer in connection with its regular 
annual or other review of the consumer's credit card account, 
and may decide to offer to the consumer a higher credit amount 
or an additional or improved product, such as a gold card.
            Consumer report
    Section 402(e) facilitates the sharing of information among 
entities related by common ownership or affiliated by corporate 
control by excluding certain information from the definition of 
``consumer report.''
    The definition of ``consumer report'' set forth in section 
603(d) of the FCRA is amended by expressly excluding from that 
definition the sharing of certain types of information among 
related entities. Under section 603(d)(A), the definition of 
``consumer report'' does not include any communication of 
information among entities related by common ownership or 
affiliated by corporate control if the information consists of 
the transactions or experiences between one of the entities and 
the consumer to whom the information relates. Thus, section 
603(d)(A) makes it clear that the so-called ``experience 
information exception'' to the definition of ``consumer 
report'' exempts from the scope of the FCRA any communication 
of such information among related entities regardless of 
whether the information is communicated directly from one 
related entity to another or is furnished through another 
related entity, so long as each of the entities is related by 
common ownership or affiliated by corporate control.
    In addition, section 603(d)(A) makes it clear that the term 
``consumer report'' does not cover the sharing among related 
entities of any other types of information provided that it is 
clearly and conspicuously disclosed to the consumer that 
information may be shared among such entities and the consumer 
is given the opportunity to direct that the information not be 
shared among such entities. This provision clarifies that the 
communication of consumer report information, application 
information and any other information among affiliated entities 
is not a consumer report provided that the sharing is disclosed 
to the consumer and the consumer is afforded the opportunity to 
opt out of the sharing.
            Employment agency communications
    Section 402(f) of the Committee bill adds to section 603 of 
the FCRA new subsection (o) which excludes from the definition 
of consumer report certain communications by employment 
agencies.
            Nationwide consumer reporting agency
    Section 402(g) of the Committee bill adds to section 603 of 
the FCRA new subsection (p) which sets forth the definition of 
a consumer reporting agency that compiles and maintains files 
on consumers on a nationwide basis. This term is used in 
various provisions throughout the Committee bill.

Section 403. Furnishing consumer reports; use for employment purposes

                  Use of reports for business purposes

    Section 403 amends section 604 of the FCRA concerning the 
permissible purposes required to access a consumer report. 
Under current law, consumer reporting agencies may furnish 
reports, provided that the user has a legitimate business need 
in connection with a transaction involving the consumer. This 
section provides that consumer reports may be furnished in 
connection with business transactions initiated by the 
consumer.
    Current law also allows users to obtain a consumer report 
``in connection with a credit transaction involving the 
consumer on whom the information is to be furnished and 
involving the extension of credit to, or review or collection 
of an account of, the consumer.'' This section also allows 
consumer reports to be furnished in connection with the review 
of accounts that are not credit accounts. For example, the 
Committee intends this section to provide a depository 
institution with the ability to procure a consumer report in 
connection with a non-credit account, such as a deposit 
account. Like creditors, banks and others may need to consult a 
consumer's report in order to determine whether the consumer's 
current account terms should be modified. For example, the 
institution may provide more favorable pricing terms after 
consulting the report. The permissible purpose created by this 
provision, however, is limited to an account review for the 
purpose of deciding whether to retain or modify current account 
terms. It does not permit access to consumer report information 
for the purpose of offering unrelated products or services.
    This section also amends the ``legitimate business 
purpose'' provision to allow consumer reporting agencies to 
furnish information in connection with direct marketing 
transactions, provided that the consumer has not opted out 
through the system established under section 404.
            Use of reports for employment purposes
    Section 604 of the FCRA permits employers to obtain 
consumer reports pertaining to current and prospective 
employees. The Committee is concerned, however, that this 
provision may create an improper invasion of privacy. Section 
403 of this bill requires that employers provide prior written 
disclosure to current and prospective employees that their 
consumer reports may be procured in connection with their 
employment. Further, employers must obtain a specific or 
general written authorization prior to procuring such a report.
    Section 403 prohibits a consumer reporting agency from 
providing a report for employment purposes unless the person 
obtaining the report certifies to the agency that the required 
disclosures have been provided to the employee and that the 
information from the report will not be utilized in violation 
of Federal or state equal employment opportunity laws. Further, 
the agency must include with the report a summary of the 
consumer's rights under the FCRA.
    The Committee is also concerned that the ability of 
employers to obtain consumer reports on current and prospective 
employees may unreasonably harm employees if there are errors 
in their reports. Therefore, the Committee bill requires that 
employers, before taking an adverse action based on a consumer 
report, provide the current or prospective employee with a copy 
of the report, a description of the individual's rights under 
the FCRA, and a reasonable opportunity to respond to any 
information that is disputed by the consumer. The Committee 
does not intend to require that employers await the results of 
a formal, 30-day reinvestigation by the consumer reporting 
agency before taking action based on a consumer report. Rather, 
the Committee bill specifies that a reasonable opportunity need 
not exceed five business days from the date of the receipt of 
the report by the consumer. However, the Committee does expect 
that employers will consider information provided by the 
consumer within the five-business day period.
    This section provides an exception from the employer's 
obligation to provide a reasonable opportunity to respond if 
the employer has a reasonable belief that the consumer has 
engaged in fraudulent or criminal activity. The Committee 
intends this exception to apply only to situations where the 
employer believes that the fraudulent or criminal activity is 
ongoing and directly related to the employment involved. In 
contrast, the section is not intended to eliminate the 
opportunity to respond in instances where a consumer is denied 
employment or a promotion because that consumer's report 
indicates a past history of fraudulent or criminal activity.

Section 404. Use of consumer reports for prescreening and direct 
        marketing; prohibition on unauthorized or uncertified use of 
        information

