New York State Assembly

1997 Annual Report

Committee on Banks

Sheldon Silver, Speaker
Aurelia Greene, Chairwoman

Aurelia Greene Assemblywoman 77th District

THE ASSEMBLY STATE OF NEW YORK ALBANY

CHAIRWOMAN Standing Committee on Banks COMMITTEES Cities Education Rules Social Services SUBCOMMITTEE Public School Violence

December 15, 1997 

The Honorable Sheldon Silver
Speaker of the Assembly
State Capitol, Room 349
Albany, NY 12248

Dear Speaker Silver:

I am pleased to submit the 1997 Annual Report of the Assembly Standing Committee on Banks.

The 1997 Legislative Session was extremely productive for the Committee. Most significantly, the Committee focused on a range of legislation which strikes a balance between increased competition within the financial services industry and enhancing consumer access to financial services.

Some of the Committee's significant 1997 legislative accomplishments include: providing parity between state and federally-chartered banks by authorizing the Banking Board to exercise "wildcard" authority; reducing the line of credit secured by a junior mortgage from $7,500 to $2,500; permitting state employees to have a portion of their salary direct deposited into their bank account; increasing the size of a check that may be cashed by a licensed check casher from $2,500 to $6,000; authorizing the creation of Limited Liability Investment Companies; clarifying a common trust fund's ability to invest in mutual funds; authorizing enforcement of contracts from 1989 to the present that contain a provision regarding compound interest; authorizing limited purpose trust companies to make expanded investments in foreign securities; and, creating a banking development district program that offers positive economic incentives to encourage the establishment of commercial bank branches in areas that lack banking services.

In addition to the development of legislation, the Committee held public hearings on a number of critical banking issues. The Committee convened a hearing to examine the need for parity between state and federally-chartered banks. This led to the enactment of a "wildcard" statue that sunsets within one year. "Wildcard" will be revisited during the 1998 Legislative Session.

The Committee also convened a hearing on the role of Swiss Banks in the Unclaimed Assets of Holocaust Victims. Incredible testimony was offered by Holocaust survivors and their heirs regarding their unsuccessful attempts to recover their assets. The Committee will continue to monitor this most important issue during the 1998 Legislative Session in the event that legislative action is needed.

Other legislative initiatives that will continue to be a priority for the Committee during the 1998 Legislative Session include efforts to create a state Community Development Financial Institutions (CDFI) Fund and enactment of legislation to address the issue of ATM surcharges.

The Committee will continue to monitor legislative initiatives on the federal level which, if enacted, will substantially change the relationship among banking organizations, insurance companies, and securities and brokerage firms.

It is a pleasure serving as Chairwoman of the Assembly Banks Committee, and I would like to extend my special thanks to you, Mr. Speaker, for your confidence in me and the Committee over the past year. I would also like to thank the Members of the Committee and the Committee Staff for their hard work, support, and cooperation.

I am looking forward to a productive 1998 Legislative Session.

Sincerely,

Aurelia Greene, Chairwoman
Assembly Banks Committee

1997
ANNUAL REPORT
NEW YORK STATE ASSEMBLY
STANDING COMMITTEE ON BANKS

Aurelia Greene
Chairwomen

Staff

Francis P. McNally, Legislative Coordinator
Kristie Killough-Ali, Associate Counsel
Ceylane K. Meyers, Program Analyst
Jamie D. Gilkey, Committee Clerk
Lisa A. Allen, Program and Counsel Secretary

TABLE OF CONTENTS

I. INTRODUCTION

The Assembly Standing Committee on Banks is responsible for reviewing and initiating legislation that affects financial institutions that either operate in or whose actions affect New York State. The Committee's statutory purview includes the Banking Law, the General Obligations Law, the Uniform Commercial Code, and the Personal Property Law. Entities under the jurisdiction of the Banking Law include banks, trust companies, savings banks, savings and loan associations, credit unions, bank holding companies, safe deposit companies, employee welfare funds, sales finance companies, licensed lenders, licensed cashiers of checks, mortgage brokers, mortgage bankers, insurance premium finance agencies, and foreign and private banks.

Legislation before the Committee emanates principally from legislators who are aware of the issues facing the banking industry and from the New York State Banking Department. Other sources include various trade associations, financial organizations, and private and community groups with relevant interests or concerns.

