2007-2008 Policies for the Jurisdiction of Communications, Financial Services and Interstate Commerce

2007-2008 Policies for the Jurisdiction of the:
Communications, Financial Services and Interstate Commerce Committee

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Communications, Financial Services and Interstate Commerce
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Policies:

Banking Regulation	Cradle to Grave Electronics Management (Joint Policy with Agriculture, Environment and Energy Committee)	Dual Chartering of Credit Unions	Equal Access to FBI Criminal History Records
Financial Information Security	The Internet and Electronic Commerce	Insurance Fraud: Federal Criminalization	Insurance Regulatory Modernization
National Conference of State Legislatures Supports and Urges Enactment of Sales Tax Fairness and Simplification (S. 34/HR3396). (Action Resolution). (Joint with Budget and Revenue Committee and Executive Committee Task Force on State and Local Taxation of Telecommunications and Electronic Commerce)	Natural Disaster Mitigation and Insurance	Nexus in the New Economy: Ensuring a Level Playing Field for all Commerce (Joint policy with the Budget and Revenue Committee)	Spectrum Management
State Sovereignty in Financial Services	Terrorism Risk Insurance	Video Franchise Reform	NCSL Opposes S. 618/ H.R. 1081 – The Insurance Industry Competition Act (Action Resolution)

Cradle to Grave Electronics Management

NCSL has long recognized that technology and technology equipment are important and essential to US participation in the global economy. NCSL has long recognized the need to manage solid waste in an environmentally, economically, and politically acceptable manner. As outlined in its Solid Waste Management policy, NCSL believes that source reduction and recycling offer the most economically and environmentally sound methods for dealing with a significant percentage of the solid waste stream.

An ever growing segment of the solid waste stream is comprised of discarded electronic equipment. Such electronic waste or e-waste is entering the national waste stream at an increasing rate due to a number of contributing factors. These include the expanding pervasiveness of electronics, rapid technological advances and the subsequently shorter lifespan of electronics technologies and a large inventory of obsolete electronics.

The exponential growth of this segment of the waste stream has brought a new urgency to the discussion of electronics life-cycle management. According to the International Association of Electronics Recyclers (IAER) approximately 3 billion units will be scrapped during the rest of this decade. However, only a small percentage of the scrapped units are being recycled according to recent studies. The Environmental Protection Agency (EPA) has estimated that in 2003 alone, about 50 million existing computers became obsolete; of these, one source estimates, only a small percentage were recycled. Also urgent, is the need to take steps expeditiously to limit the effect of hazardous substances on public health.

NCSL supports efforts to increase the amount of electronic material that is removed from the waste stream and diverted from landfills. The disincentives for reuse and recycling of such electronics scrap or e-scrap must be examined and mitigated by all relevant stakeholders. NCSL encourages the full cooperation and assistance of the federal government in state efforts to promote responsible product stewardship and encourage the development of an infrastructure necessary to support the widespread recovery of a broad range of electronic equipment. Any legislative or regulatory action taken at the federal level must recognize the importance of a state-federal partnership in managing the current stream of end-of-life electronics and promote future product stewardship of electronic equipment.

Expires August 2009

The Internet and Electronic Commerce

The Internet has fundamentally changed the way we communicate, research and learn, conduct business, transact financial services, obtain medical advice and care and are entertained. Every day the nature of the Internet changes through, increased content, improved software, and faster access. The explosive growth of the Internet, while dependent on investment affected by economic cycles, will continue to be a leading economic force projecting our states, nation, and indeed our world into a new, borderless society.

As the Internet empowers citizens and democratizes societies, it also is challenging traditional business and economic rules. The Internet provides consumers with access to products and services never before possible. In 2005, electronic commerce business to consumer sales was over $189 billion representing a 19 percent increase over 2004.

Geographic borders cannot contain the Internet. Its ability to transcend state and national borders makes some existing laws and regulations of states and nations obsolete. At the same time, the Internet defies detailed one-size-fits-all approach to public policy and regulation. America's federal and state lawmakers, as well as policy makers from other countries should be guided by principles that foster the Internet's development while protecting the security and privacy of individual users.

The National Conference of State Legislatures supports the following principles in formulating laws and regulations that impact the Internet and electronic commerce:

Privacy and Security - Every American should be empowered to protect their privacy and personal information from intrusion or piracy. Advanced technologies, including encryption, that enable people to protect themselves, should be available in the marketplace without onerous government controls, restrictions or technical mandates. As with every industry there are those who would seek to misuse for criminal or other purposes information obtained through fraud or hacking into computer systems of financial institutions, hospitals, educational institutions, and governmental agencies. More recently, Americans have had to face possible threats to their personal ID information by carelessness on the part of some of those companies and governmental agencies with which they do their business. While it is generally accepted that businesses may collect information on customers and that such information is considered an asset of the company, Americans must be able to trust these establishments and their government will not recklessly put their personal information at risk.

While NCSL recognizes that there is a need for Congress to act to establish a national policy to protect the personal information of Americans, state legislatures, in the absence of any action by Congress and the federal government, have moved to fill the void. At least 35 state have enacted legislation requiring companies and/or government agencies to disclose security breaches involving personal information; at least 17 states have enacted legislation to protect consumers against Phishing (a scam where fraudsters send spam or popup messages to lure personal or financial information from unsuspecting victims); and, at least 15 states have enacted legislation relating to the use of spyware.

The National Conference of State Legislatures calls upon the Congress to enact federal Internet privacy legislation that ensures the security of Americans’ personal information with the least amount of government regulation as possible. However, NCSL will oppose federal legislation that seeks to preempt existing state statutes and regulations governing privacy protections and security for non-Internet based transactions.

Free Speech - The Internet allows people to communicate and share ideas with others with an ease never before possible. Federal government policy should rigorously protect freedom of speech and expression on the Internet but not restrict states or local governments from such oversight. New technologies should adequately enable individuals, families and schools to protect themselves and students from communications and materials they deem offensive or inappropriate. State law enforcement must be able to enforce criminal statutes against predators who use the Internet to harm or abuse children, with federal assistance and resources.

Self-governance - The exponential growth of the Internet has flourished as a result of both the government’s ‘hand’s off’ approach, ever increasing competition, as well as high consumer demand. Over regulation of the Internet may interfere with future investment and innovations benefiting the health and well-being of its end user customers. Internet users should be given a choice when it comes to selecting a broadband connection that will meet their current and future needs for speed, reliability, quality of service, and capabilities not yet envisioned.

Broadband connections, services, and applications should continue to become more affordable and accessible to all consumers. However, companies that invest in broadband and broadband-related applications should be afforded the flexibility to explore fair and competitive business models and pricing plans for their products and services.

As more and more Americans are using the Internet for increasingly sophisticated and bandwidth-intensive applications such as video, it is critical that broadband providers maintain the flexibility to manage this surge in traffic through a variety of means, including adding more capacity and employing network management capabilities without government mandates.

NCSL calls upon the Congress to maintain the current regulatory approach that allows the competitive marketplace to drive broadband and broadband-related applications development and deployment. Congress should avoid adopting new mandates and limit such action to providing the FCC with authority to oversee, but not proactively intervene in, the broadband Internet marketplace by adopting principles that focus on assessing whether the market continues to ensure that consumers can:

(1) receive meaningful information regarding their broadband service plans;

(2) have access to their choice of legal Internet content, subject to the limits on bandwidth and quality of service of their service plan;

(3) run applications of their choice, subject to the needs of law enforcement and the limits on bandwidth limits and quality of service of their service plans, as long as they do not harm the provider’s network or interfere with other consumers’ use of the broadband service; and

(4) be permitted to attach any devices they choose to their broadband connection at the consumer’s premise, so long as they operate within the limits on bandwidth and quality of service of their service plans and do not harm the provider’s network, interfere with other consumers’ use of the broadband service, or enable theft of services

Consumer Protection – Industry self-regulation has made an important contribution to the development of electronic commerce. The industry is working to address the eradication of deceptive and unwanted e-mail (spam) as well as new practices such as key logging; the surreptitious surveillance of consumers’ web surfing habits; web site hijacking; and software that inhibits termination. Industry technologies and best practices, combined with the enactment of strong state laws which outlaw deceptive practices and fraudulent online behavior, are essential elements in promoting electronic commerce and enhancing consumer protection. Privacy and consumer protection continue to be priority issues in state legislatures.

NCSL supports the efforts of state legislatures to develop new policy initiatives to protect consumers online, especially when the federal government fails to respond to consumers’ concerns. NCSL also recognizes that because of the global nature of the Internet that states must seek cooperative federal action to further enhance consumer protection, privacy and information security. Federal legislation must ensure the authority of state Attorneys General to enforce federal statutes protecting consumers. However, NCSL will oppose any attempt by Congress to restrict the states’ ability to impose criminal and/or civil penalties for illegal activity that may occur over the Internet

Growth - The Internet's continued expansion depends on continuing growth in its capacity and the use of more traditional business models to manage resources. Public policies must be designed to foster ongoing expansion of useful and affordable bandwidth, encourage development of innovative technologies and promote broad universal access. Federal and state governments must work together to ensure that all Americans, regardless of where they live, have access to high-speed broadband technologies either through cable, digital subscriber lines (DSL), wireless, fixed wireless, satellite or other developing technologies. Government must work to guarantee open and competitive markets for broadband services.

Information Technology - Information technology (IT) is a global industry. A strong American IT industry will enhance and strengthen the economic well being of our states and nation.

States and the federal government must work together to ensure a climate that allows America’s IT companies to continue to perform research and technology development, to generate innovative new products and services and to solve customer problems. Government at all levels has become one of the major consumers of information and communications technology. Continually developing and innovating information and communications technology has allowed governments to provide more efficient, cost effective and enhanced services around the clock to all Americans. Constituents no longer are bound by the 9:00 am to 5:00 PM, Monday through Friday workweek to obtain and benefit from government services.