    Section 404(a) permits the use of consumer report 
information for prescreeningand direct marketing purposes. Both 
direct marketing and prescreening are activities in which 
consumer reporting agencies use their credit files to create 
and sell lists of consumers who meet specifications provided by 
third parties seeking to offer goods or services. Because these 
lists are created based on the consumer report files maintained 
by the agency, the lists themselves are currently considered a 
series of consumer reports under the FCRA. Therefore, the 
recipient must have a permissible purpose under the FCRA. To 
date, the FTC has taken a narrow view of the extent to which 
the use of consumer report information for prescreening or 
direct marketing purposes is permissible.
    This section expands the ability of consumer reporting 
agencies to use consumer report information for prescreening 
and direct marketing. At the same time, however, the bill 
mandates that consumer reporting agencies create and maintain a 
system to allow consumers to ``opt out'' of the prescreening 
and direct marketing processes. By opting out, consumers can 
prohibit consumer reporting agencies from releasing their names 
or other information about their reports for prescreening and 
direct marketing.
            Prescreening
    The Committee seeks to balance any privacy concerns created 
by prescreening with the benefit of a firm offer of credit or 
insurance for all consumers who meet the criteria for the 
credit or insurance being offered. While the direct marketing 
portion of section 404 limits consumer reporting agencies to 
providing lists that are not based on credit limit, credit 
payment history, credit balance, or negative information, the 
Committee understands that such factors must be considered in 
order to market credit or insurance. For this reason, the 
prescreening section of the Committee bill allows credit and 
insurance providers to obtain credit bureau data for credit and 
insurance transactions not initiated by the consumer based on 
this more sensitive information. In exchange for allowing 
credit and insurance providers to obtain credit bureau data 
based on more sensitive information, however, the section 
requires that the credit or insurance provider make a ``firm 
offer,'' as defined in the bill, of credit or insurance to all 
consumers who meet the criteria for the credit or insurance 
being offered.
    Section 404(a) of the bill adds to section 604 of the FCRA 
new subsection (c) which sets forth the conditions under which 
a consumer reporting agency may furnish a consumer report on a 
consumer to the person requesting the report in connection with 
a credit transaction that is not initiated by the consumer. 
Under section 604(c)(1)(A), a consumer reporting agency may 
furnish a consumer report in connection with such a credit 
transaction if the consumer authorizes the agency to provide 
the report to the person obtaining the report. For purposes of 
this provision, a consumer can authorize the furnishing of the 
report by notifying the consumer reporting agency directly, by 
notifying some other entity designated by the consumer 
reporting agency for that purpose, or by providing 
authorization to the user of the report. If a consumer provides 
such an authorization, the agency may furnish a full consumer 
report on the consumer.
    Section 604(c)(1)(B) permits the furnishing of a consumer 
report in connection with a credit transaction that is not 
initiated by the consumer where the transaction consists of a 
``firm offer of credit or insurance,'' and, in accordance with 
the new prescreening opt-out requirements set forth in this 
Act, the consumer reporting agency has established a 
notification system which permits the consumer to be excluded 
from consideration for such transactions, and the consumer has 
not elected to be so excluded.
    Section 604(c)(2) specifies the information that a consumer 
reporting agency may furnish to a creditor in connection with 
prescreening. First, under section 604(c)(2)(A), the creditor 
may receive the name and address of each consumer in connection 
with the prescreening.
    Second, 604(c)(2)(B) permits a creditor to receive an 
identifier for each consumer, such as a number or code, 
provided that the identifier is not unique to that particular 
consumer and is used for the purpose of verifying the identity 
of the consumer. For example, a consumer reporting agency may 
furnish in connection with prescreening part of the social 
security number for each consumer. Thus, the creditor may use 
that number to verify that consumers responding to a 
prescreened offer were included in the prescreening. This could 
be accomplished by matching the partial social security number 
provided by the consumer reporting agency to the corresponding 
portion of the social security number furnished by the consumer 
on the response to the offer.
    Third, 604(c)(2)(C) provides that a creditor may receive 
any ``other information pertaining to a consumer that does not 
identify the relationship or experience of the consumer with a 
particular creditor or other entity.'' Under (c)(2)(C), a 
consumer reporting agency could not provide a creditor with a 
full credit report on prescreened consumers until a consumer 
actually responds to the creditor's offer. However, (c)(2)(C) 
does permit a creditor to receive other information to enable 
the creditor to determine how much credit to offer each 
consumer while protecting consumer privacy by ensuring that the 
prescreened report does not identify the consumer's specific 
credit relationship or experience with particular creditors or 
other entities.
            Direct marketing
    Section 404 allows consumer reporting agencies to sell 
lists for direct marketing transactions not initiated by the 
consumer. The agency may use a limited amount of information in 
a consumer's file to create a list, provided that the consumer 
has not notified the consumer reporting agency in writing or by 
telephone through the opt-out procedure that the consumer does 
not consent to such use. The information that may be provided 
to the user of the list, however, is limited to the names and 
addresses of specific consumers.
    Further, the names and addresses may not be furnished if 
doing so would disclose ``credit payment history, credit limit, 
credit balance, or any negative information pertaining to the 
consumer.'' This second provision effectively limits the 
criteria which may be used by the consumer reporting agency to 
select consumers for direct marketing lists to criteria that do 
not disclose those items.
    The Committee intends this provision to safeguard the most 
sensitive credit information in the consumer's file. The direct 
marketing provisions of the bill do not apply to ``credit or 
insurance transactions that are not initiated by the 
consumer.''
            Opt out
    The Committee is aware that some consumers may find that 
direct marketing and prescreening entail an undesirable 
invasion of their privacy. Therefore, while this section 
facilitates prescreening and direct marketing, it creates an 
``opt-out'' procedure through which a consumer may elect to 
have his or her name excluded from any list provided by the 
consumer reporting agency under section 604(c)(1)(B) and 
section 604(d)(1)(B) of the FCRA.
    Section 404 provides that a consumer may prevent his or her 
name from appearing on prescreening or direct marketing lists 
furnished under section 604(c)(1)(B) or section 604(d)(1)(B) by 
notifying a consumer reporting agency in writing or by 
telephone that the consumer does not consent to the furnishing 
of his or her consumer report in connection with such 
transactions. Consumer reporting agencies providing 
prescreening or direct marketing lists must maintain toll-free 
telephone numbers for consumers to use to notify the agency of 
their desire to opt-out. In addition, those consumer reporting 
agencies that compile and maintain files on a nationwide basis, 
as defined in the bill, must establish a joint notification 
system to enable consumers to opt-out of lists created by all 
such agencies operating nationwide with one telephone call. The 
Committee intends that, to make this system effective, such 
agencies must publicize the existence and purpose of this joint 
system in newspapers with nationwide circulation. The 
consumer's election to opt out will be effective for 2 years 
following the consumer's notification of the consumer reporting 
agency, or permanently, if the consumer specified in writing.
            Use of information obtained from reports
    Section 404(b) prohibits any entity from obtaining consumer 
report information without a permissible purpose. Further, the 
Committee bill requires users to certify that purpose. These 
requirements are intended to fill a gap in existing law. While 
current law prohibits consumer reporting agencies from 
providing a consumer report to a user who lacks a permissible 
purpose, it is not a violation of current law to obtain the 
report without a permissible purpose unless the user knowingly 
employs false pretenses in doing so. This situation has 
frustrated consumers, enforcement authorities and the consumer 
reporting agencies by making it difficult to prevent the 
improper obtaining of consumer reports. By providing an 
affirmative obligation for users to have a permissible purpose, 
the Committee intends to provide the FTC, the state law 
enforcement authorities, and private citizens with recourse 
against those who unlawfully access consumer reports, 
regardless of whether or not the user acted under false 
pretenses.
    Specifically, the bill provides that a person may use or 
obtain information from a consumer report only if the consumer 
report was obtained for one of the permissible purposes set 
forth in section 604 of the FCRA and is within the scope of the 
certification between the person and the provider of the 
report. The bill, however, does not require separate 
certifications for each request, but only that the request be 
within the scope of the applicable certification agreement. 
Thus, a person who obtains a consumer report will be in 
compliance with new section 604(f) if the person obtains the 
report for one of the permissible purposes set forth in section 
604, and the report is covered under the person's certification 
agreement with the provider of the consumer report.

Section 405. Consumer consent required to furnish consumer report 
        containing medical information; furnishing consumer reports for 
        commercial transactions

    Section 405 of the bill amends section 604, the permissible 
purposes section of the FCRA, to require a consumer reporting 
agency to obtain consumer consent before it furnishes a 
consumer report containing medical information for employment 
purposes or in connection with a credit or insurance 
transaction or a direct marketing transaction. This section 
works in tandem with section 603(i) of the FCRA which defines 
the term ``medical information'' as medical information or 
records obtained ``with the consent of the individual to whom 
it relates.'' Together, these two sections protect critical 
consumer privacy rights in the area of medical information by 
requiring consumer consent for the collection and the 
furnishing by a consumer reporting agency of medical 
information about a consumer. It is not the intent of this 
section, however, to prohibit consumer reporting agencies from 
furnishing information in a consumer report about the medical 
payment history of consumers.

Section 406. Obsolete information and information contained in consumer 
        reports

    The Committee intends that consumer reports contain timely 
as well as accurate information. Section 406 limits the length 
of time that information may be included in a consumer report 
and clarifies the type of information that may be reported.
            Seven year reporting period
    Current law generally prohibits consumer reporting agencies 
from including in a consumer report accounts placed for 
collection or charged to profit and loss which antedate the 
report by more than seven years. The Committee is concerned 
that this seven year limitation is ineffective. In some cases, 
the collection action occurs months or even years after the 
commencement of the preceding delinquency. Under these 
circumstances, the consumer reporting agency may maintain the 
information for seven years beginning on the date that the 
collection action is first reported. Consequently, the consumer 
report may contain such information even if the delinquency 
commenced more than seven years before the date on which the 
report is provided to a user.
    The Committee bill specifies that the seven-year period 
with respect to information concerning a delinquent account 
charged to profit and loss, placed for collection, or subjected 
to a similar action, may begin no more than 180 days after the 
commencement of the delinquency immediately preceding the 
collection, charge to profit or loss, or similar action. A 
creditor is under no obligation to place a delinquent account 
for collection within a specified period, or initially to 
report the delinquency. If a collection or similar action is 
reported, however, the seven year reporting period will 
commence not later than 180 days after the beginning of the 
delinquency rather than on the date of any subsequent action. 
The Committee intends this requirement to apply only to 
information furnished to a consumer reporting agency more than 
455 days after enactment of the Consumer Reporting Reform Act. 
Information reported to the consumer reporting agency prior to 
that date will be unaffected.
            Additional information on bankruptcy
    Section 406 requires consumer reporting agencies to include 
in any report containing information regarding an individual 
who has filed bankruptcy, an identification of the chapter of 
Title 11 of the United States Code under which the consumer 
filed if that information is provided to the agency by the 
source of the information. The Committee is aware that many 
creditors look more favorably upon Chapter 13 filings than 
filings under other Chapters of Title 11, and this provision 
ensures that such information is available to such a creditor. 
In cases where the bankruptcy was withdrawn by the consumer 
prior to a final judgment this section also requires the agency 
to indicate in the report, upon receipt of documentation 
certifying such withdrawal, that the filing was withdrawn.
            Indication of closure of account
    The Committee is also concerned that consumer reports may 
not reflect the current status of accounts that have been 
voluntarily closed by consumers, or may improperly suggest that 
an account was closed because the consumer did not meet the 
account's terms. The Committee bill requires creditors to 
inform consumer reporting agencies when a consumer voluntarily 
closes a credit account and specifies that the consumer 
reporting agencies must indicate such information in any 
subsequent consumer reports containing information about such 
account. This provision applies only to credit accounts which 
are closed solely as a result of a voluntary request by the 
consumer. This provision does not cover, for example, an 
account which is closed by a creditor as a result of a 
consumer's delinquencies or other abuse of the account, even if 
the consumer also asks to have the account closed.
            Indication of dispute by consumer
    The Committee bill also provides that, if a consumer 
reporting agency is notified pursuant to section 623(a)(3) that 
information regarding a consumer that was furnished to the 
agency is disputed by the consumer, the agency must indicate 
that fact in each consumer report that includes the disputed 
information.

Section 407. Compliance procedures

    Section 407 imposes significant new duties on consumer 
reporting agencies with respect to certain providers and users 
of consumer report information. Section 407 requires consumer 
reporting agencies to provide a notice to providers and users 
of consumer report information outlining the requirements of 
the FCRA.
    Section 407 also imposes duties upon those persons or 
businesses who procure consumer reports for the purpose of 
reselling the information. Such ``resellers'' are, by 
definition, consumer reporting agencies, and the Committee 
intends that they be subject to all the applicable requirements 
of the FCRA. In addition, the section provides that a person or 
business may not procure a consumer report for the purpose of 
reselling the information unless the person discloses to the 
consumer reporting agency providing the report the identity of 
the ultimate user and the permissible purpose under which the 
report will be resold to the ultimate user. The person 
procuring the report for resale must establish and maintain 
reasonable procedures to identify the ultimate user of the 
information, to certify the user's purpose for obtaining the 
information, to certify that the information will be used for 
no other purpose, and to verify such information once it has 
been provided to the consumer reporting agency.

