Legal and Regulatory:
Economic Growth And Regulatory Paperwork Reduction Act of 1996
Subtitle F -- Miscellaneous

The Electronic Fund Transfer Act (the EFT Act) establishes the rights and liabilities of participants in an electronic fund transfer system. It applies to any "accepted card or other means of access" by which someone may access a consumer's account for the purpose of initiating electronic fund transfers. The Fed has recently proposed amendments to its regulations implementing the EFT Act, 12 C.F.R. 205 et seq. ("Regulation E") (61 Fed. Reg. 19696) (May 2, 1996) that would apply some of the provisions of the EFT Act to certain stored-value products, while exempting others. ("Stored-value products" are cards on which a set amount of funds is stored, such as a Metro fare card or certain types of welfare payment cards. Each time the card is used, the amount of funds available for use on the card is diminished. Additional funds may be added to the cards.)

This section requires the Fed, within six months of enactment, to conduct a study and report to Congress on whether the EFT Act could be applied to electronic stored value products without adversely impacting their cost, development, and operation. In conducting this study, the Fed must consider whether "alternatives to regulation under the EFTA, such as allowing competitive market forces to shape the development and operation of electronic stored value products, could more effectively achieve the objectives of the EFTA."

In addition, this section prevents the Fed from finalizing its proposed amendments to Regulation E until the later of three months after the Fed submits the report to Congress, or nine months after enactment (June 30, 1996).

Sec. 2602. Treatment of Claims Arising From Breach of Contracts Executed by the Receiver or Conservator.

This section amends section 11(d) of the FDI Act (12 U.S.C. 1821(d)) to codify the current policy and practice of the FDIC that any final and unappealable judgement for monetary damages entered against a conservator or receiver for an insured institution based upon the breach of a contract that was executed or approved by the conservator or receiver will be paid as an administrative expense of the conservatorship or receivership.

Sec. 2603. Criminal Sanctions for Fictitious Financial Instruments and Counterfeiting.

This section increases the maximum penalty for violations of 18 U.S.C. 474 and 474A (counterfeiting) from 12 years imprisonment (Class C felony) to 25 years imprisonment (Class B felony). In addition, this section makes it a Federal crime (a Class B felony) to produce, possess or sell a fictitious financial instrument which purports to be a financial instrument of the United States (or any subdivision thereof), a foreign country, or a private organization (e.g. so-called "Comptrollers' Warrants"). [The same changes to title 18 that are made in section 2603 are also made in section 648 of the Omnibus Consolidated Appropriations Act for FY 1997, Pub. Law 104-208. Section 648 expressly provides, however, that the amendments become effective on the date of enactment and remain in effect for each fiscal year thereafter.]

Sec. 2604. Amendments to the Truth-in-Savings Act.

The Truth-in-Savings Act (TISA) requires depository institutions to provide accurate disclosures of many items (such as the annual percentage yield, the period during which the yield is in effect, minimum balance requirements, information about fees and penalties, and so on) related to deposit accounts. Subject to limited exceptions, these items must appear in any written promotional material that refers to a specific rate of interest payable on deposits. Depository institutions also must maintain and make available a current schedule of fees, rates, and terms applicable to each class of accounts offered. This schedule must contain certain information specified by TISA. TISA provides for administrative enforcement by the appropriate Federal banking agencies and for liability in private actions.

Section 2604 sunsets TISA's civil liability for private actions five years after enactment (September 30, 2001) and removes TISA's requirement that an on-premises display of interest rates and account terms must be observable only from the interior of the bank premises. This section also exempts nonautomated credit unions from TISA.

Sec. 2605. Consumer Leasing Act Amendments.

Anyone regularly engaged in leasing to natural persons must comply with the disclosure requirements imposed by the consumer leasing provisions of TILA (leasing provisions), section 181 et seq. (15 U.S.C. 1667 et seq.) The leasing provisions apply to leases made for personal, family, or household purposes that have durations exceeding four months and involve total obligations of up to $25,000 with or without an option to purchase, but excluding any transaction defined as a credit sale. Lessors violating these provisions are subject to liability for actual damages, statutory damages, and fees and costs. The Fed has rulemaking authority for specific portions of the leasing provisions, and has recently issued final amendments to its leasing regulations, 12 C.F.R. Part 213, ("Regulation M") (61 Fed. Reg. 52246 (Oct. 7, 1996)) that would require some of the additional disclosures provided by this section.

This section adds a statement of Congressional intent to the leasing provisions, stating that these provisions are intended to assure a simple, meaningful disclosure of leasing terms so that consumers will be able to compare more readily the various leasing terms available; protect consumers against inaccurate and unfair leasing practices; and provide adequate cost disclosures that reflect the marketplace without impairing competition and the development of new products. The statement of purpose also provides that the Fed is to have sufficient regulatory authority to assure a simplified, meaningful disclosure of terms used in consumer leasing.

In addition, this section gives the Fed general rulemaking authority and requires the Fed to issue regulations to update and clarify the requirements associated with leases, and to issue model disclosure forms. A lessor who uses the "material aspects" of the model forms properly will be deemed in compliance with the disclosure requirements to which the forms relate. The Fed also may, by regulation, exempt certain classes of transactions from the leasing provisions.

This section also modifies the disclosure requirements for consumer lease advertisements in general to require clear and conspicuous disclosure of: (1) the fact that the advertised transaction is a lease; (2) the total initial payments required at or before consummation of the lease; (3) any security deposit requirement; (4) the number, amounts and timing of scheduled payments; and (5) the possibility that an additional charge may be imposed at the end of the lease.

Sec. 2606. Study of Corporate Credit Unions.