Bills referred to the Committee on Banks address a broad range of concerns such as maintaining the competitive balance among financial institutions; protecting consumer interests; providing housing finance; and, modifying banking regulations and administration.

During the 1997 Legislative Session, 146 bills were considered by the Banks Committee. Of these, 43 were favorably reported, 29 passed the Assembly, and 8 were signed into law.

II. MAJOR ISSUES OF 1997

To meet the challenge of protecting the interests of consumers while not imperiling the strength of the State's banking industry, the Committee on Banks addressed a number of significant issues this year. Legislation considered by the Committee enhances the safety and soundness of the banking industry, increases consumer protection and ensures access to financial services.

A. INDUSTRY ISSUES

The financial services industry is undergoing rapid change. The powers granted to national banks by rapidly expanding federal law, regulatory agencies and judicial decisions have placed state-chartered banks at a competitive disadvantage. State banks are unable to exercise the same powers, engage in the same activities or enter into the same transactions as national banks.

In the past, disparities between the powers of federally and state-chartered banks were addressed through amendments to State law. The pace of the expansion of Federal banking powers, however, makes it increasingly difficult to respond solely through enactment of legislation in a timely manner.

Many states have addressed the issue of preserving parity between federally and state-chartered banks by enacting "wildcard" statutes which provide a mechanism for extending the powers of national banks to state-chartered banks.

Chapter 3 of the Laws of 1997 authorizes the State Banking Board to extend powers to state-chartered banks that are held by national banks. Specific criteria must be considered before "wildcard" authority is exercised. State consumer protection laws such as the Community Reinvestment Act (CRA), Basic Banking Accounts and the ATM Safety Act can not be preempted by "wildcard" authority. If banks engage in activities that are not regulated by the Banking Department, such as the sale of insurance or securities, such activities will be regulated by the State regulatory agency with jurisdiction over these activities. In order to protect consumers, banks that engage in the sale of insurance must make certain disclosures to loan applicants and must comply with provisions that prohibit tying the purchase of insurance to granting of a bank loan.

The "wildcard" law also provides parity between state and federal regulators as it relates to violations of the Banking Law. The State lags behind the federal government regarding enforcement authority over domestic deposit taking banking institutions and foreign banks. The Superintendent's range of enforcement options is meager at one end of the spectrum and too draconian at the other.

Current fines for violations of the Banking Law have proven to be ineffective. In stark contrast with the federal law, the maximum financial penalty that could be imposed for a violation of the Banking Law, regardless of its severity, is an aggregate fine of $15,000. This penalty has not increased since 1976. The maximum fine on the federal level is $1,000,000.

Chapter 3 addresses this disparity by strengthening the enforcement powers of the Banking Department, consistent with analogous provisions of federal banking law and by increasing the financial penalties that may be imposed upon domestic and foreign banks that violate the State's Banking Law. Penalties will increase up to $25,000 for each day the violation continues. In certain cases, this may be increased up to $250,000 or 1% of the total assets of the bank for each day the violation continues.

Junior lien mortgages, also known as home equity loans, enable borrowers to leverage the equity in their homes to finance necessary expenses such as home improvements, college tuition and medical expenses. Junior lien mortgages provide an attractive source of funds because they generally carry a lower interest rate than unsecured loans, and the interest paid on these loans may be deductible for tax purposes. The lack of availability of lines of credit in amounts under $7,500 has impaired the ability of many borrowers to tap into the equity in their homes and take advantage of the more desirable terms and tax advantages for smaller loans.

Chapter 85 of the Laws of 1997 provides consumers with additional financing options by reducing the line of credit secured by a junior mortgage from $7,500 to $2,500. This law will make open-end junior lien mortgages available to more New York State residents.

Under existing law, State employees may have their entire salary deposited directly into a bank or credit union account. While the State Comptroller is also authorized to make partial payroll deductions to a State employee's credit union account, this authorization does not extend to bank accounts. In an effort to extend partial payroll deduction privileges to State employees that have bank accounts, Chapter 641 of the Laws of 1997 authorizes the State Comptroller to direct deposit a portion of the employee's salary into a bank account.

This Chapter provides greater flexibility, convenience and benefits to State employees. It also ensures that State employees develop and maintain financial relationships with the banking institution of their choice.