Section 408. Consumer disclosures

            All information in the consumer's file required to be 
                    disclosed
    Under current law, consumer reporting agencies must provide 
a consumer, upon request and proper identification, with the 
nature and substance of all information (except medical 
information) in its files on the consumer. This provision has 
been interpreted to allow consumer reporting agencies to comply 
by furnishing consumers with summaries of their reports. The 
Committee is concerned that such summaries do not provide 
consumers sufficient access to their reports. Therefore, 
section 408 explicitly requires consumer reporting agencies to 
provide, upon request, all information in the consumer's file. 
The Committee intends this language to ensure that a consumer 
will receive a copy of that consumer's report, rather than a 
summary of the information contained therein. This provision 
also clarifies that the FCRA does not require a consumer 
reporting agency to make any disclosures to a consumer 
regarding credit scores, risk scores, or any other scores or 
predictors relating to the consumer.
            More information concerning recipients of reports required
    Section 408 also requires that consumer reporting agencies 
provide to consumers an identification of those persons or 
businesses (including each end-user identified under section 
607(e)(1)) that procured such consumer's report (1) for 
employment purposes within the previous two years and (2) for 
other purposes within the previous year. The latter provision 
expands current law, which requires an identification of all 
persons who have procured the consumer's report for non-
employment purposes during the preceding six months. Section 
408 also requires the consumer reporting agency to provide the 
name (including the trade name, if applicable) and address of 
each recipient of the report, as well as the recipient's 
telephone number, if requested by the consumer.
            Information regarding prescreening inquiries
    The section requires consumer reporting agencies to provide 
consumers with a record of all recipients of prescreened lists 
that identified that consumer provided by the agency during the 
previous year.
            Summary of rights
    Section 408 requires that consumer reporting agencies 
include with each disclosure provided to a consumer under 
section 609 of the FCRA a written summary of the consumer's 
rights under the FCRA and, if the consumer reporting agency 
operates nationwide, a toll-free telephone number at which 
personnel are accessible to consumers during normal business 
hours. The summary of rights must include a description of the 
FCRA and the rights of the consumer, an explanation of how the 
consumer may exercise his or her rights, a list of all Federal 
agencies responsible for enforcement of the FCRA, including the 
address and telephone number of each agency, and a statement 
that the consumer reporting agency is not required to remove 
accurate derogatory information from a consumer report. The 
summary of rights also must include a statement that the 
consumer may have additional rights under state law and that 
the consumer may wish to contact a state or local consumer 
protection agency or state attorney general to learn of those 
rights. The FTC will prescribe the specific form and content of 
the disclosure.
            Form of disclosures to consumer
    Section 408 requires consumer reporting agencies to make 
all required disclosures to consumers in writing. If the agency 
elects to provide disclosures in an alternative form, it may 
also do so as long as the consumer authorizes the disclosure, 
furnishes proper identification, and specifies the form of 
disclosure. The provision further specifies that such non-
written disclosures may be made to the consumer in person, by 
telephone, by electronic means, or by any reasonable means 
available from the agency.
            Simplified disclosure
    To ensure that consumers understand their reports once they 
receive them, this section provides that the consumer reporting 
agencies must, within 90 days of enactment, develop a form 
which shall maximize the comprehensibility and standardization 
of such disclosures. The Committee does not intend the 
maximization standard to be interpreted as a perfection 
standard. However, the Committee expects that report 
information will be provided in a form that can be understood 
by the average consumer.

Section 409. Procedures in case of the disputed accuracy of any 
        information in a consumer's file

    The Committee is aware that the consumer reporting system 
handles almost two billion pieces of data per month and will 
never be perfectly accurate. Mistakes will occur, and not all 
of them can be prevented. Section 409 is the heart of the 
Committee's efforts to ensure the ultimate accuracy of consumer 
reports by placing important requirements upon consumer 
reporting agencies after inaccuracies have been detected. 
Therefore, section 409 is designed to ensure that consumers are 
able to address problems and correct errors in a timely 
fashion.
    Nothing in section 409 or any other section is intended to 
require consumer reporting agencies to arbitrate disputes 
between consumers and credit grantors as to completeness or 
accuracy of information in the consumer's file.
            Reinvestigation procedures
    Section 409 requires consumer reporting agencies to 
reinvestigate disputed information and to record the current 
status of that information within the later of 30 days after 
receipt of the initial notice of the dispute from the consumer 
or 15 days after receipt of additional relevant information 
from the consumer concerning the dispute. The latter provision 
will ensure that an agency has a minimum of 15 days to consider 
any additional information provided in the course of the 
reinvestigation period. The Committee does not intend this 
provision to suggest that a consumer has any obligation to 
submit additional information, however, or that the failure to 
submit such additional information should be construed against 
the consumer.
            Prompt notice of dispute to furnisher of information
    Once a consumer informs a consumer reporting agency of a 
dispute, the consumer reporting agency must notify the 
furnisher of the information within five business days. This 
five business day notification requirement is intended to 
provide the furnisher with sufficient time within the 30 day 
reinvestigation period to investigate and verify the 
information.
            Determination that dispute is frivolous or irrelevant
    The section allows a consumer reporting agency to terminate 
a reinvestigation if the agency reasonably determines that the 
dispute by the consumer is frivolous or irrelevant. The 
Committee does not intend to permit consumer reporting agencies 
to use this determination as a shield from the reinvestigation 
requirement.
    Not later than five business days after making a 
determination that a dispute is frivolous or irrelevant, the 
agency must mail a written notice to the consumer indicating 
such determination, containing the reasons for the agency's 
determination. The notice also must identify information 
required to investigate the disputed information. The 
identification of such information may consist of a 
standardized form describing the general nature of such 
information. The Committee expects that a consumer will be 
afforded an opportunity to respond to those concerns that led 
the consumer reporting agency to make its determination.
    The Committee recognizes that a consumer may submit 
information after a reinvestigation that is substantially 
similar to information that the consumer has submitted during 
the reinvestigation process. The Committee expects that the 
consumer reporting agency may not consider a subsequent 
submission in such circumstances.
            Consideration of consumer information
    In conducting the reinvestigation, the agency must consider 
any relevant information furnished by the consumer during the 
30 day period. If the consumer submits additional information 
more than 30 days after the initial dispute is filed, the 
Committee expects that such information will be treated as a 
new dispute.
            Deletion of inaccurate or unverifiable information
    If the reinvestigation reveals that the information being 
disputed is inaccurate or cannot be verified within the 30 to 
45 day time period mandated by this section, the agency must 
delete the information. The information deleted shall consist 
solely of the information that was disputed by the consumer and 
shall not include any portion of the same item that was not 
disputed. This section further requires consumer reporting 
agencies to maintain reasonable procedures to ensure that such 
information does not reappear in the consumer's file or on 
subsequent reports furnished to users.
            Reinsertion of previously deleted material
    The Committee is aware that consumers experience 
considerable frustration when previously deleted information 
reappears. In addition to requiring consumer reporting agencies 
to establish procedures to prevent the deleted information from 
reappearing, section 409 prohibits a consumer reporting agency 
from reinserting information in the consumer's file following a 
deletion unless the furnisher of information certifies that the 
information is completed and accurate.
    Within five business days of the reinsertion, the agency 
must notify the consumer of the reinsertion in writing or by 
other means if authorized by the consumer and acceptable to the 
agency. As part of, or in addition to, the notification, the 
agency must provide to the consumer, in writing, a statement 
that the information has been reinserted, that the consumer has 
the right to add a statement to the file disputing the accuracy 
or completeness of the information in the file, and the name, 
business address, and telephone number of the furnisher of the 
information.
            Notice of results of reinvestigation
    Regardless of the outcome of the reinvestigation, the 
consumer reporting agency must provide to the consumer a 
written notification of the results within five business days 
of completing the reinvestigation. The notification must 
include the following: (1) a statement that the reinvestigation 
is completed; (2) a consumer report that is based on the 
consumer's file as that file is revised following the 
reinvestigation; (3) a description or indication of any changes 
made to the report as a result of the reinvestigation; (4) a 
notification that the consumer has the right to add a statement 
to the file disputing the information; and (5) a notification 
of the consumer's right to request that the agency furnish 
either notification of the modification or a summary of the 
statement submitted by the consumer to any person designated by 
the consumer who has received a copy of the consumer's report 
for employment purposes in the previous two years or for other 
purposes within the previous six months.
    In addition, if the reinvestigation results in finding that 
the disputed information is accurate and complete, the 
notification must include an indication that the consumer may 
request a description of the procedure used to make the finding 
and the name, business address, and telephone number of the 
furnisher of the information. The Committee assumes that the 
consumer may be dissatisfied because the information has not 
been changed and believes that such a situation will be best 
resolved by enabling the consumer to contact directly the 
furnisher of that information. At the same time, if the 
information is found to be inaccurate and then corrected, the 
consumer is unlikely to be interested in the procedure used to 
make the finding or the name and address of the furnisher. In 
the event that the consumer desires such information, the 
consumer may receive it upon request, and the consumer 
reporting agency must provide the information within 15 days of 
receiving such request.
            Expedited dispute resolution
    The consumer reporting agency need not comply with 
paragraphs (2), (6) and (7) of section 611(a) if the agency 
deletes the disputed information from the consumer's file 
within three business days of being notified of the dispute, 
promptly notifies the consumer by telephone, provides written 
confirmation of the deletion and a copy of a consumer report on 
the consumer that is based on the consumer's file after the 
deletion within five business days after making the deletion, 
and including in the telephone notice, or in a written notice 
accompanying the confirmation and the consumer report, a 
statement of the consumer's right to request under subsection 
(d) that the agency furnish notifications under that 
subsection. In this situation the agency's telephone contact 
with the consumer and provision of a consumer report on the 
consumer eliminates the necessity to provide written 
notification of the outcome of the reinvestigation. The 
Committee believes that this provision will ease any compliance 
burden on reporting agencies who may choose to simply delete 
certain information rather than go through the reinvestigation 
process. The Committee assumes that such a deletion will 
benefit the overwhelming majority of consumers because a 
consumer is unlikely to dispute positive information.