As states have so often been the laboratories of democracy, so today states once again are at the forefront of using IT to provide more and efficient delivery of services at lower costs to state taxpayers. States must have the unfettered ability to continue to seek ways to use IT to better the lives of its residents. Therefore, NCSL will oppose any attempt by the federal government to restrict or penalize states efforts to utilize information technology services and products that allow states to provide more efficient government services to residents at lower costs to taxpayers.

Internet Gambling

Under the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), U.S. financial institutions may not process payment instruments for Internet gambling that is otherwise prohibited under state law. Presently, eleven states prohibit online gambling. While the regulations to enforce the UIGEA have yet to be published, Congress is considering repeal of the 2006 Act.

In reviewing the UIGEA, Congress must respect the sovereignty of states to allow or to prohibit gambling by its residents. Should Congress seek to repeal the provisions of UIGEA, Congress must ensure that any technology solution will protect those states that choose not to allow online gambling.

Electronic Commerce and Taxation - Electronic commerce promises to become an increasingly vital component of our states' and national economies. Government policies should create a workable infrastructure in which electronic commerce can flourish. Policy makers must resist any temptation to apply tax policy to the Internet in a discriminatory or multiple manner that hinders growth. Government tax systems should treat transactions, including telecommunications and electronic commerce, in a competitively neutral and non-discriminatory manner. The federal government and America’s industries should work with state legislatures in ensuring equal tax treatment of all forms of commerce and should encourage state efforts to achieve simplification and uniformity through the streamlining of state and local sales and telecommunications tax systems.

The National Conference of State Legislatures calls upon Congress and the Administration to support federal legislation granting to those states that fully comply with the Streamlined Sales and Use Tax Agreement mandatory collection authority for all out of state sellers that do not qualify for the small business exception.

Almost ten years ago, Congress approved and President Clinton signed the first moratorium on state and local taxation of Internet access. While state legislatures generally did not target Internet access for taxation, some aggressive tax departments extended existing tax statutes to include this new service. At that time at least thirteen states were grandfathered to continue collecting a tax on access. At present only nine states continue to collect such a tax.

As the moratorium on state and local tax on Internet access was originally imposed by Congress to protect what in 1998 was a fledgling industry, few today could make that argument. Rather, the concern today is that state and local governments would likely impose on Internet access the current discriminatory tax regime imposed on communications services. NCSL supports the reform of the discriminatory taxation of communications services and believes that if state and local governments were to take such action, the need for the federal moratorium on Internet access would cease to exist.

Since 2003 NCSL has maintained a neutral position on the extension of the moratorium and will continue to do so. However, should the moratorium be extended, it is consistent with NCSL policy that the moratorium be competitively neutral and apply equally to all medium used to access the Internet.

Our nation's state legislatures are well aware of the impact that access to the Internet and electronic commerce will have on the economic vitality of our states and communities. State legislatures also recognize that the marketplace for electronic commerce is not just in the United States, but present in the vast global market. State legislatures share the concern of many of our colleagues in Congress that ill-conceived over regulation and taxation of the Internet and electronic commerce services could harm our nation's ability to compete globally. However, state legislatures also recognize that they have an obligation to act, when and if necessary, to protect the general welfare of their constituents. As the use of the Internet continues to expand, any future or existing regulations must be balanced against market forces in a competitive and technology neutral manner, as government must not choose the winners or losers of the digital age.

Nothing in this policy statement is to be construed as limiting or affecting the right of any state to regulate alcohol according to its local norms and standards pursuant to the 21^st Amendment.

The National Conference of State Legislatures will oppose unnecessary or unwarranted federal legislation or regulation that would impede efforts by states to promote access to the Internet, enhance competition or increased consumer choice or ensure the security of personal information of consumers conducting electronic commerce transactions.

Expires August 2010

Nexus In The New Economy: Ensuring A Level Playing Field For All Commerce

Budget & Revenue

The 1967 National Bellas Hess Supreme Court decision denied states the authority to require the collection of sales and use taxes by out-of-state mail-order firms that have no physical presence in the taxing state, even though these remote vendors solicit and obtain significant sales there using the mail or common carriers.

In a decision (8-1) rendered by the U.S. Supreme Court in Quill Corp. v. North Dakota, U.S.S.C.Doc.No. 91-194, the Court confirmed the Commerce Clause portion of its decision in National Bellas Hess, Inc. v. Dept. of Revenue, 386 U.S. 753 (1967). The Court held that a mail-order company must have nexus with a state before incurring sales and use tax collection responsibility. By clarifying that the issue is purely one of Commerce Clause implications, rather than Due Process, the Court removed the barrier that prevents Congress from intervening. The majority opinion concludes by determining that Congress is the appropriate body to resolve the issue.

In 1994, the now defunct federal Advisory Commission on Intergovernmental Relations estimated that states lost about $ 3.3 billion per year in uncollected use taxes on about $58 billion in remote sales. In 1994, remote sellers primarily conducted businesses by mail and other traditional common carriers. While states requested Congressional assistance to overturn the Bellas Hess and Quill decisions, Congress lacked the political will to close this loophole in the state sales and use tax systems. Adding to the Congressional indecision was a burdensome and complex system of sales and use tax collection laws and regulations which differed from state to state.

Cost of Collection

The sales tax is usually imposed on the customer, not the seller; states that impose the tax on the seller explicitly allow the tax to be passed through to the customer. Currently, sellers determine the sales tax to be collected, collect the tax and remit it to the state (in four states, Alabama, Arizona, Colorado and Louisiana, sellers also must remit the local portion of the sales tax directly to the local government). The seller also is liable for any mistakes that might occur due to misinformation from the buyer or even the state. This means that the seller is liable for any uncollected sales tax plus interest and penalties.

A recent national survey commissioned by the Joint Cost of Collection Study, a public / private sector group, and conducted by PricewaterhouseCoopers LLP, has shown that in fiscal year 2003 the total cost to sellers to collect state and local sales taxes was $6.8 billion. This amount was calculated after subtractions for state vendor discounts and retailer float on the sales tax revenues. The sponsoring organizations are: National Conference of State Legislatures; National Governors Association; Multistate Tax Commission; Federation of Tax Administration; Government Finance Officers Association; National Retail Federation; and, Council on State Taxation.

The study showed that for fiscal year 2003, for retailers selling between $150,000 and $1 million, the average cost was 13.47 percent of the sales taxes collected or approximately $2,386; for mid-size retailer with between $1 million and $10 million in sales, the average cost was 5.2 percent or approximately $5,279; and for the larger retailers, those with over $10 million in sales, the average cost of collection was 2.17 percent or approximately $18,233. It is important to remember that these amounts, including the total cost for all retailers of $6.8 billion, are not reimbursed to the retailer by the state or local government; these costs come out of the retailer’s own pocket.

The burden on retailers to comply with forty-six different sales tax systems and the monetary cost to retailers for compliance resulted in the two Supreme Court decisions, cited above, that prohibited a state from requiring an out-of-state seller from collecting sales tax on a purchase made by a resident of the state.

Challenge from the New Economy

Today, states face a new threat to sales tax revenue -- electronic commerce-- with the potential to dramatically expand the volume of goods sold to customers without collection of state and local sales or use tax. The combined weight of the inability to collect sales tax on remote sales through traditional carriers and the tax erosion due to electronic commerce threatens the future viability of the sales tax and essential governmental services such as education and public safety.

According to the report: “State and Local Sales Tax Revenue Losses from E-Commerce: Estimates as of July 2004” the Center for Business and Economic Research at the University of Tennessee, for 2006, the estimated combined state and local revenue loss due to remote sales will be between $19.2 billion and $26.5 billion. (The study was conducted at the request of the National Conference of State Legislatures and the National Governors Association.) For electronic commerce sales alone, the estimated revenue loss was between $10.4 billion and $14.0 billion. The report from the University of Tennessee further estimates that the revenue loss will grow and that by 2008, the revenue loss for state and local governments could be as high as $33.6 billion, of which it is estimated that $17.8 billion would be from sales over the Internet. This amount will continue to grow proportionately each year as the amount of business to consumer transactions grows exponentially unless the states and Congress act to simplify and streamline sales tax collection.

Streamlined Sales and Use Tax Collection System

State legislatures have recognized that over the last seventy years, states have created a confusing, administratively burdensome tax system with very little regard for the compliance burden placed on multi-state businesses. In 1999, National Conference of State Legislatures, through the leadership of its Task Force on State and Local Taxation of Telecommunications and Electronic Commerce, acknowledged that states need to simplify their sales and use taxes and telecommunications taxes for the 21^st Century.

To respond to the issues raised by the Supreme Court decisions, NCSL endorsed a set of principles to guide the simplification of sales and use tax collections systems. These principles are unique in that for only the second time in the history of the National Conference of State Legislatures, the Conference endorsed a set of actions for states to undertake. Those principles dealing with the sales and use tax collections systems are:

First, that state and local tax systems should treat transactions involving goods and services, including telecommunications and electronic commerce, in a competitively neutral manner; and

Second, that a simplified sales and use tax system that treats all transactions in a competitively neutral manner will strengthen and preserve the sales and use tax as vital state and local revenue sources and preserve state fiscal sovereignty; and

Third, that the Internet and Internet vendors should not receive preferential tax treatment at the expense of local “main street” merchants, nor should such vendors be burdened with special, discriminatory or multiple taxes; and

Fourth, that states recognize the need to undertake significant simplification of state and local sales and use taxes to reduce the administrative burden of collection; and

Fifth, that under such a simplified system remote sellers, without regard to physical presence in the purchaser’s state, should be required to collect sales and use taxes from the purchaser and remit such taxes to the purchaser’s state.