This section requires the Secretary of the Treasury, in consultation with the FDIC, the OCC, the National Credit Union Administration Board, and the National Credit Union Administration (NCUA) to conduct a study of the oversight and supervisory practices of the NCUA concerning: (1) the National Credit Union Insurance Fund (Fund); (2) the potential for administration of the Fund by another entity; (3) the NCUA's regulations; (4) the supervision of corporate credit unions by the NCUA; and (5) the 10 largest corporate credit unions in the United States. This study must be reported to Congress, along with any recommendations, 12 months after the enactment of this Act.

Sec. 2607. Report on the Reconciliation of Differences Between Regulatory Accounting Principles and Generally Accepted Accounting Principles.

Section 2607 requires each Federal banking agency to submit to the Senate and House Banking Committees, within 180 days of enactment (March 29, 1997), a report on the actions taken, or to be taken, by the agency to eliminate and conform inconsistent and duplicative accounting and reporting requirements, as required by section 121 of FDICIA. Section 121 requires regulators to use uniform accounting principles consistent with, or no less stringent than, GAAP.

Sec. 2608. State-by-State and Metropolitan Area-by-Metropolitan Area Study of Bank Fees.

Section 2608 requires the Fed, in its annual report on the trend in the cost and availability of retail banking services required by section 1002 of FIRREA (12 U.S.C. 1811 note), to describe any trend in bank fees in each consolidated metropolitan statistical area, in each of the 50 states, and nationally. Previously, the Fed was required to report on fee trends on a regional and national basis only.

Sec. 2609. Prospective Application of Gold Clauses in Contracts.

Gold clauses in contracts specify that payment is to be made in gold or in a dollar amount equivalent to gold. In 1933, gold clauses were made unenforceable. In 1977, Congress permitted gold clauses to be used again. This provision clarifies that the ban on gold clauses continues for those contracts issued prior to October 27, 1977 and cannot be revived, through assignment or novation, unless the parties specifically agree to the clause in the new agreement.

Sec. 2610. Qualified Family Partnerships.

This section amends section 2 of the BHC Act (12 U.S.C. 1841) to exempt family partnerships that own banks from the definition of "company" under the BHC Act, subject to certain conditions and requirements. To qualify, the partnership must not: (1) directly control any banks, except through a registered bank holding company; (2) control more than one registered bank holding company: (3) engage in any business activity, except indirectly through ownership of other business entities; (4) have any investments other than those permitted for a bank holding company pursuant to section 4(c); and (5) be obligated on any debt, either directly or as obligor. In addition, the partnership must consist solely of individuals related by blood, marriage or adoption, or of trusts for the primary benefit of these individuals. The partnership must file with the Fed a statement that includes its basis for eligibility; a list of existing activities and investments; and commitments to comply with the requirements of this section and the change in bank control provisions in section 7 of the FDI Act (12 U.S.C. 1817). In addition, the partnership must commit to comply with section 8 (termination of insurance and enforcement provisions) of the FDI Act (12 U.S.C. 1818), and examinations by the Fed as if the partnership were a bank holding company.

Sec. 2611. Cooperative Efforts Between Depository Institutions and Farmers and Ranchers in Drought-Stricken Areas.

This section provides that it is the sense of the Congress that financial institutions and Federal bank regulators should work with farmers and ranchers in drought areas to allow financial obligations to be met without imposing undue burdens.

Sec. 2612. Streamlining Process for Determining New Nonbanking Activities.

Prior to the enactment of the Regulatory Paperwork Reduction Act, bank holding companies could acquire shares of a company engaged in Nonbanking activities under section 4(c)(8) of the BHC Act (12 U.S.C. 1843(c)(8)), including acquisitions of savings associations, if the company is engaged in activities that the Fed, after "due notice and opportunity for hearing" has determined are so closely related to banking as to be a proper incident thereto. This section removes this hearing requirement except for acquisitions of savings associations.

Sec. 2613. Authorizing Bank Service Companies to Organize as Limited Liability Companies.

This section permits the use of a limited liability company as an optional form of business organization under the Bank Service Corporation Act. It defines "limited liability company" to include a company, partnership, trust, or similar business entity that provides that a member or manager of the entity is not personally liable for a debt, obligation, or liability of the entity solely because that person is a member or manager of the entity.

Sec. 2614. Retirement Certificates of Deposit.

Section 2614 amends section 3(l)(5) of the FDI Act (12 U.S.C. 1813(l)(5)) to provide that tax-deferred annuity contracts issued on or after enactment are not deposits under the FDI Act, and therefore, are not insured deposits. This change prevents banks from issuing insured tax-deferred annuities, such as the "Retirement CD." (It should be noted that a proposed amendment to Internal Revenue Service regulations, 26 C.F.R. Part 1 (60 Fed. Reg. 17731 (April 7, 1995)), would eliminate any favorable tax treatment for these products.)

Sec. 2615. Prohibitions on Certain Depository Institution Associations with Government-Sponsored Enterprises.

This section prohibits depository institutions from being affiliated with, sponsored by, or accepting financial support, directly or indirectly, from a Government-sponsored enterprise (GSE). For purposes of this prohibition, a GSE includes Fannie Mae, Freddie Mac, Farmer Mac, Sallie Mae, the Federal Home Loan Bank System, the Farm Credit Banks, the Banks for Cooperatives, the College Construction Loan Insurance Association, and any of their affiliated or member institutions. However, this section does not prohibit a depository institution from being a member of the Federal Home Bank System, nor prohibit routine business financings by GSEs. Similar restrictions would be placed on insured credit unions if the credit union includes the customers of the GSE in the field of membership of the credit union. This section applies retroactively to January 1, 1996.

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