Section 410. Charges for certain disclosures

            Reasonable charges
    Section 410 allows a consumer reporting agency to impose a 
reasonable charge for making a disclosure pursuant to section 
609 (which shall not exceed $8), and certain provisions of 
section 611 (which shall not exceed the charge imposed on each 
designated recipient for a consumer report). The section 
prohibits charges for any other notification or disclosure 
required by this title.
            Free consumer reports
    The Committee believes that consumers must have access to 
their report information in order to identify problems. Section 
410 expands the circumstances under which a consumer is 
entitled to a free report.
    The section enhances a consumer's right to a free report 
when an adverse action is taken based on a consumer report. For 
60 days following the consumer's receipt of notice of an 
adverse action, that consumer is entitled to a free copy of his 
or her report upon written request. This provision amends 
current law, which prohibits a charge for a consumer report 
only for 30 days following an adverse action. The section also 
provides that a consumer reporting agency must provide a free 
consumer report to a consumer who has received notification 
from a debt collection agency affiliated with the consumer 
reporting agency stating that the consumer's credit rating may 
be or has been adversely affected.
    Finally, the section allows a consumer to obtain a free 
copy of that consumer's report once during any 12-month period 
if the consumer certifies in writing that the consumer is 
unemployed and intends to apply for employment within 60 days, 
is a recipient of public welfare, or has reason to believe that 
the file contains inaccurate information due to fraud.

Section 411. Duties of users of consumer reports

            Adverse actions
    The Committee is concerned that consumers are often unaware 
of their rights in the event of an adverse action. The FCRA 
currently requires that a user who takes an adverse action in 
connection with a consumer report must notify the consumer 
against whom such adverse action has been taken and supply the 
name and address of the consumer reporting agency that provided 
the report. The Committee believes that such information is 
incomplete, however, in that it fails to inform the consumer of 
his or her rights, including the right to a free report for 60 
days after an adverse action has been taken.
    Section 411 requires a user of a consumer report who takes 
an adverse action based in whole or in part upon that report to 
provide several disclosures to the consumer. The user must 
provide the following in written or electronic form: a notice 
of the adverse action; the name, address, and telephone number 
(including a toll-free number if the agency operates 
nationwide) of the agency that furnished the report; a 
statement that the consumer reporting agency did not make the 
decision to take the adverse action; a notice of the consumer's 
right to a free copy of the report for 60 days, upon written 
request, from the agency that furnished the report; and a 
notice of the consumer's right to dispute with the agency the 
accuracy or completeness of any information in the report 
furnished by the agency.
            Disclosures for prescreening and direct marketing
    The Committee is aware the bill expands the ability of 
consumer reporting agencies to provide consumer reports for the 
purpose of prescreening and direct marketing. At the same time, 
the Committee bill offers consumers the opportunity to opt-out 
and prohibit consumer reporting agencies from furnishing 
information to users for prescreening or direct marketing. To 
further protect consumers, this section requires that a notice 
of the consumer's right to opt-out be included with any 
prescreening or direct marketing solicitation. The Committee 
understands that consumers will not receive notification of 
their right to opt out until they receive a solicitation.
            Prescreening disclosure
    Section 411 adds to section 615 of the FCRA new subsection 
(d) which imposes certain requirements on creditors that, in 
connection with a credit transaction that is not initiated by 
the consumer, engage in prescreening by using a consumer report 
obtained for that purpose. Section 615(d) applies only when a 
prescreened list is obtained from a consumer reporting agency 
under section 604(c)(1)(B).
    Section 615(d)(1) provides that a creditor who uses a 
consumer report in connection with a credit transaction which 
is not initiated by the consumer and which consists of a firm 
offer of credit must, when providing a written solicitation to 
the consumer in connection with the transaction, clearly and 
conspicuously include on or with the solicitation a statement 
that information contained in the consumer's consumer report 
was used in selecting the consumer for the solicitation. The 
statement also must disclose that the consumer received the 
offer because the consumer satisfied the criteria for 
creditworthiness under which the consumer was selected for the 
offer. This disclosure provision does not require the creditor 
to disclose any of the criteria established by the creditor, 
but simply reflects the fact that, based on the information 
available to the creditor (typically through consumer reporting 
agencies or demographic firms) at the time the prescreening was 
conducted, the consumer appeared to meet such criteria.
    The statement included on or with the solicitation also 
must indicate, to the extent applicable, that the credit may 
not be extended if the consumer responds to the offer and does 
not meet the criteria used to select the consumer for the 
offer, or does not satisfy other applicable criteria, or does 
not furnish any collateral required by the creditor. This 
disclosure will be required for creditors who, as is permitted 
under this bill, obtain a new consumer report on each consumer 
responding to the offer and review that report as well as 
information provided by the consumer (e.g., the consumer's 
employment status and income) and other information bearing on 
creditworthiness to determine whether the consumer actually 
meets the criteria established by the creditor for the offer. 
This disclosure is intended to avoid misleading consumers.
    Finally, the statement on or with the solicitation must 
disclose that the consumer has the right to prohibit 
information contained in the consumer's file with any consumer 
reporting agency from being furnished for prescreening purposes 
and either that the consumer may exercise that right by 
notifying the joint notification system established by the 
nationwide consumer reporting agencies under section 604(e)(6), 
or, in the case of prescreening performed by a consumer 
reporting agency not covered by the joint notification system, 
by contacting that agency's notification system. The statement 
must include the address and toll-free telephone number of the 
appropriate notification system.
    Section 615(d)(3) requires that a creditor who is subject 
to section 615(d)(1) must maintain a record of the criteria 
used by the creditor to determine whether to extend credit in 
connection with solicitations covered by section 615(d)(1), 
until the end of the 3-year period beginning on the date the 
particular solicitations are transmitted to consumers.
    The bill also establishes similar requirements for a person 
who uses a consumer report that is provided to the person under 
section 604(c)(1)(B) in connection with an insurance 
transaction that is not initiated by the consumer.
            Direct marketing disclosure
    This section imposes similar disclosure requirements upon 
entities obtaining consumer report information under section 
604(d)(1)(B) for direct marketing. Such a direct marketing 
solicitation must include a clear and conspicuous written 
statement indicating that the information concerning the 
consumer was provided by a consumer reporting agency and that 
the consumer has the right to opt-out by contacting the 
consumer reporting agency in writing or by telephone, thereby 
prohibiting a consumer reporting agency from using the 
consumer's information in the future for direct marketing 
transactions. Further, the disclosure must provide the name, 
address and toll-free number of the consumer reporting agency.

Section 412. Civil liability

    Section 412 amends the sections of the FCRA pertaining to 
civil liability for willful and negligent non-compliance with 
the Act. In a situation where a person negligently violates the 
FCRA, a consumer is entitled to recovery in an amount equal to 
actual damages sustained by the consumer as a result of the 
failure to comply with the FCRA. In cases of willful non-
compliance, the consumer is entitled to recover either: (i) the 
actual damages sustained by the consumer as a result of the 
failure to comply with the FCRA; or (ii) damages in an amount 
ranging from $100 to $1,000.
    Section 412 also provides that a natural person who obtains 
a consumer report under false pretenses or knowingly without a 
permissible purpose may be held liable for actual damages 
sustained by the consumer, or $1,000, whichever is greater. In 
addition, section 412 provides that a consumer reporting agency 
is entitled to recover from any person who obtains a consumer 
report from the agency under false pretenses or knowingly 
without a permissible purpose an amount equal to actual damages 
it sustained as a result of the improper obtaining of the 
report or $1,000, whichever is greater.
    The Committee is aware of concerns expressed by furnishers 
of information and the consumer reporting agencies that these 
provisions will result in unwarranted litigation. At the same 
time, the Committee does not want to disadvantage consumers who 
have been wronged. To balance the rights of consumers with 
those of consumer reporting agencies and furnishers, section 
412 provides that the prevailing party may recover reasonable 
attorney's fees on a finding by the court that an unsuccessful 
pleading, motion, or other paper filed in connection with a 
civil liability action under FCRA was filed in bad faith or for 
purposes of harassment. The Committee intends this provision to 
apply to both plaintiffs and defendants.

