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FINANCIAL SERVICES MODERNIZATION ACT OF 1999 -- (Senate - May 06, 1999)

Well, Mr. President, while the economy is not broken, much of the inner workings of the Federal Reserve is, and I, along with many others, intend to fix it. 

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   Again, I want to make it very clear--I do not rise before this body today to meddle with monetary policy.

   I am not attempting to interfere with, or impugn, the monetary policy of the Fed.

   I am seeking greater accountability in the operating expenses and internal management of one of our more influential institutions.

   This amendment simply requires a yearly audit that covers the operations of each Federal Reserve bank, the Federal Reserve Board of Governors, and the Federal Reserve System in the form of a consolidated audit.

   As my good friend and colleague Senator BENNETT pointed out to me last night, an audit of each of the 12 regional reserve banks is conducted now--however, these audits are not conducted in accordance with generally accepted accounting principles.

   For the audits that take place now, the accounting information is given to the auditor by the regional bank staff and the banks basically say, ``accept our figures, that's all you get.''

   In short, this amendment requires the Fed to use an independent auditor and for that auditor to use generally accepted accounting practices.

   This amendment also requires that the report be made available to Congress, in particular the Committee on Governmental Affairs in this body and the Committee on Governmental Reform in the House of Representatives.

   I believe that the Federal Reserve could do more to increase its cost consciousness and to operate as efficiently as possible.

   This amendment will be one step closer to that end.

   I encourage all Senators to support this amendment and to show our bosses, the American taxpayers, that we are looking out for them by ensuring accountability at the Federal Reserve.

   Mr. DODD. Mr. President, I congratulate Chairman GRAMM for the fairness in which these proceedings have been held, and my colleague from Maryland, Senator SARBANES should also be commended for his leadership.

   We will soon vote on final passage of S. 900, the Financial Services Modernization Act. I will, unfortunately, be unable to support what I believe in many ways is a very good product.

   I am a strong supporter of financial modernization. If the anti-CRA provisions were corrected, I would help to lead the charge in supporting this bill. There are important differences of opinion on various facets of this legislation. We have had good debates on many of these facets.

   Although I did not support the amendment offered by Senator JOHNSON to restrict the transferability of unitary thrifts, He should be congratulated for his fine work on the amendment. It is an important issue that I am sure that we will revisit in conference.

   The chairman earlier today staked his support of this bill on the outcome of the operating subsidiary amendment which was narrowly defeated. I admire the stand he took and the conviction with which he made his arguments. He should be congratulated for prevailing on his point of view.

   I would also like commend Chairman GRAMM for broaching one of the most critical issues that Americans face as we approach the dawning of the new millennium, and that is the steady erosion of the privacy of consumers' personal, se nsitive financial information. Al though I supported the chairman's amendment that addresses the subject of pretext calling, I believe that it simply does not go far enough.

   Several factors have contributed to the erosion of financial privacy. We must examine each of these factors in order to craft legislation that will protect financial privacy in a meaningful, effective way.

   Although advances in technology have produced many positive results and benefits for our economy over the years, one of the potential drawbacks has been that they have also facilitated the collection and retrieval of a vast amount and array of citizens' financial information. Th at personal inf ormation has become a very valuable commodity and is being sold and traded among businesses all over the world.

   In addition, the formation of new, diversified business affiliations has allowed companies quick access to personal dat a on each other's customers. Financial modernization legislation, if it becomes law, will only make it easier for companies to share their customers' personal dat a.

   Much of the data ``mining''--searching, collecting, and sorting--and actual use of that personal dat a is nearly imperceptible to the consumers whose very own information is being conveyed. Companies do not generally tell their customers about the personal dat a they obtain and they sell or rent.

   Current Federal law permits bank affiliates to share information fro m credit reports and loan applications as long as the customer gets one opportunity to notify the bank not to disclose the information. Mo st consumers are unaware of this opportunity because the one notice that the company gives them is buried in the fine print in lengthy materials mailed to the customer that most never read.

   An even more critical factor causing the erosion of privacy rig hts is that no current federal law prevents banks from disclosing ``transaction and experience data,'' which includes customers account balances, maturity dates of CDs, and loan payment history.

   This erosion of the privacy of our most personal, se nsitive financial information can and must be stopped. And we must take action to stop it.

   We should have hearings to address these issues so that we may take a very careful look at all of the factors involved, so that we may address them in a careful, thoughtful and meaningful way. I was pleased to hear Chairman GRAMM this morning commit to holding such hearings in the Senate Banking Committee.

   I am a coauthor of Senator SARBANES' Financial Information Pri vacy Act , S. 187, introduced this Congress. This important legislation would require banks and securities firms to protect the privacy of their customers' financial records: their bank account balances, transactions involving their stocks and mutual funds, and payouts on their insurance policies. Customers would be given the important opportunity to prevent banks and securities firms from disclosing or selling this information to affiliates. Before banks or securities firms could disclose or sell the information to third parties, they would be required to give notice to the customer and obtain the express written permission of the customer before making any such disclosure.