Since September of 1999, state legislators, governors, local elected officials, state tax administrators and representatives of the private sector have worked to develop the Streamlined Sales Tax Collection System for the 21^st Century. In 2001-2002, 35 states enacted legislation expressing the intent of the state to simplify the state’s sales and use tax collection system and to participate in multistate discussions to finalize and ratify an interstate agreement to streamline collection of the states’ sales and use taxes. On November 12, 2002, those states unanimously ratified the Streamlined Sales and Use Tax Agreement, which substantially simplifies state and local sales tax systems, removes the burdens to interstate commerce that were of concern to the Supreme Court, and protects state sovereignty. The Streamlined Sales and Use Tax Interstate Agreement provides the states with a blueprint to create a simplified sales and use tax collection system that when implemented, allows justification for Congress to overturn the Bellas Hess and Quill decisions. Presently, all but one of the 45 states and the District of Columbia that levy a sales tax are involved in the process to streamline sales tax collection.

As of July 2006, 21 states representing over 30 percent of the total population of the United States enacted legislation to bring their state’s sales and use tax statutes into compliance with the Agreement. On October 1, 2005, thirteen states with over 20 percent of the population were certified to be fully compliant with the Agreement and the system became operational. The efforts of these states and the other states still considering compliance legislation to erase the complexity and burdens of a 70-year old tax system on transactions so quickly is unprecedented in this nation’s history.

Congressional Action

In less than six years, the states, working together with the support and assistance of the private sector, developed a new sales tax system that was fairer, simpler, more uniform and may be implemented technologically; 21 states, almost half of all the states with a sales tax, enacted legislation to comply with these changes; and, the system is working. It is operational. However, the work to establish a truly seamless system is only half done. It is now Congress’ turn to act.

Therefore, the National Conference of State Legislature calls upon the Congress to grant to those states that comply with the Agreement the authority to require all sellers not meeting the small business exception, regardless of location, to collect those states’ sales and use taxes. Some have argued that businesses that are located in a state that chooses not to comply with the Agreement, or that has no sales tax, should not be subject to collection requirements under the Agreement, even though that seller chooses to sell into a state in which the legislature has decided to comply with the Agreement. However, no seller is forced to sell into states that comply with the Agreement. Out-of-state sellers make that decision and in doing so, they already make themselves liable to the state’s other non-sales taxes statutes and regulations protecting consumers and conducting business. An out-of-state seller selling into a complying state will certainly make use of that state’s legal system to collect unpaid costs from the consumer.

NCSL believes that this grant of authority by Congress to the states to require sales and use tax collection by all sellers not meeting the small business exception is indeed “fiscal relief,” that ensures the viability of the sales tax as a state revenue source. NCSL further believes that Congress, in granting this authority to the states, will level the playing field between sellers and allow all transactions to be treated in a competitively neutral manner.

NCSL will support federal legislation to grant states collection authority that:

Allows for a national de minimis or small business exception so that sellers with less than $5 million in taxable remote sales or other appropriate amount as determined by the federal legislation in consultation with the states, including the National Conference of State Legislatures, the Council of State Governments and the National Governors’ Association, and the retail community, including the National Retail Federation and the National Federation of Independent Business, would be exempt from collection requirements for those states in which they do not have nexus;
Ensures reasonable and adequate compensation for the cost of collection;
Applies the simplifications and grant of authority to transaction taxes on all telecommunications services;
Provides certainty to sellers by allowing an appeal process that includes review of the Agreement Governing Board’s actions by the United States Court of Federal Claims; and,
Ensures that any filings by sellers in the course of registering, calculating, collecting and/or remitting sales and use taxes collected cannot be used as a criterion for determining nexus for any other tax responsibilities, including state business activity taxes.

While NCSL supports a small business exception in the federal legislation, NCSL also acknowledges that the simplifications in the Streamlined Sales and Use Tax Agreement as well as the Agreement’s commitment to assume the costs of collection for out of state sales tax collection, should eliminate any undue burden on remote sellers including sellers below a national exception. For this reason, NCSL would support a provision in the federal legislation to reconsider the small business exception after a period of no less than 3 years and irrefutable evidence that the Agreement has met its objectives of removing any undue burden on out of state sellers.

Business Activity Tax Reform

In this global economy, with more business being conducted by interstate companies, state legislators acknowledge the concerns raised by taxpayers frustrated with complying with different state business activity tax systems. The complexities of the various state business activity tax regimes coupled with the actions of aggressive state tax departments in enforcing these provisions has led to numerous legal challenges, that have cost state governments and the business sector vital financial resources.

The National Conference of State Legislatures has acknowledged the need to ensure that the tax administration and collection systems for sales taxes and taxes on telecommunications services are more efficient and strives to remove the burden of tax compliance from the taxpayer. NCSL believes that government must address the complexities of the current disparate business activity tax systems in order to reduce the complexities of tax compliance on the taxpayer and to maintain state sovereignty to levy business activity taxes. The National Conference of State Legislatures calls upon state and federal policymakers and taxpayers to enter into discussions that would lead to a fair and equitable tax on the business activity of interstate businesses in the states in which they have a meaningful presence.

Adopted by the Executive Committee Task Force on State & Local Taxation of Telecommunications & Electronic Commerce on Monday, August 14, 2006
Adopted by the NCSL Standing Committees on Budgets & Revenue and Communications, Technology & Interstate Commerce on Tuesday, August 15, 2006
Adopted by the NCSL annual business meeting on Thursday, August 17, 2006

Expires August 2009

Spectrum Management

The National Conference of State Legislatures recognizes the electromagnetic spectrum, as managed by the federal government, to be a vital national resource for public, as well as private sector radio frequency needs.

The National Conference of State Legislatures supports an examination of current and future radio frequency spectrum needs and uses. In view of the limitations of the radio frequency spectrum, management reforms should be instituted to improve the current allocation and assignment process. Access needs to be provided to all users of the spectrum.

Spectrum resources as utilized at the state and local level provides a reliable means of communication in matters of public safety and interest. State law enforcement operations, emergency responders, and public utilities have made substantial investment in facilities and equipment necessary for accessing the allocated frequency assigned to them. These investments have been made in recognition of the limitations in alternative methods of transmission for public purposes.

Proposals allowing developing technologies to share the same bandwidth presently utilized by state and local governments and public utilities should not be adopted until such time as transmission can sufficiently be assured to avoid signal interference with public users.

The National Conference of State Legislatures opposes any effort to provide additional frequency by means of reallocating what is currently allocated for state, local, public utility uses and transportation direction and safety purposes until the aforementioned concerns are adequately addressed.

In the Omnibus Budget Reconciliation Act of 1997, the Congress provided that additional analog spectrum would be available to state and local governments for public safety purposes at such time that the broadcasting industry successfully completed the transformation to high definition television or digital television. Congress stipulated that the transfer from analog to digital should occur no later than 2006. However, at the request of the broadcasting industry Congress made the transfer of the industry’s analog spectrum to state and local governments contingent on 85 percent of the viewing public having access to digital television. Under the Digital Television Transition and Public Safety Act of 2005, Congress determined that broadcasters could reasonably make the transition from analog-to-digital broadcasts and required broadcasters to terminate all full-power analog television broadcast transmissions by February 17, 2009 (or the DTV Transition).

As a result, the DTV Transition will create an additional 108 MHz of spectrum for public safety agencies and private sector for emergency response and deployment of additional wireless and broadband technologies. Of the 108 MHz available under the analog-to-digital transition, 24 MHz is allocated for public safety agencies, 36 MHz is allocated to the private sector, while the remaining available spectrum must be auctioned off by January of 2008.

NCSL opposes any effort to delay the analog-to-digital transition or change the February 17, 2009 deadline as state and local public safety agencies urgently need this valuable spectrum in order to protect their constituents and respond to the next natural disaster or terrorist attack.

DTV Transition

The availability of this valuable spectrum is crucial for the future of both public and private communication services and for the investment in the national communications infrastructure. The January 2008 auction will create additional investment opportunities for the private sector, to the benefit of every consumer through increased competition and technological development in the areas of wireless services and broadband deployment. The auction will also provide additional financial resources for state and local public safety agencies to further develop emergency response networks through a variety of interoperable communications systems.

NCSL calls upon the Federal Communications Commission to guarantee that the spectrum promised by Congress to state and local governments to respond to the next natural disaster or terrorist attack is not diluted by companies seeking special access outside of the auction process. NCSL calls upon Congress to preserve resources and dedicated grant funds allocated to state and local public safety agencies under the Digital Television Transition and Public Safety Act for the development and purchase of interoperable communications systems and equipment, and provide sustained, dedicated grant funds to the states for interoperability communication programs.

The Federal Communications Commission should not subsidize the business models of certain start-up companies by transferring spectrum to these private enterprise at the expense of state and local public safety agencies or commercial innovation and competition. State and local public safety agencies should not be subject to excessive fees or charges in order to access emergency networks. State and local governments should be exempt from any competitive bidding process. The FCC must also ensure that the auction of spectrum made available by the transition to digital television and not allocated to state and local governments for public safety needs takes place no later than January 28, 2008.

Digital-to-Analog Converter Box Coupon Program

According to the National Association of Broadcasters, the analog-to-digital transition may affect 70 million analog televisions in U.S. households and the approximately 20 million households that rely solely on an analog broadcast for their television service.

Under the Digital Television Transition and Public Safety Act, Congress created the Analog-to-digital Converter Box Coupon Program to assist consumers with the DTV Transition. The Program, administered by the National Telecommunications and Information Administration (NTIA), would allow eligible households to apply for up to two forty dollar coupons for the purchase an analog-to-digital converter box to ensure that their analog television will continue to function after the February 17, 2009 deadline.

However, a recent study indicates that the majority of America is unaware or does not understand the DTV Transition. NCSL calls upon NTIA, the Federal Communications Commission, the Administration and Congress to fund a program that may adequately engage the public in the DTV Transition and provide state legislators the resources to educate their constituents regarding the DTV Transition. NCSL further calls upon the federal government to ensure the Digital-to-Analog Converter Box Coupon Program is adequately funded to meet the demand by the households that may be impacted by the DTV Transition.

Expires August 2010

NCSL Supports and Urges Enactment of Sales Tax Fairness and Simplification Act (S. 34, HR 3396) Action Resolution.