The check cashing industry has been licensed and regulated by New York State since 1944. In 1947, legislation was enacted which established a $250 limit on the size of checks, drafts and money orders that may be cashed by a licensed check casher. This limit was increased to $350 in 1955, to $500 in 1958 and to $2,500 in 1974. Chapter 144 of the Laws of 1997 increases the amount of a check that may be cashed from $2,500 to $6,000. This increase reflects inflation and increased competition within the check cashing industry. As a result, check cashers will be better able to serve their customers.

In 1994, New York State authorized the creation of Limited Liability Companies (LLC). A LLC is a hybrid business which combines the liability protection of a corporation with the tax treatment of a partnership. Under the corporate structure, owners of a business are insulated from personal liability. However, a drawback is the fact that owners are subject to double taxation. Under a partnership structure, there is a pass-through mechanism of the taxes from the business to the individual (thus eliminating double taxation). However, there is unlimited personal liability of each partner. A LLC allows businesses protection from unlimited legal liability without being subjected to double taxation.

Currently, businesses that conduct banking and currency trading activities internationally through banking corporations are required to be owned by a domestic banking regulatory authority. As a result, such businesses are subject to both foreign and domestic taxes. The Internal Revenue Service (IRS) has issued regulations distinguishing corporations from partnerships for tax purposes. This has been prompted by the proliferation of LLC's. Under the IRS regulations, any non-corporate domestic entity including a LLC may be taxed as a partnership with specific exceptions. This tax policy prohibits a federally insured, deposit-taking bank or trust company from being taxed as a partnership.

Chapter 248 of the Laws of 1997 allows domestic entities, which are organized as Article XV stock companies, to organize as Limited Liability Investment Companies (LLIC) under New York State Law. The domestic entity will receive partnership tax status under federal tax law and will be able to credit its foreign taxes against its federal income taxes. This Chapter makes New York State's policy on LLC's and non-deposit taking entities consistent with federal tax policy.

Chapter 367 of the Laws of 1997 authorizes the Superintendent to permit limited purpose trust companies, which are engaged in the securities custody and clearing business to have greater flexibility in regard to investing assets in the obligations of foreign nations or purchasing such securities under repurchase agreements.

This Chapter enables state-chartered trust companies to be more competitive and operate more efficiently in the global custody business. Increasingly, these institutions serve customers who invest in foreign markets. As a result, a growing amount of credit balances are in foreign currencies. Because of the short-term nature of such balances, it is often not economical or practical to convert such balances into U.S. currency. Therefore, the means for handling these short-term investments is either by making deposits in foreign banks or invest in the obligations of foreign nations.

Bank and trust company investments in the securities of foreign nations and repurchase agreements are subject to the limitations of the Banking Law, with similar limitations on the amount that may be deposited into a foreign bank. The law also authorizes the Superintendent to permit deposits that exceed the statutory limit. The Superintendent has exercised this authority often, setting higher deposit percentage limits on a case-by-case basis. Chapter 367 of the Laws of 1997 provides similar flexibility as it relations to investments in the obligations of foreign nations.

There had always been uncertainty regarding a trustee's ability to invest in mutual funds, since it arguably constitutes a delegation of one's duty to manage the assets of a common trust fund. The Banking Department, however, interprets the Banking Law to permit such investments in mutual funds. As a result, trustees have made investments in mutual funds and have charged a mutual fund management fee to the common trust fund. The Surrogate's Court has ruled that although this type of investment is permissible under the banking law, the management fee cannot be passed on to the common trust fund. This decision was appealed, in the Matter of OnBank & Trust Co., 4th Dept., Nov. 8, 1996, and upheld. As a result, concerns have been raised that trustees will not invest in mutual funds if management fees cannot be passed on to the common trust fund.

Chapter 250 of the Laws of 1997 is intended to clarify the ability of trust companies to invest common trust funds in mutual funds, and to clarify the authority to charge any fees and expenses of such mutual fund to the common trust fund. This is consistent with, and codifies, the Banking Department's interpretation of the Banking Law and will increase the investment performance of common trust funds by allowing broader diversification of assets and access to sophisticated money market management offered by mutual funds.

Chapter 202 of the Laws of 1989 provided that compound interest shall be enforceable, except for loans of less than $250,000 or loans which are secured primarily by a one or two family owner occupied residence. Chapter 202 did not apply retroactively to existing contracts which did not specifically provide for compound interest. Questions have now been raised as to whether compound interest is authorized in those contracts that were entered into prior to June 24, 1989, and which specifically provided for compound interest where allowed by law.

