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Nancy Feig
Nancy Feig
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2007 Banking Legislative Forecast

Banking legislative reform from a Democratic Congress could increase regulatory and technical burdens for banks.

By mid-january the House Democrats had made progress on speaker Nancy Pelosi's, D-Calif., agenda to pass six specific pieces of legislation, ranging from homeland security provisions to raising the minimum wage. Conspicuous for its absence -- at least to those in financial services -- was anything directly dealing with banking.

But that doesn't mean the industry will operate under the radar for the next two years. While the 110th Congress is likely to focus on budget-, energy-, healthcare- and terrorism-related issues in early 2007, changes surely are in store for the financial services industry in a Democratic Congress. Democrats historically have been more consumer friendly, while Republicans have tended to favor the interests of business, according to Greg Mesack, director of government relations for America's Community Bankers (Washington, D.C.).

This ideological shift in Congress could mean an increase in compliance requirements -- and the necessary technology investments -- for financial services firms. But Floyd Stoner, chief lobbyist for the American Bankers Association (ABA; Washington, D.C.), points out that the consumer-friendly goals of a Democratic Congress are not at odds with the goals of the financial services industry, which also is looking to protect the interests of consumers.

The shift of power in Congress, however, has led to a change in the financial services' committee leadership. Sen. Christopher Dodd, D-Conn., who took the reins from Sen. Richard Shelby, R-Ala., unveiled his agenda for the Senate Banking Committee in an early December speech: strengthening national and homeland security, and expanding the prosperity of the American people.

Among the issues Dodd and other Democrats are targeting are credit cards, and there will be an increased focus on fees, interest rates and disclosure, according to ACB's Mesack. Consumer groups also are calling for legislation dealing with RFID-enabled credit cards, a technology that poses security and privacy concerns. Again, banks will have to have the technology infrastructure in place to handle any requirements that may result from new legislation.

Rep. Barney Frank, D-Mass., the new leader of the House Financial Services Committee, has made it clear that housing issues have been neglected, according to the ABA's Stoner, who adds that changes in housing legislation could heavily impact lenders and their systems. But Frank also has made it clear that he intends to secure regulatory relief for community banks. "We certainly support regulatory relief," Stoner says. "One of the issues that was left on the table was a reduction in currency transaction reports (CTRs) for seasoned customers. We will see movement on that."

New Financial Reporting Requirements?

In a related development, the Financial Crimes Enforcement Network delivered a report to Capitol Hill on Jan. 17 stating that the reporting of cross-border wire transfer data by financial institutions is technically feasible for the government and may be valuable to efforts to combat money laundering and terrorist financing. The report outlines an approach to resolving remaining technical and policy issues, and FinCEN said it will work to ensure that all technical capacity and privacy concerns are addressed. But the extent of the added burden for banks' systems is not clear.

"In light of FinCEN's ... finding that the new program could result in half a billion new financial reports a year, it is essential that we observe the congressional mandate that costs, benefits and feasibility be thoroughly examined before we proceed toward implementation," said Wayne Abernathy, executive director of financial institutions policy, ABA, in a release. "Banks -- and especially our customers -- need to be confident that customer information is handled [securely]," he said. "The report's admission that FinCEN does not have the infrastructure to handle the potential data dump, and could not for years, is not reassuring."

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