WHEREAS, the 1967 Bellas Hess and the 1992 Quill Supreme Court decisions denied states the authority to require the collection of sales and use taxes by out-of-state sellers that have no physical presence in the taxing state; and

WHEREAS, the combined weight of the inability to collect sales and use taxes due on remote sales through traditional carriers and the tax erosion from electronic commerce threatens the future viability of the sales tax as a stable revenue source for state and local governments; and

WHEREAS, the Center for Business and Economic Research at the University of Tennessee has estimated that states lost as much as $16.1 billion in 2003 because they were not able to collect taxes on Internet sales and the Center estimates that by 2006 this revenue loss to states will climb to $26.5 billion and by 2008 it will be $33.8 billion; and

WHEREAS, since 1999, state legislators, governors, local elected officials, state tax administrators and representatives of the private sector have worked to develop a Streamlined Sales and Use Tax Collection System for the 21st Century; and

WHEREAS, between 2001 and 2002, 35 states enacted legislation expressing the intent of the state to simplify the state’s sales and use tax collection systems and to participate in multistate discussions to finalize and ratify an interstate agreement to streamline collection of the states’ sales and use taxes; and

WHEREAS, on November 12, 2002, these states unanimously ratified the Streamlined Sales and Use Tax Agreement, which substantially simplifies state and local sales tax systems, removes the burdens to interstate commerce that were of concern to the United States Supreme Court, and protects state sovereignty; and

WHEREAS, the Streamlined Sales and Use Tax Agreement provides the states with a blueprint to create a simplified sales and use tax collection system that when implemented, allows justification for Congress to overturn the Bellas Hess and Quill decisions; and

WHEREAS, by July 1, 2004, 21 states representing over 35 percent of the total population of the United States enacted legislation to bring their state’s sales and use tax statutes into compliance with the Agreement; and

WHEREAS, on July 1, 2005, eleven states were certified as being fully in compliance with the Streamlined Sales and Use Tax Agreement and an additional five states were certified to be fully in compliance with a delayed effective date; and

WHEREAS, on October 1, 2005, as a result of Section 701 of the Agreement being met (at least 10 states representing at least 20 percent of the population in sales tax states), the Agreement became operational and effective; and

WHEREAS, the states have shown the resolve to acknowledge the complexities of the current sales and use tax collection system, have worked with the business community to formulate a truly simplified and streamlined collection system and have shown the political will to enact the necessary changes to make the streamlined collection system the law; and

WHEREAS, Congressman Roy Blunt of Missouri, House Majority Whip, has termed this federal legislation as “fiscal relief for the states that does not cost the federal government a single cent” and removes a federal obstacle to the viability of the sales and use tax as a state revenue source;

NOW, THEREFORE BE IT RESOLVED THAT, the National Conference of State Legislatures supports S. 2152, The Sales Tax Fairness and Simplification Act, by Senator Mike Enzi of Wyoming, to grant those states that comply with the Agreement the authority to require all sellers, regardless of nexus, not meeting the small business exemption to collect those states’ sales and use taxes; and

BE IT FURTHER RESOLVED THAT, NCSL calls upon the members of Congress to join as co-sponsors of S. 2152, Sales Tax Fairness and Simplification Act and specifically requests that the members from states that have complied with the Agreement honor the decisions made by their state legislatures and governor by supporting and sponsoring this legislation; and

BE IT FURTHER RESOLVED THAT, the National Conference of State Legislatures calls upon the Congress to move swiftly to consider and approve the Sales Tax Simplification and Fairness Act; and

BE IT FURTHER RESOLVED THAT, the National Conference of State Legislatures urges President George W. Bush to sign the Sales Tax Simplification and Fairness Act into law, upon its passage by the Congress; and

BE IT FURTHER RESOLVED THAT, a copy of this resolution be sent to the President of the United States and to all the members of Congress.

Expires August 2008

Video Franchise Reform – State Administration

Innovation and convergence of existing technologies are radically expanding communications and information services, blurring distinctions between telephone, Internet services, cable, wireless and satellite. These rapid changes often outpace abilities of federal, state and local regulatory regimes to adapt. The failure of government regulation to change, especially when it is diffused by thousands of jurisdictions, in order to keep pace with these developments have not only delayed deployment of new technologies but also has acted as an unintended barrier to competition. It is important that video regulatory policy assure that like services are treated alike, investment is encouraged, and shall extend such services in a non-discriminatory manner.

Current Competition in Video Markets

Today, we enjoy a competitive marketplace for telecommunications services; consumers have various options from the traditional landline phone to wireless and voice over Internet protocol. Telecommunications services are provided not only by the existing incumbent local carriers but by competitive local exchange carriers, wireless companies, Internet providers, cable systems and others. Those providers wishing to deliver video currently usually must deal with a patchwork of hundreds and even thousands of jurisdictions in each state.

Threat of Federal Preemption

At the beginning of the 109^th Congress, the respective committees of jurisdiction in both the United States Senate and the House of Representatives announced their intention to re-write the Telecommunications Act of 1996. The Chairmen of both congressional committees have made clear their intention to address the current video franchising regime, its impact on competition and the need to enhance competition. Some members of Congress have introduced legislation to preempt all local franchise authority.

State Action

While Congress continues to study and debate video competition, a number of state legislatures have moved forward to increase video marketplace competition by reforming the current video franchise system. In 2005, the Texas Legislature approved the establishment of statewide video franchising. This year, Indiana, Kansas, North Carolina, New Jersey, South Carolina and Virginia have enacted legislation to streamline and expedite the administration of video franchising. In addition, legislatures in California, Connecticut, Florida, Iowa, Louisiana, Massachusetts, Michigan, Minnesota , Missouri, New York, Pennsylvania and Tennessee are considering or have considered legislation with regard to streamlining and/or establishing state level video franchising.   As the “laboratories of democracy,” states once again are in the forefront of advancing the benefits of technology and opening markets to competition.

State Administration Will Preserve State Authority

While the federal government through the Federal Communications Commission regulates to some extent the pricing of video services, the use of rights-of-way for the provision of such services is under the domain of the state.

Local jurisdictions are the creation of either state constitutions or law. The powers that these political subdivisions of the state exercise were granted to them over time by state legislatures. Those local jurisdictions that have franchise authority have it as a result of state legislation or the state constitution. Therefore, any attempt by Congress to preempt current local franchise authority is a preemption of state sovereignty.

Numerous court decisions, including decisions by the United States Supreme Court, have reaffirmed that the powers and authorities enjoyed by local governments are at the discretion of the state. For example, in Hunter v. City of Pittsburgh in 1907, the United States Supreme Court stated:

“Municipal corporations are political subdivisions of the State, created as convenient agencies for exercising such of the governmental powers of the State as may be entrusted to them. …The number, nature and duration of the powers conferred upon these corporations and the territory over which they shall be exercised rests in the absolute direction of the State. The State, therefore, at its pleasure may modify or withdraw all such powers, may take without compensation such property, hold it itself, or vest it in other agencies, expand or contract the territorial area, unite the whole or a part of it with another municipality, repeal the charter and destroy the corporation…In all these respects the State is supreme, and its legislative body, conforming its action to the state constitution, may do as it will, unrestrained by any provision of the Constitution of the United States.”

The National Conference of State Legislatures endorses efforts that will remove barriers to entry for video competitors and foster additional consumer choices in the video marketplace and ultimately ensure competitive neutrality. While NCSL rarely advocates the enactment of legislation in state legislatures, NCSL has at times, when states are facing a crisis or a serious threat of federal preemption, urged state legislatures to take action.

The National Conference of State Legislatures, in order to preserve the states’ sovereignty, endorses state action to streamline and expedite the administration of video franchising. If national franchising is enacted the right of states to enact state level administration or reform and the grandfathering of existing state level reform should be preserved. Government should encourage competition and consumer choices for broadband and video services and promote the deployment of broadband services and technologies. Reducing the number of jurisdictions for which a video provider would be required to seek a franchise from 33,000 to one per state will encourage more competition, promote the deployment of broadband services and enhance state and local economies.

Fees and Taxation of Video Providers

Franchise fees today are levied, imposed or collected as a percentage of gross revenues, used for general revenue purposes and not based on the actual direct and identifiable costs of any benefit to the entity that pays the fee. To the extent such fees are intended as payment for use of public rights-of-way, that fee should be limited to the actual, direct and identifiable cost of such use, and that portion of the fee should be applied only to those who use the rights-of-way. Franchise fees should be collected and administered by one central agency per state.

Expires August 2009

Banking Regulation

The National Conference of State Legislatures is committed to the preservation of the dual banking system. Dual banking refers to the unique system of separate state and federal chartering and regulation of banks and thrifts. States and the federal government act independently to charter, supervise and regulate financial institutions for their citizens’ benefit. A key feature of the dual banking system is the ability of a bank, whether a commercial or savings bank, to choose between a state or national charter. In doing so, a bank chooses as its primary regulator—a state banking department or the federal Office of the Comptroller of the Currency (OCC) or Office of Thrift Supervision (OTS).

The Federal Deposit Insurance Corporation (FDIC), as the deposit insurer, holds back-up regulatory authority over both state and national banks to safeguard against banks taking unnecessary risks with insured deposits. The Federal Reserve, as the central bank, ensures the free flow of funds through the banking system. The FDIC has federal oversight of state chartered banks that are not members of the Federal Reserve.

The Unique American System

The dual banking system is critical to the strength and vitality of the U.S. economy. Unlike Canada, Europe and other developed countries, the unique American system has promoted the development of a decentralized banking market where banks of widely different sizes efficiently distribute credit to all sectors of the U.S. economy and serve the diverse needs of local, regional, and national markets. Where banking markets outside the United States are dominated by a handful of national banks, America is home to more than 8,000 banks and thrifts—the great majority of which are state chartered.