Chapter 308 of the Laws of 1997 ensures that current law clearly sanctions compound interest in such cases where the parties to a transaction had evidence, in an agreement, that the financial arrangement would include compound interest where allowed by law. This Chapter provides that interest shall not be compounded prior to June 24, 1989, which is the effective date of Chapter 202 of the Laws of 1989.

There are communities in the State that are economically viable, with concentrations of homeowners and small businesses, but without access to a bank branch. In an effort to increase the presence of banks in such communities, Chapter 204 of the Laws of 1997 creates a banking development district program which offers economic incentives to encourage the establishment of commercial bank branches.

Municipalities will be able to apply to the Superintendent in conjunction with a bank, trust company or national bank to designate an area as a banking development district. To assist municipalities in the evaluation of community banking needs and creation of banking development districts, this Chapter authorizes the State's Urban and Community Development Program to provide funding to municipalities for such studies.

A bank, trust company or national bank which establishes a branch in a banking development district will be eligible for partial property tax benefits and could receive municipal or state deposits at favorable rates. Through these incentives, a municipality and the State can encourage the location of commercial bank facilities in certain neighborhoods and can help ensure the viability of such facilities.

B. OTHER INDUSTRY ISSUES

The following industry-related bills were reported out of the Assembly Banks Committee but were not acted on in the Senate.

As part of a proposed merger, many banks offer CRA commitments to low and moderate-income communities. After the merger has been approved, however, it is often unclear how such CRA commitments will be executed; which communities, organizations or other entities will receive funding; and, the amount or type of loans and investments which will be made by the bank.

This legislation would address the problems associated with CRA commitments made in the context of a merger, by requiring banks to file a strategic plan which includes detailed information regarding the lending or investment commitment. This information would include: the amount of the lending or investment commitment; the communities, organizations, or other entities that would receive loans or investments and the associated amount of funding; the schedule for allocating these funds, which may not exceed three years; and, the programs and activities that the bank would undertake to advertise and market its CRA commitment. Banks would also be required to file annual reports with the Superintendent regarding their success in fulfilling the CRA commitment.

This legislation would also require the Superintendent to hold public hearings on strategic plans and to impose penalties upon banks that fail to fulfill the terms of a strategic plan.

Under the Community Reinvestment Act, the Banking Department assesses each bank's performance in meeting the credit needs of its "community." Unfortunately, "community" is defined as the entire metropolitan region a bank serves. Thus, for a bank located in New York City, the Department assesses the adequacy of its reinvestment in the entire New York Metropolitan area, including suburbs.

This legislation would require the Banking Department's assessment of a bank's CRA performance to include a listing of loans by zip code. This would be required of banks located in large urban cities such as New York City with a population of 1 million or more. Banks in these cities would be required to report their lending both within the metropolitan area and within its suburbs. This would give the public a clearer picture of the neighborhoods being served by the banking industry.

Discrimination in credit decisions based on explicit considerations of race, color, religion, marital status, national origin or ancestry is currently prohibited. This legislation would prohibit banking organizations from engaging in underwriting or lending policies and practices that have a discriminatory effect. The purpose of this legislation is to make certain that a bank's lending policy does not indirectly cause or result in such prohibited discriminatory practices.

This legislation would increase access for small businesses and businesses located in economically distressed areas to the programs and financing of the New York Business Development Corporation (NYBDC).

The NYBDC was established in the 1950's to promote business activity in the State by providing a source of credit not otherwise readily available. As recent economic conditions and regulatory actions have made it more difficult for small businesses and businesses located in economically distressed areas to obtain capital from traditional sources, the legislation would encourage the NYBDC to target more of its lending activities to such businesses and areas.

Some mortgage lenders around the country have been offering consumers the option of selecting a loan with a prepayment penalty in exchange for more favorable interest rates or lower points. Lenders are able to provide such incentives because the existence of a prepayment penalty reduces their risk and helps ensure that they will be able to recover costs. Many lenders in New York State do not have this flexibility. State law only allows penalties for prepayment during the first year of a mortgage. However, federal lenders may impose prepayment penalties beyond the first year. This situation has placed many state-chartered banking institutions and mortgage bankers at a competitive disadvantage with their federal counterparts.