Section 413. Responsibilities of persons who furnish information to 
        consumer reporting agencies

    Currently, the FCRA contains no requirements applying to 
those entities which furnish information to consumer reporting 
agencies. Section 413 imposes certain obligations upon those 
furnishers of information to consumer reporting agencies. The 
Committee believes that bringing furnishers of information 
under the provisions of the FCRA is an essential step in 
ensuring the accuracy of consumer report information.
            General
    This section provides that an entity shall not furnish any 
information to a consumer reporting agency if the person knows 
that the information is incomplete or inaccurate.
    Section 413 adds to the Fair Credit Reporting Act new 
section 623 which sets forth the responsibilities of those 
entities that regularly furnish information to consumer 
reporting agencies. Section 623(a)(1) provides that a person 
may not furnish any information to a consumer reporting agency 
if the person ``knows'' that the information is incomplete or 
inaccurate. Section 623(a)(1) is intended to provide protection 
to a consumer in the circumstance where such a person actually 
knows that information furnished by that person to a consumer 
reporting agency is inaccurate. Section 623(a)(1) is intended 
to provide protection without having a chilling effect on the 
free flow of credit information. For example, if a person 
determines through an internal audit that information in its 
records on a consumer is wrong, that information may not be 
furnished to a consumer reporting agency. Similarly, if a 
consumer uses procedures reasonably established by a creditor 
to notify the creditor that information furnished to a consumer 
reporting agency by the creditor is inaccurate, and the 
information in fact is inaccurate, the creditor may not 
subsequently furnish the information to a consumer reporting 
agency. On the other hand, section 623(a)(1) does not apply 
where a consumer attempts to notify the creditor of an error 
without using procedures established by the creditor for such 
notifications. For example, section 623(a)(1) would not apply 
to a creditor if a consumer makes a notation on a payment stub 
claiming a consumer reporting error or indicates to one of a 
retail credit grantor's sales clerks that information furnished 
by the creditor to a consumer reporting agency is erroneous. 
Under such circumstances, the creditors would not ``know'' that 
the information is incomplete or inaccurate.
            Duty to correct and update
    This section requires any furnisher of information to 
correct and update information previously furnished to a 
consumer reporting agency that the furnisher determines is 
inaccurate. This provision creates an affirmative obligation 
for furnishers of information to correct such information where 
the furnisher determines that the information is wrong.
            Duty to provide notice of continuing dispute
    If any information provided by a furnisher continues to be 
disputed by a consumer, the furnisher of that information must 
include with that information a notice of the dispute. This 
provision applies to information that is disputed under section 
611 of the FCRA (amended by section 409 of the Committee bill).
            Duty to provide notice of closed accounts
    Section 413 requires a person who regularly and in the 
ordinary course of business furnishes information to a consumer 
reporting agency concerning a consumer who has a credit account 
with that person to notify the agency when the account is 
voluntarily closed by the consumer. This provision is intended 
to complement the new requirement of section 605 of the FCRA 
(as amended by section 406 of the Committee bill) that a 
consumer reporting agency indicate in a consumer report if an 
account has been voluntarily closed by the consumer. Under this 
provision, the information must be furnished with the 
information regularly furnished by the person to the consumer 
reporting agency for the period in which the account is closed. 
This provision applies only to credit accounts which are closed 
solely as a result of a voluntary request by the consumer. This 
provision does not cover, for example, an account which is 
closed by a creditor as a result of the consumer's 
delinquencies or other abuse of the account, even if the 
consumer also asks to have the account closed.
            Duty to provide notice of delinquency of accounts
    This provision requires a creditor, when furnishing 
information concerning a delinquent account being placed for 
collection, charged to profit or loss, or subjected to a 
similar action, to within 90 days after furnishing the 
information, notify the agency of the month and year of the 
commencement of the delinquency that immediately preceded the 
action. The creditor is under no obligation to place the 
delinquent account for collection within a specified period, or 
initially even to report the delinquency. If the creditor later 
commences a collection action, however, and provides such 
information to a consumer reporting agency, the creditor must 
provide the month and year of the delinquency immediately 
preceding the action. This information will provide the 
consumer reporting agency with a reference date which it must 
use to determine obsolescence under section 605 of the FCRA (as 
amended by section 406 of the Committee bill).
    Likewise, if an account is placed for collection with 
several different collection agencies, the reporting period 
will begin upon the same reference period.This requirement 
applies only to information furnished more than 455 days after 
enactment these provisions. Information which is reported prior 
to that time will be unaffected by this provision.
            Duties of furnishers upon notice of dispute
    In addition to the duties of furnishers of information 
concerning the initial provision of information, under section 
623(b), a person who has furnished information on a consumer to 
a consumer reporting agency which subsequently is disputed by 
the consumer under section 611 of the FCRA must complete an 
investigation with respect to the disputed information and 
report to the consumer reporting agency the results of that 
investigation before the end of the 30-day period set forth in 
611(a)(1)(A), or the additional 15-day period set forth in 
section 611(a)(1)(B), whichever is applicable. In addition, the 
person must review relevant information submitted to the 
consumer reporting agency by the consumer and provided to the 
person in accordance with section 611(a)(2).
            Limitations
    Section 623(c) limits the remedies available for, and 
enforcement powers with respect to, violations of section 
623(a). Section 623(c) provides that only the agencies listed 
in section 621 are authorized to bring any action for a 
violation of section 623(a). Actions brought by such agencies 
for violations of section 623(a) may be brought only under 
section 621. No private right of action may be brought for any 
violation of section 623(a).

Section 414. Investigative consumer reports

    Section 414 of the bill establishes new requirements for 
investigative consumer reports. Under the FCRA, ``investigative 
consumer report'' is a defined term. Generally, it is a 
consumer report that contains information on a consumer's 
character, general reputation, personal characteristics, or 
mode of living obtained through interviews with neighbors, 
friends, or associates of the consumer or with others who may 
have knowledge concerning the items of information contained in 
the report. Because an ``investigative consumer report'' is a 
consumer report, all requirements in the FCRA apply to these 
reports. Section 414 of the bill affords consumers new 
protections with respect to these reports because of the 
subjective nature of the information they may contain.
    The bill amends section 606 of the FCRA, which generally 
provides that a person may not procure or cause to be prepared 
an investigative consumer report unless the consumer is 
provided certain written disclosures. Under the bill, consumer 
reporting agencies may not prepare or furnish an investigative 
consumer report unless they have received a certification from 
the person who requested the report that the required 
disclosures have been or will be made.
    The bill further amends section 606 to prohibit consumer 
reporting agencies from making an inquiry for the purpose of 
preparing an investigative consumer report on a consumer where 
the inquiry, if made by an employer or prospective employer, 
would violate any applicable federal or state equal employment 
opportunity law or regulation. Consumer reporting agencies are 
also prohibited from furnishing an investigative consumer 
report that includes public record information--such as records 
of arrests, convictions or tax liens--unless the agency has 
verified the accuracy of the information within the 30-day 
period ending on the date the report is furnished. This general 
rule for investigative consumer reports that contain public 
record information is not intended to affect the applicability 
of section 613 of the FCRA which creates a special rule for all 
consumer reports that contain public record information, where 
such reports are furnished for employment purposes.
    Section 414 of the bill further amends section 606 to 
prohibit a consumer reporting agency from preparing or 
furnishing an investigative consumer report containing 
information adverse to the consumer obtained through personal 
interviews with neighbors, friends, or others who have 
knowledge of such item of information unless (1) the agency has 
followed reasonable procedures to obtain confirmation of the 
information from an additional source that has independent and 
direct knowledge of the information or (2) the person 
interviewed is the best possible source of the information. 
This provision is intended to help guard against 
unsubstantiated information in investigative consumer reports. 
For example, if a consumer reporting agency preparing an 
investigative report is informed by a consumer's neighbor that 
the consumer fails to pay rent on time, the agency would have 
to make reasonable efforts to obtain confirmation of that 
information from a person with independent and direct 
knowledge--in this case the consumer's landlord.

Section 415. Increased criminal penalties for obtaining information 
        under false pretenses

    Section 415 of the bill increases the criminal penalties 
that may be imposed under sections 619 and 620. Section 619 
imposes penalties on persons who obtain information from a 
consumer reporting agency under false pretenses. Section 620 
provides for penalties against any officer or employee of a 
consumer reporting agency who knowingly or willfully provides 
information from the agency's files to a person not authorized 
to receive such information.

Section 416. Administrative enforcement

    Section 416 amends the administrative enforcement section 
of the FCRA (section 621) to enhance the FTC's enforcement 
authority with respect to entities within its jurisdiction. By 
providing the FTC with the power to enforce provisions of this 
title in the same manner as if the violation had been a 
violation of any FTC trade regulation rule, the Committee gives 
the FTC the authority to seek civil money penalties for 
violations of the Act, unless other exceptions apply. This 
authority is consistent with the FTC's authority to seek civil 
penalties under the Equal Credit Opportunity Act and the Fair 
Debt Collection Practices Act.
    However, section 416 limits the authority of the FTC to 
seek, and the courts to impose, any civil penalty on a person 
for a violation of section 623(a)(l). Specifically, no civil 
penalty may be imposed on a person for a violation of section 
623(a)(l) unless: (i) the person has been enjoined from 
committing the violation, or ordered not to commit the 
violation, in an action brought by or on behalf of the FTC; and 
(ii) the person has violated the injunction or order. Moreover, 
no civil penalty may be imposed for any violation occurring 
before the date of the violation of the injunction or order.
    This section also clarifies that enforcement of the FCRA in 
connection with entities that are subject to enforcement under 
section 8 of the Federal Deposit Insurance Act will be 
conducted by the regulatory authorities specified in the 
Federal Deposit Insurance Act.