The dual system enables state governments to apply laws and regulations to banks and thrifts that serve the needs of local economies and that respond to the values and concerns of local citizens. The dual system encourages diversity and innovation. Many of the successful innovations in bank services have occurred first at the state level, including interstate banking, Negotiable Order of Withdrawal (NOW) accounts, electronic fund transfers, check hold limits, and improved disclosure of credit card fees, rates, and terms as well as community reinvestment standards and basic banking availability. Most recently, states have been at the forefront of protecting consumers in enacting new laws relating to predatory lending, data security and the licensing of mortgage loan originators. Regulatory decentralization is especially important to the strength of community banking, which helps disperse decision-making vital to small business lending and job creation across America rather than concentrate it in the nation’s financial capitals.

The nation as a whole is weakened by preemptive federal actions to limit the flexibility of state legislatures to deal with local economic problems, such as the capacity to make choices about the financing of housing, small business lending and community development. In recognition of the advantages of the dual system to the public and to the health of the financial services industry, NCSL opposes any efforts by the federal government to restrict state authority to charter, supervise, or regulate the powers of state chartered banks and thrifts. Nonetheless, NCSL recognizes that the states have a duty to use their powers responsibly and in a way that does not endanger the deposit insurance system and thereby the nation's financial stability.

THE FUTURE OF STATE BANKING

As state legislators, we are concerned about the financial viability of our state banking systems. If present trends continue, states policymakers will need to evaluate the sustainability of our state banking regulatory system in terms of the overall state budget needs.   NCSL is well aware of the enormous contribution that state banks have made to the economic vitality of our states and seeks to ensure the preservation and integrity of the dual banking system. However, NCSL acknowledges the uncertain future for state chartered banks in the era of financial services modernization, interstate bank branching, bank consolidations, and mergers and technological advances such as the Internet and online banking services. We also acknowledge that one of the strengths of the dual banking system, the ability of state legislatures and regulators to be the “laboratories” of financial innovation, is jeopardized as the need for more uniform regulatory systems to meet the demand of global competition is advocated by many within our nation’s financial services industry.

At present, there are nearly 6,000 state chartered banks representing 72 percent of the nation’s total banks and holding 30 percent of total bank assets. State banks have $3.6 trillion in total assets and safeguard $2.6 trillion in total deposits. Most state banks are small community banks, while some are among the nation’s largest financial institutions. State chartered banks have well-served our nation’s cities and rural areas and have been the economic backbone of our country for over 100 years.

The state system continues to be the charter of choice for community banks with 84% of the new charters going to the state system. However since the OCC’s sweeping preemption of state laws in 2003, the state system has declined from holding almost half of the total bank assets to under 30 percent today. If this trend continues, and all of the nation’s top 100 banks chose a Federal charter the state system would be left with less than 20 percent of the assets under state supervision.

NCSL calls upon state legislators, governors and state banking regulators to convene a national summit on the future of state financial services regulation. State policymakers must address the question of the future viability of state banking system, as well as the states’ role in other financial services in the age of global markets. NCSL urges Congress to hold hearings on the future of a dual banking system and the role the OCC has played in the recent downward spiral of the state banking assets.

If state legislators are committed to having a state voice in the regulation of financial services, state legislators will need to hold their congressional delegations accountable for federal actions that only serve to weaken the dual banking system.

FEDERAL PREEMPTION

NCSL strongly believes that a high burden of proof such as a national economic crisis, must be established before federal preemption of state banking authority is ever justified and that only Congress—and not federal regulatory agencies—can preempt the actions of elected state leaders.

Federal lawmakers always have intended to apply state laws generally to national banks unless expressly preempted by Congress. This approach was reaffirmed in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which states that the “laws of the host State regarding community reinvestment, consumer protection, fair lending, and establishment of intrastate branches shall apply to any branch… of an out-of-State national bank” unless it is preempted by federal law or ruled discriminatory with respect to state banks [12 USC §36(f)].

NCSL supports the “prevent or significantly interfere with” standard established by the Supreme Court to govern federal preemption of state laws as they apply to national banks. In the 1997 decision, Barnett Bank of Marrion County, N.A. v. Nelson, the Supreme Court held that a state may not “forbid, or impair significantly, the exercise of a power explicitly granted” by Congress to a national bank. Congress recognized the “prevent or significantly interfere with” language in the Gramm-Leach-Bliley Financial Modernization Act of 1999 as “the legal standard for preemption” established by the Supreme Court [15 USC §6701(d)(2)(A)].

NCSL opposes any effort by the OCC to assert its regulatory authority to weaken the standard of preemption or shield national banks and their operating subsidiaries from state consumer protection laws and enforcement. Moreover, NCSL would encourage Congress to eliminate the judicial deference given to the OCC by federal courts in challenges to state financial services laws and to rein-in OCC abuse of its regulatory authority to preempt state laws.

NCSL, along with the National Governors Association, the National Association of Attorneys General and the state financial regulators opposed the OCC’s regulations that were adopted in 2003, that swept aside state consumer protection laws as they apply to national banks and their operating subsidiaries. We are disappointed that the Supreme Court in Watters v. Wachovia ruled that wholly owned operating subsidiaries of national banks are provided the same ability as the national bank to ignore state consumer protections statutes and regulations. NCSL believes that it is now more important then ever for Congress to reassert itself in the debate and clarify the role of the states in the protection of our citizens. Congress needs to make it clear that some level of accountability exists at the state level for federally chartered institutions. States need to be able to enforce both state and federal laws when a financial institution's primary federal regulator is not protecting the citizens of the state. State legislators and Attorneys General need a clear statement of their roles in protecting the citizens of their states. NCSL urges Congress to review the provisions of Riegle-Neal that define applicable law for both state and federal institutions and encourages federal and state coordination to develop consistent interpretation and enforcement of applicable state laws.

FUNCTIONAL REGULATION

In 1999, Congress enacted the Gramm-Leach-Bliley Financial Services Modernization Act, which tore down the firewalls between banking and other financial services. NCSL did not oppose congressional repeal of the Glass-Steagall Act, which established those separations in 1934 in response to the Great Depression. However, NCSL consistently and strongly advocated for functional regulation of financial services and opposed provisions in the Gramm-Leach-Bliley Act that preempt state laws and regulations with regard to the business of insurance.

Even before the enactment of the Gramm-Leach-Bliley Act, state legislatures were concerned about regulatory encroachment by the OCC of state authority, especially with regard to the regulation of insurance. Since the enactment of the Gramm-Leach-Bliley Act, the OCC has challenged a number of state laws with regard to the regulation of banks selling insurance. NCSL will continue to oppose this overreach by federal regulatory agencies. NCSL strongly advocates that banks involved in the business of insurance must be regulated for this purpose by the appropriate state insurance supervisory agency, regardless if they are a state or national chartered bank. A consumer in a state must be able to expect that protections granted under state law and regulation will be the same irrespective of the financial institution from which the insurance product is obtained.

In mortgage lending, state regulated entities like mortgage brokers and mortgage companies, continue to play a larger role in mortgage originations. However, federally regulated institutions play their own role, providing capital for brokers and state-based lenders. Federal regulators are often interested in their regulatory scope and need to work with state regulators to root out abusive or fraudulent conduct. Federal regulators should be looking for innovative ways to share and leverage their state chartered counterparts’ resources. NCSL opposes any effort by federal regulators to restrict state based lending institutions.

INTERSTATE BANK BRANCHING

The 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act expressly permits state and national banks to open a bank branch in a new state only if the state permits de novo interstate branching. The Riegle-Neal Act also permits states to adopt "age" laws, which allow out-of-state bank holding companies to acquire a bank branch only after it has existed for a certain number of years. NCSL opposes congressional efforts to preempt state authority to opt out of de novo interstate branching and maintain "age" requirements.

FEDERAL REGULATORY CONSOLIDATION

NCSL recognizes the need for the federal government to reduce federal regulatory burden that can impede the economic vitality of our nation's financial services industries. In consolidating the federal banking regulators, Congress must ensure that any consolidation does not invalidate the regulatory independence of the dual banking system.

NCSL will oppose any federal regulatory consolidation plan that would:

Preempt, limit or interfere with the rights of states to regulate state chartered banks;
Require federal reporting requirements and examinations that duplicate state efforts;
Place state chartered banks at a competitive disadvantage with national banks or federal thrifts; and
Give oversight authority for state chartered banks to the OCC, the regulator of national banks.

NCSL supports the continued federal oversight by the FDIC and the Federal Reserve of state chartered banks. It would be detrimental to the well-being of the dual banking system for Congress to tamper with present oversight cooperation between state banking departments, the FDIC and the Federal Reserve.

STATE BANK FEES

Although NCSL appreciates the efforts of the federal government to take appropriate action to reduce budget deficits, state chartered institutions should not be forced to bear the burden of such efforts. NCSL opposes any proposal by the federal government that mandates the FDIC and the Federal Reserve charge and collect from state chartered banks a fee for their yearly examinations. It has been estimated that such a tax on state chartered banks would cost more than $1 billion over five years and place state banks at a competitive disadvantage to national banks. At present, FDIC examinations are covered by deposit insurance that state banks already pay to the FDIC. Federal Reserve examinations are currently paid for by earnings from the Federal Reserve's monetary policy activities.

NCSL acknowledges that, when an Administration’s annual budget submission to Congress has included provisions to tax state banks for duplicative federal oversight. Congress has removed those provisions from the federal budget. NCSL appreciates the support of Congress in ensuring that state banks are not double-taxed for the same service.

CONSUMER PROTECTION

With the rapidly changing technological advances in the financial services industries, both state legislatures and Congress must periodically consider legislation to ensure consumer access to basic banking services; to protect the privacy of financial consumers and the security of their personal financial information; to provide protection for consumers from abusive lending practices; to ensure disclosure of information about credit terms, interest rates, fees, and balances; to regulate branch closing; and to otherwise protect the consuming public. In recognition that this is an area of overlapping federal and state jurisdiction, NCSL will ordinarily not oppose such federal consumer protection measures, provided that there is no preemption of complementary state consumer protection legislation. Federal legislation should not prohibit state legislatures and state regulators from providing additional protections for consumers of financial services.