   I look forward to working with Senator GRAMM and Senator SARBANES on this important issue.

   But like my good friend from Texas did for me earlier today, I would like to make something very clear to him--I will not support any bill that weakens the Community Reinvestment Act. Also, I will promise him that no bill that weakens CRA will become law. If we do pass this bill out of this body, let me assure you that as hard as I will fight for financial services modernization, I will fight even harder for preserving CRA.

   I know how strongly the chairman feels against the CRA. Let me tell him, that if it is possible, I feel even stronger about preserving the CRA.

   I urge my colleagues to reject any and all legislation that fails to preserve CRA.

   BLUE CROSS/BLUE SHIELD OF NORTH CAROLINA

   Mr. EDWARDS. Mr. President, I have a particular situation in my State of North Carolina that I want to make sure is not going to be affected by some of the insurance language in this bill.

   A few years ago, Blue Cross/Blue Shield of North Carolina was considering converting from non-profit status to for profit. The North Carolina legislature looked into the plan, and decided that if Blue Cross were to convert to for-profit, it should be required to set up a charitable foundation as part of the process. It did so in order to make sure that funding for medical expenses would be available to many North Carolinians who had benefited from the services of the non-profit Blue Cross. During the Banking Committee's consideration of the bill, I was concerned that the earlier insurance language would have preempted the North Carolina law if a bank wanted to affiliate or purchase Blue Cross after the conversion.

   As a result of the Senator's amendment during the committee markup, the insurance language in the bill now is quite different. But I want to make sure that my concern about the Blue Cross/Blue Shield of North Carolina conversion law is addressed by the new language in S. 900. 

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   Mr. BRYAN. Mr. President, I believe the situation the Senator describes would fall under Section 104(c)(2) of the bill. That language allows states to take action on required applications or other documents concerning proposed changes in or control of a company that sells insurance, unless the action has the practical effect of discriminating against an insured depository institution.

   The concern the Senator voiced is one of the situations we envisioned when we made the changes from the earlier text, and it is my intent that the current language would protect the North Carolina state law on the Blue Cross/Blue Shield of North Carolina conversion agreement.

   LOW-INCOME HOUSING

   Mr. JEFFORDS. Mr. President, I thank Senator GRAMM for allowing me to discuss an important issue that is quickly becoming a serious national problem--American families, elderly and disabled are increasingly unable to afford, or continue to live in, privately-owned housing units.

   Several recent studies have shown that low-income housing opportunities are on the decline nationwide. In Vermont, rents for housing have increased 11 percent in three years, making it increasingly difficult to find affordable shelter. The need to also expand the number of housing units for low-income families is critical as the vacancy rate in areas such as Burlington has fallen to less than one percent. On any given day there are only 60 available rental units in a city of over 40,000 people, making it simply impossible to find a place to live, much less one that is affordable. Such problems are reflected in increased rates of homelessness, as the number of families seeking help from Burlington's emergency shelter rose from 161 in 1997 to 269 in 1998. Even though additional Section 8 federal subsidies will be available next year, the 800 Vermonters on the Section 8 waiting list would be hard pressed to find somewhere to use this voucher should they receive one.

   Fewer opportunities for affordable housing are also due to inadequate maintenance. Vermont and the nation desperately need legislation that increases new low-income housing opportunities--whether through new housing construction, rehabilitation of existing housing, additional incentives to keep landlords in the Section 8 market, and expansion of existing tax incentives such as the Private Activity Bond Cap and the Low-Income Housing Tax Credit.

   Mr. GRAMM. I thank the Senator from Vermont for his thoughtful remarks. As Chairman of the Committee on Banking, Housing and urban Affairs, which has jurisdiction over federal housing programs, I very much appreciate the Senator's strong interest in affordable housing.

   I commend Senator JEFFORDS for bringing to our attention housing conditions which are national in scope and affect rural and urban areas alike. It is very important that we protect our nation's vulnerable populations, particularly the elderly and disabled living on fixed incomes. It is also extremely important that we preserve the American taxpayer's existing investment in affordable housing. Congress must seek to preserve our existing housing stock and protect current residents first.

   Mr. JEFFORDS. Mr. President, I am developing legislation that will help preserve existing low-income housing stock, promote the development of new affordable housing, and increase opportunities for the purchase of housing projects by resident councils through a dollar-for-dollar matching grant program. My bill will establish a grant program for states to promote cooperation and partnership among Federal, State and local governments, as well as between the private sector in developing, maintaining, rehabilitating, and operating affordable housing for low-income Americans. These types of initiatives are critical components to meet the growing needs of low-income housing in Vermont and the nation.

   While the State of Vermont has largely avoided an overwhelming dislocation of tenants from opt-outs and mortgage prepayments, it is unable to accommodate the hundreds of families that seek new federally subsidized housing opportunities in the State. Reform efforts must focus both on preservation of existing federally subsidized housing units, as well as the creation of new opportunities for families seeking an affordable place to live.