Section 417. State enforcement of Fair Credit Reporting Act

    Section 417 amends section 621 of the FCRA by adding a new 
subsection (c) that permits state officials to enforce the 
FCRA. This subsection is intended to enhance the states'' 
ability to address consumer reporting issues within each state. 
State attorneys general are frequently the first governmental 
agency to which consumers turn when they experience consumer 
reporting problems.
    Section 621(c)(1)(A), as added by the bill, permits the 
chief law enforcement officer of a state, or an official or 
agency designated by a state, to bring an action to enjoin 
violations off the FCRA. Under section 621(c)(1)(B), any such 
state official may also bring an action on behalf of its 
residents to recover damages for which a defendant is liable to 
such residents under the civil liability provisions of the FCRA 
as a result of a negligent or willful violation of the FCRA or 
damages of not more than $1,000 for each such violation. The 
Committee intends that no action brought by a state official 
under section 621(c)(1)(B) will be deemed a class action by 
virtue of the state seeking to recover damages on behalf of its 
residents.
    Although section 623(c), as added by the bill, bars private 
citizens from bringing suit against furnishers of information 
for violations of certain duties imposed on them, this bar does 
not apply to an appropriate state official who brings an 
action, under section 621(c)(1)(B), on behalf of state 
residents for violations of section 623(a)(2), (3),(4) or (5). 
In such actions, the state could recover damages, which would 
be awarded to its injured citizens, for which the furnisher 
would have been liable to those citizens under the FCRA but for 
section 623(c).
    Actions brought under 621(c)(1)(A) and 621(c)(1)(B) may be 
brought in any appropriate United States district court or in 
any other court of competent jurisdiction. Any action that may 
be brought under section 621(c) is in addition to whatever 
actions and remedies may be available under state law.
    Under section 621(c)(2), as amended by the bill, a state is 
required to serve written notice to the FTC or the appropriate 
federal regulator prior to filing an action under 621(c)(1)(A) 
or 621(c)(1)(B). If prior notice is not feasible, the state 
must serve such notice immediately upon instituting the action. 
The FTC or appropriate regulator may appear as an intervenor in 
any state's action and my file appeals.
    Section 621(c)(3) provides that, for purposes of bringing 
an action under section 621(c), nothing in the section shall 
prevent the chief law enforcement officer of a state or an 
official or agency designated by a state from exercising the 
powers conferred on these officials by state law to conduct 
investigations, administer oaths or affirmations, or to compel 
the attendance of witnesses or the production of evidence. 
Under section 621(c)(4), whenever the FTC or other appropriate 
federal regulator has instituted a civil action for violation 
of the FCRA, no state may, during the pendency of the action, 
bring an action under section 621(c) against any defendant 
named in the FTC's or regulator's complaint for any violation 
of the FCRA alleged in the complaint.
    Section 621(c)(5) provides that a state may not bring an 
action under section 621(c) against a person for a violation of 
section 623(a)(1) unless the person has been enjoined from 
committing the violation, in a action previously brought by the 
state under section 621(c)(1)(A), and the person has violated 
the injunction. In any action brought by a state for the 
violation of such an injunction, the state may not recover any 
amounts for any violation incurred before the date of the 
violation of the injunction on which the action is based.

Section 418. Federal Reserve Board authority

    Section 418 of the bill adds to section 621 a new 
subsection (e) which gives authority to the Federal Reserve 
Board to issue interpretations of the FCRA with respect to 
financial institutions or to the holding companies and 
affiliates of such institutions, in consultation with other 
specified federal banking regulatory agencies.

Section 419. Preemption of State law

    Section 419 amends section 623 of the existing FCRA, 
redesignated as section 624 by this Act. Section 624 provides 
that certain provisions of the FCRA preempt any corresponding 
provisions of state law. More specifically, under section 624, 
no state or local authority may impose any requirement, 
prohibition or other provision with respect to any subject 
matter regulated under Section 604(c) or (e) relating to 
prescreening. Section 604 (c) and (e), among other things, 
provide that a consumer reporting agency may furnish 
prescreened lists in connection with a firm offer of credit or 
insurance, provided that the consumer reporting agency has 
established the opt-out notification system required under 
section 604 and the consumer has not opted out. Section 604 
also specifies the information that a consumer reporting agency 
may furnish on a prescreened list. Section 624 also preempts 
any state or local provision relating to the definition of 
``firm offer of credit or insurance'' set forth in the Act. In 
short, under section 624, any state or local authority is 
precluded from employing or establishing any provisions 
relating to any aspect of prescreening.
    Section 624 also preempts any state or local law relating 
to the subject matter of section 611, regarding the time 
periods for reinvestigation of consumer disputes and the 
notices established for such reinvestigation, except that such 
preemption does not apply to any state law in effect on the 
date of enactment of this Act.
    In addition, section 624 completely preempts any state or 
local provision relating to the subject matter of section 
615(a) and (b), regarding the duties of a person who takes any 
adverse action with respect to a consumer. Similarly, section 
624 preempts any state or local provision relating to section 
615(d), regarding the duties of a person who uses a consumer 
report in connection with any credit or insurance transaction 
that is not initiated by the consumer and that consists of a 
firm offer of credit or insurance. Further, section 624 
preempts any state or local provision relating to the subject 
matter of section 615(e), regarding the duties of a person who 
uses a consumer report in connection with any direct marketing 
transaction that is not initiated by the consumer.
    Moreover, section 624 preempts any state or local provision 
relating to the subject matter of section 605 relating to 
information contained in consumer reports, except that such 
preemption does not apply to any state law in effect on the 
date of enactment of this Act.
    In addition, section 624 preempts any state or local law 
with respect to the exchange of information among affiliated 
persons and preempts any state or local law with respect to the 
form and content of any disclosures required to be made under 
section 609(c). Finally, section 624 preempts any state or 
local law relating to section 623(b)(2), except that such 
preemption does not apply to any state law in effect on the 
date of enactment of this Act.
    By preempting state and local provisions relating to the 
subject matter regulated by these provisions of the FCRA, 
section 624 establishes the FCRA as the national uniform 
standard in these areas. This section recognizes the fact that 
credit reporting and credit granting are, in many aspects, 
national in scope, and that a single set of Federal rules 
promotes operational efficiency for industry, and competitive 
prices for consumers. However, section 624 does not supersede 
any settlement, agreement, or consent judgment between any 
state attorney general and any consumer reporting agency in 
effect on the date of enactment of this Act, and does not 
supersede any provision of state law which is enacted after 
January 1, 2004, states explicitly that the provision is 
intended to supplement this Act, and gives greater protection 
to consumers than is provided under this Act.

Section 420. Action by FTC and Federal Reserve Board

    While the Committee has included preemption provisions in 
order to provide for national uniformity in many of the 
disclosures and procedures required by the provisions in this 
bill, the Committee is concerned that consumers must be 
protected adequately and that the protections should continue 
to evolve as technology and the economy change. Therefore, 
section 420 provides that the FTC may, after opportunity for 
comment and consultation with state and Federal agencies, 
impose on entities subject to FTC jurisdiction more stringent 
requirements than those created by several of the sections of 
this bill that are preempted by section 419. In particular, the 
FTC may impose more stringent requirements in the areas of 
reinvestigation time periods, adverse action disclosures, 
prescreening disclosures, and the notices of consumers'' 
rights.
    The Committee has provided the FTC with the authority to 
modify these provisions to ensure that the disclosures and 
procedures required by the bill remain effective to the 
greatest extent practicable. The Federal Trade Commission has 
suggested, for instance, that the 30 day reinvestigation period 
may be unnecessarily long in the future as technology allows 
reinvestigations to be accomplished more quickly. The Committee 
has included this provision to enable the Commission to shorten 
the 30-day period if it becomes necessary. Any modifications 
adopted by the FTC apply only to entities within the 
jurisdiction of the FTC. The bill also authorizes the FRB to 
impose more stringent requirements on persons described in 
paragraphs (1), (2), of (3) of section 621(b) of the FCRA or on 
the holding companies and affiliates of such persons.
    Additionally, the Committee understands that states have 
the power to protect their own citizens, including protection 
from abuses in the credit reporting industry. Therefore, the 
FCRA, as amended by the Committee bill will not infringe upon 
the rights of states to legislate more stringent requirements 
that fall outside the scope of those areas specifically 
preempted to the extent such requirements are not inconsistent 
with any provisions of the FCRA.

Section 421. Amendment to Fair Debt Collection Practices Act

    This provision amends Section 807(11) of the Fair Debt 
Collection Practices Act. It is intended to harmonize 
inconsistent judicial interpretations regarding Section 
807(11). A similar provision was included in S. 783, as 
reported by the Committee during last Congress, and the current 
language was the product of negotiations between House and 
Senate Banking Committee staff. Many of the provisions agreed 
by the staffs during these negotiations were included in S. 709 
as introduced this Congress. Most of these provisions were 
likewise incorporated in Title IV of this bill; the provision 
incorporated in Section 421 was amongst these provisions.

Section 422. Furnishing consumer reports for certain purposes

    Section 422 sets forth a provision that allows agencies 
authorized by law to enforce child support orders to obtain 
consumer reports for the purpose of establishing child support 
obligations and determining the appropriate level of payments. 
The Committee believes that this provision will result in a 
more efficient and cost-effective process for obtaining reports 
against parents who fail to provide court-ordered child support 
payments.
    This provision further provides that the person who is the 
subject of the consumer report must be provided 10 days prior 
written notice that the report will be requested, and also 
provides that consumer reports obtained in furtherance of 
establishing child support payment obligations cannot be used 
or shared by the state or local agency for any other 
proceedings. In addition, the provision requires that the state 
or local agency take steps to maintain the confidentiality of 
consumer reports.