This legislation would provide parity between state and federal mortgage lenders by authorizing a penalty for a mortgage that is paid off or refinanced within five years. A mortgage lender could impose a penalty if the mortgage prepayment penalty is expressly provided for in the mortgage contract, the lender offers similar loans that do not have prepayment penalties, and the lender clearly discloses the amount and terms of the prepayment penalty mortgage to the consumer.

Home ownership has long been recognized as part of the "American Dream," however, real estate values in New York State make the purchase of a first home extremely difficult. This legislation would address these difficulties by allowing consumers to receive an income tax deduction on monies deposited into a First Time Home Buyers Account. Funds from the First Time Home Buyers Account could be used to purchase a condominium, cooperative or home. The maximum amount of money that could be deposited into this account is $5,000 for an individual and $10,000 for a married couple.

Affinity credit cards have proven to be very successful in raising revenue for a variety of not-for-profit causes including the American Museum of Natural History, National Council of Jewish Women and a variety of fraternities, sororities, colleges and other organizations. Municipalities in New York State and across the country have also taken an interest in the potential revenue gains involved with the creation of a town or county credit card program.

In an effort to expand on the success of affinity credit cards and potentially increase the State's revenue, this legislation would establish a New York State Credit Card Program. Proceeds from the New York State Credit Card Program would be earmarked to the State's General Fund.

Under existing law the examination reports and investigations of commercial and savings banks, foreign banking organizations, licensed lenders, check cashers and savings and loan associations are considered confidential. These confidential communications are not subject to subpoena and cannot be made public unless approved by the Superintendent.

Mortgage bankers and brokers are one of the few entities whose examination reports and investigations are not considered confidential. This legislation would remedy this inequality by classifying the examination reports and investigations of licensed mortgage bankers and brokers as confidential communications in the same manner which is applied to other financial institutions.

When obtaining a mortgage loan, many banks permit borrowers to choose their own title company or agency. Some lenders, however, attempt to steer consumers toward specific title insurance companies.

This legislation would prohibit mortgage brokers and mortgage bankers from requiring the use of a particular title company when a borrower seeks approval of a mortgage loan application.

This legislation would prohibit banking organizations from imposing a fee or charge for the preparation of a mortgage satisfaction (payment) or discharge. Banking organizations, however, would be permitted to impose filing or recording fees related to such transactions.

This legislation would require banking organizations to honor a statutory short form power of attorney. Bank employees, agents, and officers would not incur liability for acting on the authority of the attorney-in-fact named in the short form power of attorney.

The provisions of this legislation are currently contained in Sections 5-1504 and 5-1601 of the General Obligations Law. Unfortunately, not all banking organizations are aware of these provisions. A cross reference of these two sections of the General Obligations Law with the Banking Law would make all banking organizations aware of the provisions relating to statutory short form power of attorney.

There is growing concern regarding divorce estate planning where one spouse secretly draws down a joint credit line. The spouse planning the revocation of the marriage invades as many assets as possible before informing their spouse of the impending divorce. This legislation would address concerns regarding divorce estate planning by requiring loans and checks written against a home equity line of credit to be signed by both spouses. The legislation also eliminates the ability to distribute or access loans by credit card.

This legislation would provide credit union services to residents of low- and moderate-income communities by authorizing the creation of low-income credit unions. Low-income credit unions would be able to issue shares to nonmembers. These credit unions would also be able to participate in community development programs.

The ability of a credit union that serves low-income persons to issue shares to nonmembers would greatly increase its capital base. As a result, a wider variety of services would be offered to its membership. In addition, a credit union's involvement in a community development program would enhance its ability to serve the community and, by giving loans to member businesses, would revitalize the community.

C. CONSUMER PRODUCTS, PROTECTION AND CONVENIENCE

The following consumer-oriented bills were reported out of the Assembly Banks Committee but were not acted on in the Senate.

This legislation would prohibit automated teller machine (ATM) surcharges in New York State. ATMs provide a convenient method of banking and are regularly utilized by many New Yorkers. As a result, most banks have installed ATMs at their branch facilities. ATMs have also been placed in many public areas, such as supermarkets, malls, airports, hotels, colleges, highway rest areas, etc.

Historically, the operators of ATMs have not directly charged for the use of their machines. In fact, the national ATM networks, Plus (owned by Visa) and Cirrus (owned by Mastercard), had rules which specifically prohibited their members from imposing surcharges on ATM users who are customers of other banks. However, over the past several years, many states have enacted laws to override these prohibitions and allow ATM operators to impose surcharges for the use of their machines.