Furthermore, as online banking continues to grow, clear rules must be established as to which jurisdiction's consumer protections apply to a given transaction. NCSL believes that any such rules should be crafted through a partnership between state and federal regulators and should not place state chartered banks at a disadvantage in their ability to provide services over the Internet.

FINANCIAL SERVICES AND ECONOMIC DEVELOPMENT

Adequate investment by banks and thrifts is crucial to the maintenance and growth of state and local economies. Rural communities with agricultural economic bases, suburban communities, and urban neighborhoods must continue to get the banking services that meet their particular economic development needs.

NCSL recognizes that racial, ethnic, or gender discrimination by financial services institutions may have an impact on the ability of residents in distressed communities to obtain financial assistance. State legislators also recognize the need for financial institutions to make safe, sound and profitable investments. NCSL, recognizing the responsibilities that states have for financial institution regulation and solvency and for providing for fair lending to its constituents, believes that it is the responsibility of each state legislature to address the unique needs of its state. Likewise, the federal government as regulator of national banks must make the same determinations and act accordingly. However, Congress must not mandate federal guidelines that impede the states' abilities to regulate financial services.

NCSL believes that true economic revitalization will happen only when government, in partnership with the private sector, provides the tools for empowering those Americans within distressed communities to become part of this nation's economic mainstream.

Expires August 2010

Dual Chartering of Credit Unions

Credit unions are member owned, not-for-profit cooperative financial institutions formed to permit those in their field of membership to pool their savings, lend to one another, and own the organization where they save, borrow, and obtain related financial services.

As with the dual banking system, credit unions have a choice to operate as a federal charter or a state charter. State credit union regulators charter and supervise state-chartered credit unions. Federal-chartered credit unions are chartered and supervised by the National Credit Union Administration (NCUA). The NCUA also administers the National Credit Union Share Insurance Fund (NCUSIF), which insures all federal credit unions and approximately 95 percent of state chartered credit unions. Therefore, NCUA is responsible for the safety and soundness of the NCUSIF and, to that extent, has interest and oversight over state chartered, federally insured credit unions. At present, there are approximately 4,000 state-chartered, federally insured credit unions and 6,000 federally-chartered credit unions in the United States.

The historic recognition of the value of maintaining a viable dual chartering system has contributed to today's strong and successful credit union movement. The choice of a credit union charter and regulation plays an important role in creating an innovative operating environment in which all credit unions benefit. However, new challenges to the vitality of the dual chartering system exist in today's environment.

As state legislators, we are well aware of the enormous contribution that state-chartered credit unions have made to the economic vitality of our states and we seek to ensure the preservation of the dual chartering system. However, we acknowledge the challenge for state financial service regulators in the new era of financial services modernization, globalization, and technological advances, such as the Internet and on-line banking services. We also acknowledge that one of the strengths of the dual chartering system, the ability of state legislatures and regulators to be the “laboratories” of financial innovation, is in jeopardy as the need for more uniform regulatory systems to meet the demand of global competition is advocated by many within our nation’s financial services industry. It is critical, as these challenges arise in today's marketplace, that federal regulatory agencies refrain from adopting policies without regard for state regulatory authority and at the expense of innovative state credit union laws.

Credit unions' dual chartering system has benefited by the competitive interplay and "balance of power" between NCUA and state regulators to provide the best system of examination, supervision and regulation. The continuation of this competitive interplay and "balance of power" is essential to the future of the dual chartering system.

The National Conference of State Legislatures believes that state credit union supervisors have the primary responsibility for assuring the safety and soundness of credit unions chartered by and operating under state law and regulation. NCSL also acknowledges that states have a responsibility to provide a credible regulatory environment where powers can be exercised in a way that does not endanger the financial solvency of NCUSIF. NCSL additionally acknowledges that federal deposit insurance agencies, like the NCUA, have a legitimate role to play if state authorized powers lead to unreasonable risks for NCUSIF. However, NCUA regulations and policies should be crafted in a way that minimizes the preemption of state authority. Any preemption of state credit union laws or regulatory authority must be justified only by a clear and certain threat to the credit unions' share insurance fund by those credit unions that are federally insured.

About half the states authorize their credit union regulators to determine whether state chartered credit unions should be allowed an alternative to federal share insurance. In seven of those states, the regulator has determined that a private share insurance option is acceptable. NCSL supports the authority of state governments to determine how state financial institutions must be insured and opposes any efforts by the federal government to preempt states’ authority to govern state deposit insurance requirements.

The dual chartering system has benefited consumers, credit union innovation and our states' economies. NCSL will oppose any effort by the administration and Congress to preempt state credit union laws and regulations, unless to oppose such efforts would adversely impact the financial well-being of state chartered credit unions.

Expires August 2009

Equal Access to FBI Criminal History Records

State insurance regulators are responsible for protecting the rights of consumers by monitoring the management of insurers and their agents. Administering a national Federal Bureau of Investigation’s (FBI) criminal history check on people who seek a license to sell insurance products to the public is a key step to weed out wrongdoers before they can commit fraud or other criminal acts. State regulators should have efficient access to the FBI’s Criminal Justice Information System (CJIS) in order to establish dependable procedures for licensing officers, directors, and agents of insurance companies across the United States.

The National Conference of State Legislatures (NCSL) calls on Congress to give state insurance regulators statutory access to FBI fingerprint files. This information is currently available to federal and state banking and securities regulators. Access will help safeguard insurance consumers from the unnecessary risk of having known fraud artists or violent offenders engaged in the insurance business.

Expires August 2008

Financial Information Security

Americans place great value on the right to privacy, and general support for privacy and confidentiality protections has increased as the ability of individuals to seclude personal matters from the sight, presence and intrusion of others has diminished. In the Information Age—where vast quantities of information drive economic activity—familiar and unfamiliar entities continuously gather, solicit, manage and share personally identifiable data, which commonly includes financial records, medical histories, and information on routine consumer transactions. Although much of this information has long been available in pieces, its conversion into electronic form and concentration into massive, centralized information systems has significantly eroded an individual’s ability to condition or control his or her personal information. It also threatens the confidentiality of information by heightening the likelihood that data—if not one’s identity—will be improperly disclosed, stolen or misused with potentially significant economic harm to the individual.

Protecting personal information traditionally has been a state responsibility. All states have laws to safeguard the security of financial information, and state legislatures continue to consider and enact legislation annually to improve and strengthen financial information security. Congress also has enacted laws to protect financial privacy and confidentiality and to ensure the accuracy of financial information. Federal interest and activity in this area has increased with the onset of the Information Age.

Fair Credit Reporting Act (FCRA)

Personal financial information was protected exclusively at the state level until 1970 when Congress enacted the Fair Credit Reporting Act (FCRA). FCRA established minimum federal standards to ensure that consumers could access information about themselves that lenders, insurers, and others obtain from credit bureaus and use to make decisions about providing credit and other services. Amendments to FCRA, enacted in 1996, imposed new responsibilities on credit bureaus and those who use their information to promote increased accuracy and confidentiality of credit reports. The 1996 Amendments also temporarily preempted, with a limited number of grandfathered exceptions, stronger state laws in seven areas. These included prescreening of consumer reports; the timeframe for handling accuracy disputes; duties of persons who take adverse actions and who use consumer reports in connection with credit or insurance transactions initiated by a consumer; information contained in consumer reports; duties of furnishers of information to consumer reporting agencies; and the sharing of information among affiliates.

Congress reauthorized and made permanent the seven areas of state preemption prior to their expiration with the Fair and Accurate Credit Transactions (FACT) Act of 2003 while further enhancing the accuracy of credit reports, providing consumers one free credit report annually, restricting the use of sensitive information from affiliates to market financial products, and establishing several uniform consumer protections to combat identity theft. Although virtually all the federal anti-identity theft protections in the FACT Act were based on state laws, the measure also preempts state laws in each of the areas where it established federal protection.

Gramm-Leach-Bliley

In addition to FCRA, Congress passed significant financial privacy protections with the Gramm-Leach-Bliley Financial Modernization Act (GLBA) of 1999 that applied to a wide range of financial institutions. GLBA required financial institutions to provide notice to its customers on its privacy policies, including how information is disclosed to affiliates and nonaffiliated third parties, and to offer consumers the opportunity to “opt out” of having nonpublic personal information shared with nonaffiliated third parties. Although FCRA continues to preempt state laws that would restrict information sharing among affiliates, GLBA expressly permits states to exceed the federal standards for nonaffiliated third parties. GLBA also required states to establish minimum privacy protections for the insurance consumers—a requirement that states promptly met.

Financial Information Security

The National Conference of State Legislatures (NCSL) believes that states should continue to play a vital role in protecting the privacy, confidentiality and security of sensitive nonpublic personal financial information. States long have sought to balance the economic value of information sharing with reasonable safeguards against the unnecessary disclosure and inappropriate acquisition of sensitive nonpublic personal financial information, such as credit information, account numbers, account balances, and Social Security numbers. Understanding local and regional economic situations and the unique needs of consumers within these markets, states consistently have ensured the protection of sensitive non-public personal financial information.

State legislatures recognize that financial information security is an area of overlapping federal and state jurisdiction. Therefore, NCSL does not oppose federal baseline standards for the protection of financial information, provided that these standards generally do not preempt complementary state laws. NCSL believes that states should have the authority and flexibility to adopt standards for the acquisition, retention, disclosure and sharing of financial information by and among financial institutions and nonaffiliated third parties that address local concerns or respond in a timely way to incidences of neglect or abuse that may be local or regional in nature. NCSL specifically believes that Congress should preserve state authority to exceed federal baseline standards for information sharing among nonaffiliated third parties.

Credit Reporting

NCSL acknowledges the benefit of a uniform national credit reporting system to the nation's economy. Therefore, NCSL does not oppose the seven limited areas that were subject to federal preemption by the 1996 Amendments of the FCRA and made permanent by the FACT Act. In doing so, NCSL supports the continued exemption of the state laws that were in existence prior to the 1996 Amendments and thus are currently exempted from the preemption provisions.