   Mr. GRAMM. Mr. President, I applaud Senator JEFFORDS for stepping forward with legislation to address affordable rental housing needs. It is my understanding that the bill which he plans to introduce will present several options for approaching solutions to complex housing problems.

   I pledge to work with the Senator from Vermont, Housing and Transportation Subcommittee Chairman ALLARD, and Members of the Senate and House to craft comprehensive solutions to our nation's housing ills. It is imperative that any legislative solutions be fiscally responsible.

   Mr. ALLARD. I would like to reiterate Senator GRAMM's remarks and thank Senator JEFFORDS for his interest and insights. As chairman of the Subcommittee on Housing and Transportation, I plan to hold a hearing to examine the need for preservation of affordable rental housing. Specifically, I will focus on the Department of Housing and Urban Development (HUD) Section 8 program with particular attention to prepayment and opt-out issues. I also plan oversight of HUD's implementation of the Multifamily Assisted Housing Reform and Affordability Act.

   I would like to invite Senator JEFFORDS to testify at this hearing. I share many of his concerns and appreciate his willingness to work with me on these important issues.

   Mr. GRAMM. I thank Senator ALLARD for his diligence and effectiveness as Subcommittee Chairman. The Subcommittee Chairman and I both welcome Senator JEFFORDS' willingness to be a leader for affordable rental housing and look forward to working with him throughout the legislative process.

   Mr. JEFFORDS. Mr. President, I look forward to working with the chairmen of the Banking Committee and the Housing Subcommittee to address this growing problem. I thank Senator GRAMM and Senator ALLARD for their kind remarks and I appreciate the opportunity to discuss this issue on the floor today.

   Mr. GRAMM. Mr. President, we now have one outstanding matter. We are looking at several amendments. I urge staff to get together on these. Senator LEVIN is trying to work out his language right now.

   I would prefer to go ahead and pass the bill tonight rather than put it off. We are going to try to do it quickly. But I hope we don't lose so many people that we would end up not passing the bill. I guess we could move to reconsider and bring it back. But I urge my colleagues with outstanding matters to move quickly. I am going to be here all night. I would be willing to stay here and talk to anybody. A lot of people want and need to leave, but I am not going anywhere. So I am not asking you to accommodate me but to accommodate both our Democrat and Republican colleagues. Please give me your language in the next few minutes so we can move ahead and pass the bill.

   Mr. President, I suggest the absence of a quorum.

   The PRESIDING OFFICER. The clerk will call the roll.

   The assistant legislative clerk proceeded to call the roll.

   Mr. GRAMM. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

   The PRESIDING OFFICER. Without objection, it is so ordered.

   Mr. GRAMM. Mr. President, let me yield to our distinguished colleague from Michigan.

   The PRESIDING OFFICER. The Senator from Michigan.

   Mr. LEVIN. Mr. President, in a moment I am going to send an amendment to the desk. But I want to explain exactly the reason for this amendment.

   A couple of days ago, I wrote to the Securities and Exchange Commission and asked them what their reaction was to the bill as drafted in terms of protecting investors. The answer that I got back from Arthur Levitt dated May 5 is that the provisions of the bill raise serious concerns about investors' protection, and, if adopted, could hamper the Commission's effective oversight of U.S. security markets.

   The letter also indicated that:

   A loophole exempting bank trust activities from Federal securities laws would, therefore, seriously weaken the commission's ability to protect investors.

   And:

   Adoption of the bank trust exemption in S. 900, in addition to other securities provisions 

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in the bill, would undermine the important investor protections that make our markets the most transparent, most liquid in the world. It is for these reasons that the commission strongly opposes the bill.

   Mr. President, I ask unanimous consent that the letter from Mr. Levitt be printed in the RECORD.

   There being no objection, the letter was ordered to be printed in the RECORD, as follows:

   SECURITIES AND EXCHANGE COMMISSION,

   Washington, DC, May 5, 1999.
Hon. CARL LEVIN,
U.S. Senate,
Washington, DC.

   DEAR SENATOR LEVIN: Thank you for your letter of May 4 requesting the SEC's analysis of provisions in S. 900 related to bank trust activities. As currently drafted, these provisions raise serious concerns about investor protection, and, if adopted, could hamper the Commission's effective oversight of U.S. securities markets.

   The bank trust activities provisions in S. 900 would permit banks to act as ``fiduciaries'' without being covered by Federal securities laws. Virtually all bank securities activities will be able to be labeled ``fiduciary'' under the bill, and banks will be able to charge commissions for those securities transactions without being subject to SEC regulation. Under S. 900, a bank and its personnel could have economic incentives--a so-called ``salesman's stake''--in a customer account, without being subject to the strict suitability, best execution, sales practices, supervision, and accountability requirements under Federal securities laws. Fiduciary law also varies by state, and, in many cases, permits investor protections to be lessened, if not eliminated entirely, by contractual provisions. In addition, while broker-dealers are also ``fiduciaries,'' Congress has determined that securities laws should apply to them to provide customers with full investor protections. A loophole exempting bank trust activities from Federal securities laws would therefore seriously weaken the Commission's ability to protect investors. 

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