On April 1, 1996, Visa and Mastercard repealed their prohibition on the imposition of surcharges. As a result of this change in policy, there is concern that consumers are unfairly assessed two fees for the use of an ATM.

Surcharges are not in the best interest of New York State consumers or banks. Many consumers are being forced to switch banks in order to avoid ATM surcharges. This is especially true for consumers that have accounts with small banks or credit unions. Consumers should not have to pay two fees to access their money.

With the proliferation of ATM use, policies must be developed to ensure that the personal and account information of bank customers is protected. This legislation would protect the privacy of ATM transactions by prohibiting ATMs from printing personally identifiable information on receipts. Personally identifiable information would include any information that specifically identifies the customer or their account. This would include the customer's telephone number, address, account number or ATM card number.

The basic banking account was developed to assist those who cannot afford the high cost of traditional checking accounts. Features of the basic banking account are no minimum balance, eight free checking transactions per month and a $3 maintenance fee. Despite the convenience that the basic banking account provides to consumers, its feature are inadequate due to federal attempts to disburse Social Security and Supplemental Security Income (SSI) payments electronically. Monthly benefits will be direct deposited into an individual's banking account. This policy will force individuals to open bank accounts. If, however, they need to make more than eight withdrawals a month, they will be ineligible for a basic banking account and will be forced to incur the high cost associated with traditional checking accounts.

This legislation would increase the number of withdrawal transactions authorized for a basic banking account from eight to twelve. This would enable seniors, retirees and the disabled to take care of their monthly financial obligations without having to maintain high cost checking accounts.

Many banks have responded to deregulation and increased competition by attempting to discourage small and less profitable depositors from doing business with them. Fees have been increased well above actual costs, and interest rates have become increasingly linked to account balances. Even more alarming is the move by some banks to encourage small account holders to use ATMs by imposing fees for the use of tellers. While this practice is not commonplace in New York State, personal teller fees have been imposed by banks in other states.

In an attempt to ensure that New Yorkers are never assessed fees for the use of a teller, this legislation would require banks to offer personal teller services to all customers without fees.

Currently, there are a number of banking organizations which require a minimum balance on savings and passbook accounts in order to receive interest or dividends. This policy penalizes customers such as senior citizens who tend to have small accounts.

In an effort to afford small account holders the same privileges as large account holders, this legislation would require banking institutions which offer interest or dividends payments on savings and demand deposit accounts to credit such interest or dividends regardless of a customer's account balance.

Senior citizens often experience difficulty cashing social security checks at a bank if they do not have an account or, if they do have an account, they may have insufficient funds to cover the cost of their checks. This legislation would enable senior citizens to cash their social security checks without maintaining a bank account.

A. 2859 (Meeks)

This legislation would allow customers to cash checks irrespective of whether they maintain an account with the drawee bank, provided they present proper identification. Since a bank can verify the balance of their own depositors' accounts and can assess fees for penalties against their depositors, there is no reason for banks not to honor a check drawn from an account held by the banking institution.

A. 2160 (Davis)

Currently, many federal and state employees and other individuals that receive government issued drafts and checks are unable to cash these checks if they do not have a bank account, or their bank is not located near their place of employment. In an attempt to address this issue, this legislation would require banks to issue identification cards for the purpose of cashing government checks.

This legislation would require banking institutions to provide forms to senior citizens that would allow them to designate a third party to receive copies of all banking notices. Due to sickness or other hardships, a senior citizen may be unable to handle their everyday banking affairs. By giving senior citizens this option, the named individual could ensure that the senior citizen's banking affairs are in order.

This legislation would require banks to permit depositors to designate a third party to be notified in cases where the depositor cannot or may not be able to manage their own banking affairs. The bank may also notify a licensed mental health agency or social services agency to act as a third party in the event that the depositor has not already done so.

Under current law, a bank is not required to inform a consumer of the imposition of late fees for late payment of a loan. Typically, consumers are not aware of these fees until a loan is closed.

This legislation would require banking institutions to provide consumers with notice of the imposition of a late fee and the amount of such fee within 30 days.

This legislation would require banking institutions to provide customers which open checking accounts with a disclosure statement that is written in plain, clear, and coherent everyday language.

