Legal and Regulatory:
Economic Growth And Regulatory Paperwork Reduction Act of 1996
Subtitle C -- Regulatory Impact on Cost of Credit and Credit Availability

Sec. 2301. Audit Costs.

Prior to the enactment of the Regulatory Paperwork Reduction Act, section 36 of the FDI Act (12 U.S.C. 1831m) required financial institutions to establish an independent audit committee made up entirely of outside directors who are independent of management of the institution, and to make their annual report on financial condition and management available for public inspection. Section 36 also included a requirement that an institution's independent auditors must attest to the institution's compliance with safety and soundness laws designated by the FDIC.

Section 2301 eliminates the independent auditor attestation requirement for compliance with safety and soundness laws. It also authorizes each appropriate Federal banking agency to permit, by regulation or order, the independent audit committee to be made up of less than all, but no fewer than a majority of, outside directors if the agency determines that the institution has encountered hardships in retaining and recruiting a sufficient number of competent outside directors to serve on the committee. In making this determination, the agencies must consider factors such as size of the institution, and whether the institution has made a good faith effort to elect or name additional competent directors to its board who may serve on the internal audit committee. Finally, this section permits the FDIC and the appropriate Federal banking agency to designate certain information in an institution's annual report on financial condition and management as privileged and confidential and not available to the public.

Sec. 2302. Incentives for Self-Testing.

Previously, banking agencies and other litigants were not restricted from using evidence of discrimination found through an institution's "self-testing" against the institution that engaged in the self-testing program. If a pattern or practice of discrimination was suspected by a banking agency, a referral to the Department of Justice was required, even if the evidence was established through the institution's own self-testing program.

Section 2302 provides that a report or result of a self-test conducted or authorized by the creditor on any aspect of a credit transaction under the Equal Credit Opportunity Act (ECOA) or any aspect of a residential real estate related lending transaction under the Fair Housing Act (FHA) is privileged if the creditor has identified the possible violation and has or is taking appropriate corrective actions. If a report or result is privileged, it generally cannot be obtained or used by any applicant, department, or agency in any proceeding or civil action in which a violation of ECOA or the FHA is alleged or in any examination or investigation relating to compliance with either Act.

However, this section provides that an applicant, department, or agency is not prevented from obtaining and using the results of any self-test in any proceeding or civil action pursuant to ECOA or the FHA or in any examination or investigation for compliance with either act under certain circumstances. Specifically, the self-test results can be used if: (1) the creditor or any person with lawful access to the report or results voluntarily releases or discloses all or part of the report or results, or refers to or describes the report or results as a defense to charges of violating either act, or (2) the report or results are sought in conjunction with an adjudication or admission of a violation of either act for the sole purpose of determining an appropriate penalty or remedy.

This section requires the Fed (in consultation with HUD and the appropriate Federal banking agencies in the case of ECOA ) and HUD (in consultation with the Fed in the case of the FHA) to promulgate substantially similar regulations six months after enactment to implement this section's amendments, and to determine a definition of "self-test." This definition must be sufficiently extensive to constitute a determination of the level or effectiveness of compliance with ECOA and FHA.

These amendments apply to self-tests conducted before, on, or after the effective date of the Fed's/HUD's regulations, unless a complaint against the creditor or person engaged in residential real estate related lending activities was filed in court or is the subject of an ongoing administrative proceeding before the effective date of the regulations, or the privilege is deemed waived.

Sec. 2303. Qualified Thrift Investment Amendments.

HOLA sets specific limits on the types and amounts of loans that Federal savings associations may make. Prior to the enactment of the Regulatory Paperwork Reduction Act, commercial, corporate, business, or agricultural loans were limited in the aggregate to 10 percent of a thrift's assets; education loans were limited to 5 percent of a thrift's assets; and, in general, a savings association's qualified thrift investments (i.e., housing related investments) had to equal at least 65 percent of the thrift's portfolio assets to be deemed a qualified thrift lender (the "QTL test"). In order to qualify for favorable tax treatment, Federal savings associations also had to meet a different asset test under the Internal Revenue Code (the "domestic building and loan association" test).

This section permits Federal thrifts to invest in, sell, or otherwise deal in education and credit card loans without limitation, and raises from 10 to 20 percent of total assets the aggregate amount of commercial, corporate, business, or agricultural loans or investments that may be made by a thrift but requires that amounts in excess of 10 percent of total assets must be used only for small business loans. In addition, this section defines "qualified thrift investment" to include, without limit, education, small business, and credit card loans; and removes the 10 percent limit on personal, family, or household loans for purposes of the QTL test. Finally, this section provides that a thrift meets the QTL test if it qualifies as a domestic building and loan association under the Internal Revenue Code.

Sec. 2304. Limited Purpose Banks.

Section 4(f) of the BHC Act (12 U.S.C. 1843(f)) grandfathers companies that control so-called nonbank banks (i.e., banks that were not defined as banks under the BHC Act until that definition was amended by the Competitive Equality Banking Act of 1987 (CEBA)). As a result, a company that controlled a nonbank bank prior to the enactment of CEBA was not regulated as a bank holding company after the enactment of CEBA solely by virtue of the company's ownership of a nonbank bank. However, CEBA also placed certain restrictions on nonbank banks' activities and prohibited nonbank banks from increasing their assets at an annual rate of more than seven percent per year. Violations of these restrictions may result in divestiture. This section removes the seven percent asset growth cap.

In addition, section 2(c)(2)(F) of the BHC Act (12 U.S.C. 1841(c)(2)(F)) provides an exception from the definition of "bank" for limited purpose credit card banks that, among other things, engage only in credit card operations, have only one office that accepts deposits, and do not accept deposits under $100,000. Specifically, this section amends that definition to permit credit card banks to accept deposits of under $100,000 as collateral for extensions of credit.

Sec. 2305. Amendments to Fair Debt Collection Practices Act.

This section amends section 807(11) of the Fair Debt Collection Practices Act (15 U.S.C. 1692e(11)) to require debt collectors to inform consumers only in an initial communication with the consumer that the collector is attempting to collect a debt and that any information obtained may be used for that purpose. Prior to this amendment, debt collectors had to inform consumers in all communications made to collect a debt that they were attempting to collect a debt and that any information obtained could be used for that purpose. The amendment made by section 2305 also provides that, in all subsequent communications, debt collectors must disclose that the communication is from a debt collector. None of these requirements, however, apply if the communication is in the form of a formal pleading made in connection with a legal action. This amendment takes effect 90 days after enactment (December 29, 1996).

Sec. 2306. Increase in Certain Credit Union Loan Ceilings.

This section amends section 107(5)(A) of the Federal Credit Union Act (12 U.S.C. 1757(5)(A)) to require that loans to a director or member of a credit union's supervisory or credit committee, or loans to which these persons act as guarantor or endorser, in excess of $20,000 must be approved by the credit union's board of directors. Prior to this amendment, loans over $10,000 required approval.

Sec. 2307. Bank Investments in Edge Act and Agreement Corporations.

Section 25A of the FRA (12 U.S.C. 618) limits a national bank's investments in Edge and Agreement Act corporations to an aggregate amount of 10 percent of the bank's capital and surplus. This section amends section 25A to permit the Fed to allow a national bank to invest up to 20 percent of capital and surplus in these corporations if the Fed determines that an investment over 10 percent would not be unsafe or unsound.

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