Data Security Breach Disclosure

Following a series of high-profile financial data security breaches, Congress is considering a range of measures to establish additional federal protections for financial data and to guard against identity theft and account fraud. Federal interest comes on the heels of laws passed in many states that require institutions to notify affected consumers following a data security breach. In fact, many of the reported breaches only came to light following the enactment of a California data breach disclosure law that went into effect in 2003.

Consistent with NCSL’s general policy for safeguarding financial information, NCSL does not oppose baseline federal data security breach notification standards, provided that the requirements do not preempt state authority to adopt standards that provide affected consumers additional protection and notification. NCSL also supports allowing state financial regulators and attorneys general to enforce any new federal data security breach notification standards.

In the event that Congress decides to preempt state law, NCSL urges that the preemption be narrowly construed to preempt only state laws that are inconsistent with the federal standard while preserving state laws that apply to entities that may be excluded from the federal act. Additionally, should Congress decide to preempt state data security breach notification laws, in order to prevent the weakening of consumer protection that exists in over a dozen states, NCSL would support a strong federal law that would require notification of the affected consumers when sensitive personally identifiable information has been, or is reasonably believed to have been, accessed or acquired. In this instance, exceptions should be made only when it is concluded that there is no significant risk that the breach has resulted in, or will result in, harm to the individual whose information has been breached.

Insurance Information Security

In response to the GLBA requirements, state legislatures enacted operationally uniform privacy protections for the nation’s insurance consumers. In their role as the functional regulators of the business of insurance, states have enacted numerous laws and regulations that address the acquisition, retention, disclosure and use of financial information by and among insurance companies. NCSL will oppose any federal effort to preempt these state laws and regulations or to enact federal standards that address the use of financial and credit information in insurance.

Expires August 2008

Terrorism Risk Insurance

The insurance industry has repeatedly encountered new, unexpected, and severe risks but has always, given reasonable time and experience, been able to develop creative ways to price its product. However, losses from the terrorist acts of September 11, 2001, and the threat of future terrorist attacks with chaotic frequency and unknown costs challenge the capacity and risk models of the property and casualty insurance and group life insurance industries to provide coverage for such exposure. The Terrorism Risk Insurance Act (TRIA) of 2002 provided a temporary federal “backstop” to ensure the widespread availability and affordability of property and casualty insurance for terrorism while preserving state insurance regulation and consumer protection. A key aim of TRIA was to provide a transitional period for markets to stabilize, to develop effective terrorism pricing models, and to build private sector capacity to afford future losses.

The National Conference of State Legislatures (NCSL) calls on Congress to reauthorize TRIA to assure that the property and casualty insurance and group life insurance industries can protect Americans from financial losses associated with terrorism and to ensure an available and affordable insurance market for American consumers and businesses. TRIA reauthorization should:

Not preempt state regulatory or legislative authority;
Sunset at a date certain and be of limited duration;
Make use of the expertise of state insurance regulators with respect to such areas as licensing of insurers, solvency surveillance, oversight of rates and forms, licensing producers, assisting policyholders and consumers during the claim settlement process and performing market conduct examinations;
Include representatives of the National Association of Insurance Commissioners (NAIC) as members of any governing body established to administer the federal program;
Supplement but not replace other private and public insurance mechanisms;
Include clear and non-ambiguous definitions of terrorism;
Encourage loss reduction and hazard mitigation efforts;
Maintain state jurisdiction over insurer claim settlement practices.

NCSL continues to believe that any reauthorization should recognize the temporary nature of the program, and therefore encourages efforts to further promote development of the private insurance markets. Any federal plan for a temporary and limited federal backstop for terrorism insurance coverage must not adversely impact a state’s ability to levy premium taxes, regulate the business of insurance and set solvency standards for property and casualty and group life insurers.

Expires August 2008

Insurance Fraud - Federal Criminalization

Insurance fraud presents an ever-increasing burden on the solvency of insurance companies and on the costs of consumers to obtain insurance coverage. The most conservative estimates place the annual cost of insurance fraud in the tens of billions of dollars, which is then passed on to policyholders and even state taxpayers in the event of insurer insolvency.

The kinds of insurance fraud can vary from policyholder filing of exaggerated claims to the setting up of a phony insurance company for the sole intent of stealing insurance premiums. The National Conference of State Legislatures (NCSL) recognizes the toll that policyholder and claimant initiated fraud has on the cost of insurance and the solvency of the insurer. We applaud the action taken in various states to pass laws that make it more difficult to file a false claim, increase the penalties for those who are guilty of fraudulent activities, and expand state insurance department fraud units. In those states that have taken appropriate action to curtail fraud, the rate of illegal activity has decreased.

NCSL believes that the prosecution of policyholder and claimant fraud should and must remain in the jurisdiction of state and local law enforcement officials. However, in cases of internal insurer fraud that may be the result of interstate and international conspiracies to defraud, loot or plunder an insurance company, states and the federal government should cooperate to prosecute such criminal activity.

NCSL joined state insurance regulators, state and local law enforcement officials and the insurance industry in supporting congressional passage of legislation that has made it a federal crime to engage in certain fraudulent activity, such as knowingly file a false report with a state insurance regulator; the embezzlement and theft of insurance company money, assets, funds, premiums, or credits; the falsification of company records with the intent to defraud, loot or plunder a company or its policyholders and creditors; and the criminal obstruction of proceedings before state insurance regulatory authorities.

NCSL's endorsement of federal involvement in the criminal prosecution of certain kinds of insurance fraud does not diminish our support for continued state regulation of the insurance business. Federal criminal sanctions will assist state regulators in their efforts to prevent future insolvencies.

As a result of financial services modernization, the various federal and state financial institutions regulators need to coordinate anti-fraud activities. However, federal legislation to assist the coordination of state and federal anti-fraud activities should not unnecessarily preempt state anti-fraud laws and regulations nor grant audit or subpoena authority to a federal entity over a state agency operating under appropriate state constitutions and laws.

Expires August 2008

Natural Disaster Mitigation and Insurance

Natural disasters have the potential to strain the resources of many state and local governments, as well as endanger the financial well being of this nation’s insurance industry. The forecast of increased and more severe natural disasters requires that the federal government in conjunction with the states develop a new national policy, which provides disaster mitigation, response and recovery. The National Conference of State Legislatures (NCSL) urges Congressional action that would provide for and encourage appropriate insurance and reinsurance mechanisms for coping with catastrophic natural disasters. However, any plan for natural disaster insurance and reinsurance must not displace private sector risk transfer mechanisms, adversely impact a state’s ability to levy premium taxes, regulate the business of insurance and set solvency standards for property and casualty insurers.

Expires August 2008

Insurance Regulatory Modernization

The National Conference of State Legislatures (NCSL) is committed to state regulation of the business of insurance. Insurance serves as the cornerstone of the economy. It provides economic security for individuals and their families and allows businesses to manage the risks that are inherent in economic activity. Whereas banking and securities are about access to capital and risk-taking, insurance is a guarantee. It is a legal promise—steeped in state tort and contract law—to provide benefits if and when they are due, often years into the future.

For more than 150 years, the states have proven that they can successfully and effectively protect consumers and ensure that promises made by insurers are kept. As a different kind of financial service, insurance requires a different kind of regulation that the states are best suited to provide. State regulation ensures that rates are fair, adequate and not excessive; that policy language is clear and includes what it should; that insurers are financially sound; that claims are paid; that consumers are informed, and that their complaints are investigated and resolved.

State regulation is accessible, accountable and responsive, and operates with greater efficiency than would a vast new federal bureaucracy. Decentralized authority promotes regulatory innovation and safeguards against the imposition of regulatory controls with potential adverse consequences that would be national in scope. Furthermore, state legislatures are uniquely positioned to set policies that accurately reflect local values and concerns, and the nation as a whole benefits from regulation tailored to serve diverse economic, social and cultural needs as well as varying geographic and environmental conditions.

Insurance Regulation for the Modern Economy

Although strongly committed to the preservation of state insurance regulation, NCSL acknowledges the responsibility of states to adjust state systems to meet the needs of the modern economy. The Gramm-Leach-Bliley Financial Modernization Act of 1999 (GLBA) tore down Depression-era barriers and created a comprehensive framework to permit affiliations among banks, insurance companies and securities firms. GLBA also compelled state actions in the areas of producer licensing and insurance information privacy while implicitly calling on states to modernize insurance regulation.

States accepted this challenge with remarkable vigor. State legislatures and commissioners quickly met the specific mandates of GLBA. They continued to develop a shared vision of insurance regulatory reform to meet the needs of the modern marketplace while preserving the advantages of the state system. NCSL recognized the importance of state legislatures taking a proactive role, and therefore established a special task force to streamline and simplify insurance regulation. NCSL worked with insurance commissioners to draft and endorse the Interstate Insurance Product Regulation Compact, which creates a national state-based system to quickly make regulatory decisions on life insurance products according to uniform national standards.

NCSL also adopted an insurance regulation statement of principles, which encourages states to consider more competitive systems of product regulation for property and casualty insurance to promote the more efficient introduction of new products into the marketplace while preserving their authority to take action in a noncompetitive market and against rates that are inadequate or unfairly discriminatory. The statement continues to encourage state legislatures to:

Direct insurance commissioners to simplify and streamline regulatory standards and requirements and eliminate inefficient and redundant regulation;
Allocate greater insurance department resources to market regulation, anti-fraud and financial solvency efforts;
Support regulatory efforts to improve market regulation; create more efficient, effective and uniform market conduct examinations; promote the use of technology; and better coordinate with other states; and
Exercise oversight and investigatory functions to evaluate modernization efforts at the regulatory level and encourage industry participation in improvements to state-based systems.