The disclosure language must include information regarding: the rate of interest, if any; how and when interest is credited; conditions under which the rate of interest is subject to change; the minimum balance needed to avoid a service charge; check charges; overdraft protection; penalties; and, check printing fees.

Under existing regulations, banking institutions are required to notify depositors holding Certificates of Deposits (CD) for more than one year of their date of maturity. This legislation would require banking organizations which issue CDs to notify holders by mail of the date of maturity and require such notification to be within 15 to 30 days of the maturity date.

A. 2092 (Lafayette)

When a certificate of deposit matures, notice is sent to its holder regarding the maturity and renewal of funds. These notices, however, may fail to specify the amount of money in the account at the time of maturity, the interest being earned and the names of the account holders or beneficiaries. Very often, people have more than one account with a bank. Without this relevant information, people are unable to make informed decisions regarding their CD. This legislation would address this problem by requiring maturity notices to enumerate the amount of money in the account, rate of interest earned and the name of account holders or beneficiaries.

Under existing law, a bank is not required to notify a customer upon the cancellation of a credit card that is used for overdraft protection. Often, credit card cancellations are based upon inactivity, yet there is no screening process for credit cards used for overdraft protection on checking accounts.

Thus, a bank customer could presumably write a check with the knowledge that their credit card will cover any overdrawn amounts. Being unaware that their card has been cancelled, the customer could unintentionally write a "bad check."

In an effort to address this issue, this legislation would protect consumers by requiring banks to provide notification of cancellations of credit cards with overdraft protection. If the banks fail to provide notification, fees associated with an overdrawn check would be waived.

New York State's "lifeline" basic banking law went into effect in 1995 and requires financial institutions to offer no frills "basic banking" services to consumers. The law was designed to make low-cost checking accounts widely available to all New Yorkers. Recent surveys have found that some banking institutions deny consumers the opportunity to receive these services or fail to provide adequate advertising or information about "lifeline" accounts.

This legislation would ensure that consumers are notified of basic banking services by requiring banks to post notices with specific information on basic banking accounts.

Currently, many commercial banks arbitrarily impose a waiting period on new accounts before the bank will guarantee an account holder's signature. These waiting periods can be as long as one year and are an inconsistent, as well as needless, delay for account holders waiting to have their signatures guaranteed. This legislation would eliminate any waiting period and would give consumers reasonable access to getting their signature guaranteed.

This legislation would require banks to print charges associated with reordering checks on reorder forms. This would eliminate the ambiguity involved with check reordering fees.

A right of set off is when a bank has authority to use a customer's account to offset an outstanding debt or obligation. For example, a customer may have both a mortgage and a savings account with a bank. If the bank has authority to exercise a right of set off, and in the event that the customer is late with a mortgage payment, the bank is able to use the customer's savings account to offset the mortgage loan payment.

By exercising its right of set off, a bank may cause a customer's account to fall below minimum balance requirements or cause the customer to unknowingly bounce checks, both of which would result in the imposition of a service charge.

This legislation would address a loophole in existing law by prohibiting a bank from exercising a right of set off against an account which has social security or SSI payments direct deposited into it, unless the account holder is notified of the bank's intention and the reasons for the set off. Such notice would be given thirty days prior to any action.

The Federal Electronic Fund Transfers Act requires banks with over $100 million in assets to disclose, in clear language, certain consumer rights at the time the consumer contracts for an electronic fund transfer service. The law also requires banks to honor a consumer's request to revoke authorization for electronic fund transfers to a given payee by blocking all future debits transmitted by that payee.

This legislation would require that banks not covered by the federal law provide notice to customers of their rights when they contract for an electronic funds transfer service and offer customers the option of revoking such authorization.

There is limited privacy protection for consumer banking records under existing laws. Because of the high cost and substantial delay inherent in retrieval of banking information that is largely found in paper records maintained in geographically dispersed locations, consumers do enjoy some privacy protections. Electronic fund transfer systems substantially increase the danger to consumer privacy by allowing for computer storage of consumer banking information in machine readable form. Personal information in that form is easily accessible without substantial costs and without significant delay.

This legislation would address the issue of consumer privacy as it relates to electronic fund transfers by prohibiting banks from selling or disclosing electronic fund transfer information to third parties.