Section 423. Disclosure of information and consumer reports to FBI for 
        counter-intelligence purposes

    This section creates a new section 625 which grants the 
Federal Bureau of Investigation the authority to obtain certain 
information about a consumer when investigating foreign 
counterintelligence activities.
    Since the late 1980's, the FBI has been seeking each year 
to include in the House and Senate intelligence authorization 
bills a ``national security letter'' exemption from the FCRA to 
require consumer reporting agencies to provide the FBI with 
consumer reports of suspected terrorists upon a certification 
by the Director of the FBI or the Director's designee. The 
House and Senate committees have repeatedly refused to grant 
the FBI this extraordinary authority. Because of the recent and 
notorious terrorist activities in the United States, the 
Committee believed that giving the FBI additional, but limited, 
authority to obtain consumer information and reports on certain 
suspects would be appropriate on a temporary and experimental 
basis.
    This section is intended to afford the FBI more ready 
access to consumer information, but only upon a certification 
or, if seeking a consumer report, a showing in court that: (1) 
the consumer information is necessary for the conduct of an 
authorized foreign counterintelligence investigation and, if 
seeking more than identifying information (which requires a 
different showing), (2) there are specific and articulable 
facts giving reason to believe that the consumer about whom 
information is sought is a foreign power or an agent of a 
foreign power and is engaging or has engaged in international 
terrorism or clandestine intelligence activities that involve 
or may involve a violation of criminal statutes. With new 
section 625, the Committee did not extend to the FBI unchecked 
authority to seek consumer information on suspected 
individuals, as would be the case under the national security 
letter exemption, but rather gave the agency a streamlined 
process for obtaining such information where warranted.
    Furthermore, in response to the FBI's stated concerns about 
leaks in the course of counterintelligence investigations, the 
Committee provides that court actions to obtain consumer 
reports under section 625 be conducted in camera.
    Section 625 instructs the FBI to report to the House and 
Senate intelligence committees and banking committees on a 
semiannual basis about the use of this section. The FBI's 
authority to obtain consumer information and reports under 
section 625 expires 5 years after the date of enactment of 
these amendments to the FCRA.

Section 424. Effective dates

    Section 424 sets forth the effective dates for amendments 
made by this title. In addition, section 424(c) provides that 
any person or other entity that is subject to the requirements 
of the Act may, at its option, comply with any provision of 
this Act prior to the effective date of the relevant provision, 
provided that such person complies with each of the 
corresponding provisions of the Act which relate to that 
particular provision. For example, this section would allow 
creditors to voluntarily comply with the prescreening 
provisions of the Act prior to the effective date of the Act, 
provided that the credit bureau which furnishes the 
prescreening list complies with all applicable prescreening 
requirements of the Act and the creditor furnishes the 
prescreening notice required under section 615(d).

Section 425. Relationship to other law

    Section 425 provides that none of the provisions of this 
title shall supersede or otherwise affect section 2721 of title 
18, United States Code.

Section 501. Short title

Section 502. Federal Deposit Insurance Act amendment

    Section 502 amends the Federal Deposit Insurance Act to 
clarify that federal banking agencies are not subject to strict 
liability for the release of hazardous substances on property 
acquired through receivership, conservatorship, liquidation, 
winding up the affairs of an insured depository institution or 
its subsidiary, or through criminal, civil or administrative 
enforcement proceedings. An agency may be held liable if it 
caused or contributed to the release of the hazardous 
substance. Federal banking agency liability under state law is 
limited to the value of the agency's interest in the property. 
Further, the agency may negotiate with the State for a 
settlement of property.
    This section also provides that the immunity of the federal 
banking agency extends to first subsequent purchaser of the 
property; unless the purchaser would otherwise be liable due to 
a prior or affiliated relationship with the property; a failure 
to take reasonable steps to stop the release or threatened 
release to protect the public health and safety; or the fact 
that subsequent purchasers caused or contributed to the release 
of the hazardous substance on the property. If, however, a 
federal or state environmental agency orders the federal 
banking agency to remediate or take corrective action due to 
the subsequent purchaser's failure to take reasonable steps to 
do so, the subsequent purchaser must reimburse the federal 
banking agency for the cost of the clean-up (to the extent that 
the clean-up increased the fair market value of the property).
    In addition, neither the federal banking agency or the 
subsequent purchaser may be subject to a lien for damages 
existing at the time of the transfer of the property. The 
federal banking agency is exempted from any law requiring the 
agency to grant any covenants to remediate pursuant to their 
acquisition of a property.

Section 503. CERCLA amendments

            Lender liability
    Section 503 clarifies the liability of lenders under CERCLA 
or Subtitle I of the Solid Waste Disposal Act for the release 
or threatened release of a hazardous substance on property: 
held or controlled by the lender through foreclosure; subject 
to a security interest; or held, subject to control, pursuant 
to terms of a lease or extension of credit. Lenders are only 
liable for the actual benefit conferred upon the lender by the 
removal of the hazardous substance. This limitation does not 
apply, however, if the lender caused or contributed the release 
of the hazardous substance.
    This section also directs the Administrator of the 
Environmental Protection Agency, after consultation with the 
FDIC, to publish guidelines 180 days from enactment of this 
section to assist lenders in developing adequate procedures to 
evaluate environmental risk and damage of property before 
extending credit.
            Fiduciary liability
    CERCLA is also amended to provide that fiduciaries may not 
be held liable for damages in excess of the assets held in the 
fiduciary capacity that are available to indemnify the 
fiduciary. This limitation does not apply where a person is 
liable under CERCLA independent of any action or ownership as a 
fiduciary. A fiduciary may also be personally liable when its 
failure to exercise due care caused or contributed to the 
release of the hazardous substance. A fiduciary may not, 
however, be held personally liable for: undertaking action 
directed by an on-scene coordinator or undertaking corrective 
action; addressing the problems of the hazardous substance by 
lawful means; ending the fiduciary relationship; including a 
term or condition relating to compliance with environmental law 
in the fiduciary agreement; monitoring or undertaking 
inspection of the property; providing financial or other advice 
to involved parties; or altering the terms and conditions of 
the financial relationship. Fiduciaries are also not liable for 
declining to take any of these actions.
            Definition of owner or operator
    The section defines the term ``owner or operator'' under 
CERCLA as excluding the United States, its departments, 
agencies, instrumentalities, or any conservator or receiver 
appointed by them. Exempt entities must acquire the property by 
receivership, conservatorship, liquidation, in connection with 
the exercise of any seizure or forfeiture, or pursuant to law, 
and must not participate in management that results in the 
release of hazardous substances.
    Individuals not participating in management are excluded 
from the definition of ``owner or operator'' even if they hold 
an indicia of ownership in the property primarily for the 
purpose of protecting their security interest. ``Owner or 
operator'' also does not include persons who did not 
participate in management of a vessel or facility prior to the 
foreclosure even if subsequent to foreclosure measures are 
taken to preserve, protect or prepare the vessel or facility 
for resale as long as the divestment takes place in a 
commercially reasonable time and under commercially reasonable 
terms.
            Definition of participation in management
    The section clarifies that ``participation in management'' 
requires action in management or organizational affairs, not 
just having influence or the unexercised right to control. It 
includes a person who exercises decision-making control over 
environmental compliance, is responsible for hazardous 
substance handling, or exercises day-to-day decision-making 
control with respect to environmental compliance or other 
operational aspects. ``Participation in management'' does not 
include: action taken prior to the creation of the security 
interest; holding or releasing such interest; including a 
condition for environmental compliance in a contract; 
monitoring or undertaking terms and conditions on a credit 
agreement; monitoring inspections of the facility; requiring or 
conducting action to correct the release of a hazardous 
material; agreeing to alter the terms of the credit or security 
interest; or exercising other remedies for breach, so long as 
these activities do not rise to the level of ``participating in 
management''.

Section 504. Solid Waste Disposal Act amendments

    Section 504 amends the Solid Waste Disposal Act to 
incorporate by reference the changes made by section 503 to 
CERCLA regarding lender and fiduciary liability and the 
definition of ``owner or operator''.

Section 505. Effective date

    The amendments made by these sections are applicable to any 
claim not finally adjudicated as of the date of enactment.

Section 601. Electronic Fund Transfer Act clarification

    Clarifies that the Electronic Fund Transfer Act (EFTA) does 
not apply to stored value cards or value stored on such cards 
to the extent that such devices are used as a cash equivalent. 
Transactions where the card is actually used to access an 
``account'' (as defined in the EFTA) to load value onto the 
card would continue to be subject to the EFTA. For multipurpose 
cards that offer both stored value and debit card features, 
this section applies only to the stored value feature and does 
not affect the application of existing law to the debit card or 
credit card features of the card.

Section 602. Treatment of claims arising from breach of post-
        appointment agreements

    Section 602 clarifies that any final judgment for monetary 
damages for breach of contract entered against a federal 
banking agency shall be considered to be an administrative 
expense of the conservator or receiver if the agreement was 
made after the appointment of the agency as administrator.

Section 603. Fictitious financial instruments

    This provision criminalizes the production and sale of 
phony financial instruments and designates counterfeiting as a 
Class B felony.