State-Federal Partnership

Working individually and at the national level, states since the passage of GLBA have worked to modernize insurance regulation. However, state legislatures recognize a legitimate federal role in overseeing and promoting well-functioning insurance markets. Therefore, NCSL is willing to work with Congress to establish a shared state-federal framework to achieve insurance regulatory modernization that focuses on areas where policymakers have reached consensus and that preserve state flexibility and authority to meet the goals of modernization. However, NCSL will oppose any provision of federal legislation that relies on wholesale preemption of state authority; that would compel state compliance with federal standards or those of any non-governmental third party; or that conditions, restricts or redirects state insurance revenues, including insurance premium taxes, fees and fines, either directly or as a condition of a state’s refusal to submit to federal standards or federal efforts to commandeer a state executive branch official to participate in a federal regulatory program.

In recent years, states have enacted a wide range of reforms in critical areas to streamline, simplify and coordinate state systems and to establish uniform regulations and processes, where appropriate. NCSL believes that state efforts to enact significant reforms in critical areas represent tremendous progress and will continue to support further efforts as states move forward to achieve widespread reform in all areas in the years ahead. Some in Congress have criticized states for not moving more rapidly; however, NCSL believes that it is appropriate that modernization efforts be based on deliberate consideration. Reforms must balance legitimate industry needs for efficient, appropriate and transparent regulation with the goals of preserving and enhancing important consumer protections and financial safeguards, which are the hallmarks of the state system. State lawmakers and insurance commissioners must carefully measure these shared priorities as they move forward and should resist efforts from Congress and interested parties to prematurely embrace wholesale reforms in a blind race for uniformity.

Moreover, some in Congress and industry support federal legislation to establish a single federal regulator of insurance or allow for dual federal and state insurance regulation. If enacted by Congress, such proposals would eliminate or diminish state insurance regulation irreparably, bifurcate insurance regulation between the states and the federal government, undermine the state system of consumer protection and financial surveillance, threaten a host of other unintended consequences, and inevitably cause a loss of jobs, taxes, fees and other critical state revenues and resources. Therefore, NCSL opposes any provision of federal legislation that preempts state authority through the creation of a federal insurance official, commission or entity with the authority to regulate insurance, to implement federal standards, to enforce state compliance with federal standards, or to initiate or participate in judicial proceedings to resolve differences between federal standards and state law.

Insurance Company Solvency

The safety and soundness of insurance companies operating in the United States are the prime objectives of state insurance regulation. To ensure that these objectives are met, an effective financial surveillance and regulation system is vital. State legislatures have endeavored to strengthen state insurance departments and to create standards for financial regulation that have improved the solvency of insurance companies.

Although successful and effective, state solvency regulation standards should be reviewed and modified on an ongoing basis in order to meet the changes of a constantly evolving financial services marketplace. In doing so, states are protecting insurance company policyholders and investors. The public depends on solvent insurance companies to provide retirement income, income protection in case of death or disability, health care coverage, protection from catastrophic loss, and safe investment opportunities.

Swift and effective action by state legislatures to reform state solvency regulation proves that states are more capable of adjusting to changes in the marketplace than Congress or federal regulatory agencies. NCSL therefore will oppose any proposal to establish federal standards for state solvency regulation that cedes any authority to federal agencies to regulate financial institutions involved in the business of insurance and congressional ratification of trade agreements that would preempt state regulation of insurance for solvency purposes. Although NCSL continues to support the NAIC Financial Regulation Standards and Accreditation Program, NCSL acknowledges that state legislatures and governors have the responsibility to enact policy, which state regulators enforce. NCSL also recognizes that interstate compact proposals have the potential of addressing binding uniformity and effectiveness in specific areas of regulation.

NCSL also objects to actions taken or contemplated by the Internal Revenue Service or other federal agencies to assert priority claims to the assets of failed insurers. The states should first be allowed to distribute an insolvent company's assets to pensioners, family businesses, other policyholders and others protected by the McCarran-Ferguson Act delegation for the business of insurance to the states.

In the same vein, NCSL is concerned by federal bankruptcy rulings under the federal bankruptcy code that would allow alien insurers and reinsurers to move certain trust fund assets to bankruptcy proceedings in their domicile country. The trust funds established by alien insurers and reinsurers are to serve as collateral for insurance and reinsurance underwriting in the United States and allow such alien insurers and reinsurers to be exempt from state solvency regulation. Federal bankruptcy courts in ruling in favor of alien insurers and reinsurers have placed these collateral trust funds out of the reach of state insurance departments, which are solely responsible for solvency protection. NCSL urges Congress to rectify this situation by amending federal law to eliminate or limit this exemption for alien insurers and reinsurers under the bankruptcy code.

Expires August 2008

State Sovereignty in Financial Services

The sovereignty of states in financial services regulation has never been more in jeopardy. With the enactment of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which brought down the firewalls between banking and other financial services and commercial interests, the continuing consolidation and merger of financial services institutions, technological advances such as the Internet and online financial services, the recent U.S. Supreme Court decision in Watters v. Wachovia and the competition from foreign markets, some of America’s largest financial institutions are advocating a uniform national system of regulation and the preemption of some state laws and regulation which seek to protect the financial well-being of the consumer. NCSL is concerned that Congress, the federal banking regulators, and the federal courts have sought to nationalize control of financial services in Washington, D.C.

The National Conference of State Legislatures has consistently and strongly advocated for state sovereignty in financial service regulation. NCSL has opposed any federal preemption of state legislative or regulatory authority in financial services. A high burden of proof that federal action is necessary, such as a national financial crisis, should be met before any preemption of state financial services laws and regulations is warranted.

PRESERVATION OF DUAL BANKING

NCSL opposes any federal attempts to further erode the dual banking system, to tax state banks for federal oversight services already performed by the appropriate state banking agencies and departments or to damage the dual, competitive system of banking regulation that has effectively served consumers and the industry. NCSL calls upon Congress and the Office of the Comptroller of Currency to cease and desist its efforts to destroy the viability of a dual banking system. The only loser in such an effort will be the American consumer.

Congress should evidence its support for the dual baking system by approving legislation to overturn the Supreme Court’s decision in Watters v. Wachovia.

STATE REGULATION OF INSURANCE

The National Conference of State Legislatures is committed to maintaining the states as the sole regulators of the business of insurance as provided under the McCarran-Ferguson Act. NCSL supports the efforts of states to streamline and simplify insurance regulation. NCSL will oppose any proposal to establish either a federal or a dual system of regulation of insurance, to cede any state authority to regulate financial institutions involved in the business of insurance or to obtain Congressional ratification of trade agreements that preempt state regulation of insurance.

SECURITIES REGULATION

Corporate governance, securities regulation and enforcement of securities laws are areas where the federal government and the states traditionally share regulatory authority. NCSL recognizes that the federal government has an interest in efficient and fair capital markets. NCSL also acknowledges that the states’ securities agencies are indispensable partners with their federal counterparts engaging in the pursuit of fair and efficient capital markets by protecting local investors, workers, and communities by ensuring compliance with securities laws.

NCSL is concerned that the preemption of state securities laws and regulations will serve only to erode investor trust in the capital markets by further weakening a system designed to protect investors and putting the financial well-being of hard- working Americans at risk. NCSL will oppose such federal preemption.

DUAL CHARTERING OF CREDIT UNIONS

The dual chartering of credit unions has benefited consumers, credit union innovation and our states’ economies. NCSL will oppose any effort by the Administration and Congress to erode the dual chartering system for credit unions by preempting state credit union laws and regulations which do not adversely impact the financial well-being of state chartered credit unions and thus the National Credit Union Share Insurance Fund.

MORTGAGE INDUSTRY

Currently states regulate a significant portion of mortgage lending. The states presently license and regulate more then 300,000 mortgage professionals. As a result of the current subprime lending failures, Congress is considering the establishment of a new Federal regulatory system for the mortgage origination industry. Federalizing this area of supervision will displace the 50-state regulatory system that is rapidly evolving and could erode, or even eliminate, the current authority the states have to approve, supervise and bar mortgage professionals. The local nature of real estate and consumer protection necessitates direct state authority.

Since 2004, the states, through the Conference of State Bank Supervisors (CSBS) and the American Association or Mortgage Regulators (AARMR), have been developing the Nationwide Mortgage Licensing System to improve and coordinate mortgage supervision. This new state system will enhance consumer protection and streamline the licensing process for regulators and the industry. The states have directly invested significant financial and human resources to restructure their licensing processes and systems to move to the new national system. The Nationwide Mortgage Licensing System will be operational on January 2, 2008.

NCSL supports the Nationwide Mortgage Licensing System and encourages the United States Congress to recognize the states’ Nationwide Mortgage Licensing System and encourage a more coordinated system of state and Federal supervision.

Expires August 2010

NCSL Opposes S. 618/ H.R. 1081 – The Insurance Industry Competition Act

Resolution Summary

Under the McCarran Ferguson Act of 1945 insurance regulation is reserved to the state. The Act further provided for state oversight over a portion of anti-trust law. Although the federal government maintains responsibility for enforcing laws against boycotts, coercion and intimidation, insurance companies were allowed to share claims data, subject to state law. Until recently, there had not been a serious challenge from Congress that would prohibit insurance companies from sharing claims data.

WHEREAS, in response to the decision of the United States Supreme Court in United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944), that insurance was “in

2007-2008 Policies for the Jurisdiction of the:Communications, Financial Services and Interstate Commerce Committee

Policies:

Expires August 2009

Nexus In The New Economy: Ensuring A Level Playing Field For All Commerce

NCSL Supports and Urges Enactment of Sales Tax Fairness and Simplification Act (S. 34, HR 3396) Action Resolution.

Video Franchise Reform – State Administration

Banking Regulation

Equal Access to FBI Criminal History Records

Financial Information Security

Insurance Fraud - Federal Criminalization

Natural Disaster Mitigation and Insurance

Resolution Summary

2007-2008 Policies for the Jurisdiction of the:
Communications, Financial Services and Interstate Commerce Committee