The ease and convenience of direct deposit of payroll checks has made their use increasingly popular. Many consumers do not realize that the documentation that authorizes deposits to be made into their bank account also authorizes the withdrawal of funds without advance notice or consent. In the event that an employer deposits too much money into an employee's account, this money can be withdrawn at any time without giving the employee notice. When substantial time has lapsed between the time of deposit and the time of withdrawal, the employer's actions may cause an employee to bounce checks or fall below their minimum balance requirements.

This legislation would prohibit a depositor from withdrawing funds from an account electronically unless express written consent is given by the account holder.

D. HEARINGS

During the 1997 Legislative Session, the Committee held hearings on issues of importance to the banking industry and New York State consumers.

1. Parity Between State and Federally-Chartered Banks

In January, the Banks Committee convened a hearing on parity between state and federally-chartered banks. The purpose of the hearing was to examine the extent to which providing the Banking Department with "wildcard" regulatory authority would enhance the New York State banking charter. The Committee heard testimony from representatives of the banking and insurance industries, in addition to consumer advocates. Testimony covered topics such as: the criteria that should be taken into account when "wildcard" authority is exercised; the impact that "wildcard" authority will have on consumer protection laws; how "wildcard" authority enhances the state banking charter; how banks that engage in insurance and securities activities should be regulated; whether "wildcard" authority should be extended to state-chartered credit unions and thrifts; and, the laws that others states have enacted to address issues of state and federal bank parity.

2. Swiss Banks and the Unclaimed Assets of Holocaust Victims

In February, Assembly Speaker Sheldon Silver and the Banks Committee convened a hearing on Swiss Banks, the Unclaimed Assets of Holocaust Victims and the New York State regulatory role. The hearing was convened because several Swiss Banks have branches in the State and many New York residents are survivors or heirs of survivors of the Holocaust.

The purpose of the hearing was to examine state regulation of foreign banks, and to assess the potential for State action on behalf of New York residents who are heirs to the unclaimed assets of Holocaust victims. The Committee heard testimony from Senator Alfonse D'Amato, Swiss Banks, the Swiss government, Jewish organizations such as the World Jewish Congress and the Committee on the Recovery of Jewish Assets, the New York State Comptroller, the New York City Comptroller, the Banking Department, the US Commerce Department, and Holocaust survivors and their heirs.

Testimony covered topics such as: the regulatory authority that the Banking Department has with respect to the licensing and certification of foreign banks; the total assets held by Swiss Banks; the difficulties New York State residents have experienced while trying to obtain unclaimed assets; the extent of State and municipal investments in Swiss Banks; whether assets transferred from Swiss Banks to the United States from 1938 to 1940 are currently in the New York branches of Swiss Banks; and, whether the state, and its municipalities should review their relationships with Swiss Banks as a means of encouraging greater cooperation in the disclosure and return of unclaimed assets.

III. OUTLOOK FOR 1998

A. PARITY BETWEEN STATE AND FEDERALLY-CHARTERED BANKS--EXTENSION OF "WILDCARD" AUTHORITY

Chapter 3 of the Laws of 1997, which provides parity between state and federally-chartered banks by authorizing the Banking Board to extend powers to state banks that are held by national banks, expires within one year.

When the 1998 Legislative Session convenes, the Banks Committee will re-examine the issue of "wildcard" authority.

B. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND

Community Development Financial Institutions (CDFI) are alternative financial institutions that provide banking and credit services to urban and rural communities. With the enactment of federal legislation, a CDFI Fund has been created which is increasing the number of community based organizations that provide loans and other banking services to low- and moderate-income communities. Under provisions of the federal statute, community organizations which apply for federal funding under the CDFI program must obtain a dollar-for-dollar match.

When the 1998 Legislative Session convenes, the Banks Committee will examine legislation which seeks to create a statewide Community Development Financial Institutions Fund which would meet the federal matching fund requirement and ensure that residents of urban and rural communities, and small businesses have access to financial services.

C. ATM SURCHARGES

Consumers are currently charged a fee by their banking institution when they use another institution's automated teller machines (ATM). Consumers must now pay a second fee or surcharge which is imposed by the owner of the ATM.

When the 1998 Legislative Session convenes, the Banks Committee will examine legislation which ensures that consumers are informed of any ATM fees imposed by an entity other than their banking institution, and legislation which prohibits such fees from being imposed by ATM owners.

APPENDIX A

SUMMARY OF ACTION ON ALL BILLS
REFERRED TO THE BANKS COMMITTEE

APPENDIX B

APPENDIX C

New York State Assembly
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