Section 604. Amendments to the Truth in Savings Act

    Section 604 repeals sections 268 and 271 of the Truth in 
Savings Act (TISA). Section 268 of TISA required institutions 
to make periodic statements of account information to consumers 
including APY, interest earned, fees imposed, and the number of 
days in the reporting period. Section 271 of TISA provided for 
civil liability (individual and class actions) for violations 
of TISA. TISA compliance remains subject to administrative 
enforcement, with violations subject to administrative action. 
This section also exempts non-automated credit unions from the 
requirements of TISA. Section 604 further eliminates the 
requirement that institutions provide subsequent account 
disclosures for automatically renewable time deposits with a 
term of 30 days or less. The Committee is aware of the Board's 
implementations of Section 266(a)(3) in Regulation DD, dealing 
with the timing and content of disclosures for renewable time 
deposits. By adopting this amendment, Congress does not intend 
to alter or raise questions about the appropriateness of the 
Board's rules in Regulation DD for time accounts with a term 
exceeding 30 days.

Section 605. Consumer Leasing Act amendments

    Section 605 provides the Federal Reserve Board with the 
authority to adopt appropriate regulations, commentary, and 
model forms to provide useful information to the consumer on 
leasing. The section also revises the advertising provisions of 
the Consumer Leasing Act to require clear and conspicuous 
disclosure of lease terms when a lease is promoted through an 
advertisement. If the lease advertisement states the amount of 
any payment or states that no initial payment is required, the 
advertisement must also state the fact that the transaction is 
a lease, the total initial payments required, whether a 
security deposit is required, the number, amounts and timing of 
scheduled payments and any charges that may be imposed at the 
end of a lease term. Owners or personnel of the medium in which 
the advertisement appeared are not liable for violations of 
these advertising requirements.

Section 606. Credit union study

    Section 606 requires the Secretary of the Treasury in 
coordination with the Federal Reserve Board, the FDIC, the OCC 
and the National Credit Union Administration to conduct a study 
and review of the oversight and supervisory practices of the 
NCUA regarding the National Credit Union Share Insurance Fund.

Section 607. Report on the reconciliation of differences between 
        regulatory accounting principles and generally accepted 
        accounting principles

    Section 607 requires each appropriate banking agency to 
submit a report within 180 days to the Banking Committees of 
the House and Senate detailing those actions they are taking to 
conform the requirements of GAAP and RAP as they apply to 
reports and statements filed with the agency.

Section 608. State-by-state and metropolitan area-by-metropolitan area 
        study of bank fees

    Section 608 amends Section 1002 of FIRREA to require the 
Board to study bank fees at the state and metropolitan 
statistical area level to identify any discernible national 
trend in the cost and availability of retail banking services 
and fees.

Section 609. Prospective application of gold clauses in contracts

    Section 609 concerns gold clauses in real estate contracts. 
Gold clauses are sometimes used in real estate contracts to 
specify that payment is to be tendered in gold or in a dollar 
amount equivalent to gold. In 1933, gold clauses were made 
unenforceable. In 1977, the Congress permitted gold clauses to 
be used again in real estate contracts. This provision would 
clarify that the ban on gold clauses continues for those 
contracts prior to 1977 and cannot be revived, through 
assignments or novations, unless the parties specifically agree 
to it.

                      REGULATORY IMPACT STATEMENT

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
statement regarding the regulatory impact of the bill.
    S. 650 significantly reduces the regulatory paperwork and 
reporting burdens on financial institutions by eliminating, 
modifying, streamlining and improving various regulatory and 
statutory requirements. Many of the bill's provisions would 
also lower the cost of regulation by decreasing the number of 
applications that must be processed and reviewed by federal 
banking regulators.

                        CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirements of paragraph 12 of the rule XXVI 
of the Standing Rules of the Senate in order to expedite the 
business of the Senate.

                        COST OF THE LEGISLATION

    The Committee has requested from the Congressional Budget 
Office an estimate of the costs which would be incurred in 
carrying out S. 650. Due to unforseen delays at the 
Congressional Budget Office, however, it is the Committee's 
view that it is impracticable to obtain a cost estimate in 
accordance with the requirements of subparagraphs (1) and (2) 
of rule XXVI(11)(a) at this time.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, December 14, 1995.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: As requested, CBO is preparing a cost 
estimate for S. 650, the Economic Growth and Regulatory 
Paperwork Reduction Act of 1995, as ordered reported by the 
Senate Committee on Banking, Housing, and Urban Affairs on 
September 27, 1995. We have not completed our analysis of the 
bill yet, but we will complete and transmit the cost estimate 
as soon as possible. We expect to provide the estimate no later 
than December 22, 1995, but will make every effort to complete 
it earlier in the week.
    If you have any further questions, we will be pleased to 
answer them. The staff contacts are Mary Maginniss and Mark 
Booth.
            Sincerely,
                                         June E. O'Neill, Director.
                 ADDITIONAL VIEWS OF SENATOR ROD GRAMS

    As a strong supporter of regulatory paperwork reduction, I 
was pleased to support S. 650. This legislation is entitled the 
``Economic Growth and Regulatory Paperwork Reduction Act of 
1995,'' and with good reason.
    The provisions in this bill will go a long way in reducing 
the regulatory burden which is currently preventing 
entrepreneurs from having access to the credit they need to 
create jobs. By passing this legislation, we have made a major 
step forward in removing these obstacles to economic growth.
    There are, however, some outstanding problems left 
unaddressed by the Banking Committee, problems which I hope we 
will take up in the near future.
    For example, one of the biggest obstacles to credit 
availability is the Community Reinvestment Act (CRA). The CRA 
was originally designed to help financial institutions meet the 
credit needs of their local communities. But as well intended 
as that goal may have been in 1977, the CRA has resulted in 
just the opposite.
    The additional paperwork burden, reporting requirements, 
and increased examinations that come from the CRA have made it 
even more difficult for banks and thrifts to do the job they're 
supposed to do.
    Nowhere is that trend more evident than in the case of 
small community banks. These banks, the neighborhood 
institutions which are the foundation of our financial system, 
have found it increasingly difficult to meet the requirement of 
the CRA and remain in business.
    Ironically, it's these very same institutions which have 
done the best job in lending to their communities in the first 
place. If a small community bank does not do business in its 
local community, it goes out of business. In other words, for 
small banks, community lending is not a convenience; it means 
survival.
    During the Committee markup of S. 650, I offered an 
amendment which would have exempted small banks--those with 
assets under $250 million--from CRA requirements. Given the 
consensus of the Banking Committee not to include CRA 
provisions in the bill, I withdrew that amendment.
    I do, however, continue to urge the Banking Committee to 
address CRA reform during the 104th Congress. If we are serious 
about expanding community lending and preserving small 
community banks, something must be done to curb the excesses of 
the CRA.
    Along the same lines, I also offered an amendment during 
the Committee markup which would have added a five-year sunset 
provision to five separate laws: the CRA, the Truth in Lending 
Act, the Truth in Savings Act, the Home Mortgage Disclosure 
Act, and the Real Estate Settlements Procedures Act.
    I offered this amendment because I do not believe laws 
passed by Congress should be left on the books for eternity 
without further review and examination. If a law serves a 
purpose and does so effectively, it should and will be 
reauthorized by Congress. If not, the law and the regulations 
promulgated under that law should expire.
    Unfortunately, Congress has repeatedly failed to meet its 
responsibility to taxpayers and consumers in reviewing the laws 
it passes. The U.S. Code is filled with outdated statutes which 
serve little or no purpose, and some even have a negative 
impact on consumers and taxpayers. I believe it is the job of 
all authorizing committees to regularly review the laws already 
on the books before they pass new ones.
    Sunsetting laws does not mean repealing them. Laws would 
only expire if Congress failed to meet its responsibility to 
reexamine and renew these statutes within a specified period of 
time. If Congress is willing to do its job, sunset doesn't have 
to mean lights out.
    What it would guarantee is that every law passed by 
Congress will be reviewed again, that mistakes will be 
corrected, that bad laws will be forced to expire and good laws 
allowed to continue.
    Nothing sums up the arguments for sunsetting laws better 
than the response by Federal Reserve Chairman Alan Greenspan to 
a question I posed: ``If a law is sound, it will be repassable 
after a period of time. It should not just go on unnoticed.''
    Truer words were never spoke. In the name of good 
government, I will continue my efforts to ensure that laws 
under the jurisdiction of the Banking Committee and all other 
authorizing committees will not go forward without a sunset.

                                                       Rod Grams.  
 ADDITIONAL VIEWS BY SENATORS MACK, FAIRCLOTH, BENNETT, AND GRAMS, ON 
                   THE CONSUMER REPORTING REFORM ACT

    The intention of this bill is to roll back some of the 
unnecessary regulatory burdens faced by our nation's financial 
institutions in order to make them more competitive. This 
legislation is a good effort to free up our financial 
institutions from regulations unrelated to safety and soundness 
that cause these institutions to focus on compliance with 
federal regulations rather than serving their customers.
    The Consumer Reporting Reform Act (CRRA) which amends the 
Fair Credit Reporting Act was added to S. 650 in the Senate 
Banking Committee by voice vote. Although a few of the 
provisions of the CRRA provide some regulatory relief from the 
Fair Credit Reporting Act, on balance the CRRA adds new burdens 
and increases liability for credit grantors that voluntarily 
provide information to credit bureaus. This legislation does 
not belong on a bill intended to eliminate unnecessary burdens 
imposed on financial institutions.
    While the Consumer Reporting Reform Act passed the Senate 
in the 103rd Congress, no hearings have been held in the 104th 
Congress. Unless the burdens imposed by the CRRA are 
significantly reduced, these provisions should not be included 
in any regulatory relief bill that is ultimately sent to the 
President for his signature.

                                   Connie Mack.  
                                   Lauch Faircloth.  
                                   Robert F. Bennett.  
                                   Rod Grams.  

                                
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