Financial Services Committee Newsletter

Financial Services Update

National Conference of State Legislatures
Financial Services Committee

Volume 1, Issue #1
September 1, 2003

Bill to Limit States' Authority to Protect Investors Delayed

On July 24, 2003, Congressman Richard Baker of Louisiana agreed to delay a committee vote on a measure that would limit the authority of states to protect investors against securities fraud. H.R. 2179, the Securities Fraud Deterrence and Investor Restitution Act of 2003 generally would strengthen federal authority to combat securities fraud but includes a key provision, Sec. 8(b), which would forbid state regulators from negotiating remedial actions with investment firms and individuals that violate securities law and would prohibit state standards related to disclosure or conflicts of interest. NCSL joined with governors, secretaries of state, and state securities regulators to ask the U.S. House Financial Services Committee to eliminate the provision. The decision to delay the vote represents a significant victory for NCSL, but Rep. Baker promises to take up the issue again in September when Congress reconvenes. The U.S. House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, which Rep. Baker chairs, narrowly amended an earlier version of Sec. 8(b)-also opposed by NCSL-that endangered the state portion of the recent $1.4 billion Wall Street settlement with 10 top investment firms. NCSL encourages state legislators to urge Congress to eliminate Sec. 8(b) from H.R. 2179.

U.S. House Committee Approves Credit Reporting, Identify Theft Legislation

On July 24, 2003, by a 61-3 vote, the U.S. House Financial Services Committee approved legislation to provide consumers with greater identity theft protections and to establish permanent national credit reporting standards. H.R. 2622, the Fair and Accurate Credit Transactions Act, would reauthorize the seven limit areas of preemption that were included in the 1996 Amendments to the Fair Credit Reporting Act of 1970 (FCRA). It would provide consumers with new tools to fight identity theft and ensure the accuracy of credit reports. The legislation includes provisions that would give consumers the right to one free credit report per year and access to their credit scores. It also contains provisions that would establish new fraud identification tools and help consumers limit prescreened offers of credit and insurance.

OCC Strikes Down Georgia Anti-Predatory Lending Law

On July 31, 2003, the federal banking regulator-the Office of the Comptroller of the Currency (OCC)-preempted the Georgia Fair Lending Act. The OCC struck down the anti-predatory mortgage lending law despite changes that were enacted by the legislature this year. This action sets the stage for the OCC to preempt all state authority to subject national banks to anti-predatory lending laws, including dozens that have been enacted since 1999. On December 17, 2002, NCSL and the governors jointly wrote the Comptroller John Hawke to express strong opposition to any action by the OCC that preempts state authority to protect financial consumers against predatory lending practices by national banks and their affiliates. Georgia officials are consulting on whether to sue to block the OCC order.

OCC Moves to "Preempt the Field" for National Bank Lending

In a related but potentially more sweeping action, the OCC on August 5, 2003, published a proposed rule to preempt state laws by "type" that are related to national bank lending, deposit-taking, and other authorized activities. Historically, preemption determinations for national banks have been based on whether a state law conflicted with OCC regulations or federal law that governed a particular activity. The proposed rule would apply to all laws that in any way obstruct or condition national banks or their operating subsidiaries and would exclude only incidental laws that "do not regulate the manner and content of the business of banking." The proposed rule also raises the issue of "field preemption"-where the OCC would expressly preempt all state laws for national bank real estate lending. The proposed rule is available on the OCC website at http://www.occ.treas.gov. The OCC is seeking comments, which must be received by October 6, 2003. NCSL plans to comment on the proposed rule. NCSL encourages state legislators to comment directly to the OCC and to share with their congressional delegation concern about this assertion of regulatory preemption authority.

State Lawmakers Endorse Insurance Regulation Compact

In an attempt to preserve sovereign state regulation of the nation’s insurance industry, the NCSL Executive Committee unanimously approved a resolution urging states to join the Interstate Insurance Product Regulation Compact. Since insurance has become part of the integrated financial marketplace, states have come under increased pressure from Congress and others to develop a streamlined and simplified system of product regulation that would allow insurers to market their products nationally more quickly and efficiently. Without such standard, many believe Congress will preempt state authority by stepping in to regulate the industry. The Compact would create a national multi-state public system to receive, review and quickly make regulatory decisions on insurance product filings according to uniform standards that the member states would create. The Compact would cover life insurance, annuity, disability income, and long-term care insurance products. NCSL believes that the Compact is the best way to preserve state insurance regulation while raising insurance product standards, improving the quality of product review, and providing insurance companies the regulatory efficiency that they need to compete in the modern financial services marketplace. NCSL encourages state legislatures to consider the Compact. More information is available at http://www.ncsl.org/programs/press/2003/pr030731a.htm.

NCSL Adopts Policies on Financial Information Privacy, Credit Unions, and Insurance Regulation

At the 2003 Annual Meeting in San Francisco, California, NCSL adopted four state-federal policies for financial services.

Financial Information Privacy-This new policy expresses NCSL's position that states should have the authority and flexibility to protect nonpublic personal financial information in order address local concerns and respond in a timely way to situations that may be local or regional in nature. The policy supports the preservation of states’ authority to exceed federal baseline standards for information sharing among non-affiliated third parties. However, in separate motions, the Committee amended the policy, first, to not oppose reauthorization any FCRA preemption provisions, and, second, to call on Congress to address the accuracy of consumer reports, dispute resolution, and identity theft. The Committee and the full NCSL unanimously adopted the policy.

Dual Chartering of Credit Unions-This policy expresses NCSL's position that state credit union supervisors should have the primary responsibility for assuring the safety and soundness of credit unions chartered by and operating under state law and expresses NCSL's resolve to oppose any effort by the Administration and Congress to preempt state credit union laws and regulations. By a 15-4 vote, the Committee did not adopt an amendment urging Congress to repeal the federal prohibition on the ability of states to impose state and local taxes on federally chartered credit unions. The Committee and the full NCSL adopted the policy unanimously.

States as the Sole Regulators of the Business of Insurance- This resolution expresses NCSL's opposition to any proposed federal law that would undermine sovereign state authority over the business of insurance. The Committee and the full NCSL adopted the resolution unanimously.

Regulation of Banks in Insurance-This resolution expresses NCSL's support for functional regulation of financial services, calls on the OCC to refrain from reviewing state insurance laws, and encourages the Supreme Court to review IIABA v. Hawke and to uphold a high standard for federal preemption of state law. The Committee and the full NCSL adopted the resolution unanimously.

FALL FORUM 2003-December 9-12, 2003, in Washington, D.C.

The NCSL Financial Services Standing Committee will meet on December 9-12, 2003, in Washington, D.C. Come discuss and consider state and federal issues related to banking, insurance, credit unions, securities and other financial services-as well as other important issues that will top legislative agendas in 2004. For more information or to register, please visit http://www.ncsl.org/standcomm/fall03.htm