Text: H.R.3171 — 111th Congress (2009-2010)All Information (Except Text)

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Introduced in House (07/10/2009)


111th CONGRESS
1st Session
H. R. 3171


To help stabilize and restore the economy by providing for greater access to credit for the underbanked, the unbanked, and consumers with low credit scores through the establishment of bridging bank depository institutions, and for other purposes.


IN THE HOUSE OF REPRESENTATIVES

July 10, 2009

Mr. Baca introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned


A BILL

To help stabilize and restore the economy by providing for greater access to credit for the underbanked, the unbanked, and consumers with low credit scores through the establishment of bridging bank depository institutions, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “Bridging Bank to Recovery Act of 2009”.

SEC. 2. Findings and purposes.

(1) FINDINGS.—The Congress finds that—

(A) the current financial crisis has had a disproportionate impact on the underbanked, the unbanked and consumers with credit scores at or below 660;

(B) the underbanked, the unbanked and consumers with credit scores at or below 660 already have extreme difficulty gaining access to comprehensive banking services, including access to appropriate credit;

(C) the underbanked, the unbanked, consumers with credit scores at or below 660 and the United States economy would benefit from programs that provide a means by which the underbanked, the unbanked and consumers with credit scores at or below 660 could be transitioned into mainstream banking;

(D) developing programs to assist consumers with credit scores at or below 660 rehabilitate their credit scores and gain a greater understanding of the credit process would benefit this consumer group and assist in stabilizing and restoring the United States economy;

(E) assisting consumers with credit scores at or below 660 stay in their homes and avoid foreclosures which would significantly reduce the number of foreclosures and thereby assist in stabilizing and restoring the current housing market;

(F) while many traditional banks have programs targeted towards transitioning the underbanked and the unbanked into mainstream banking, only a limited number of banks have programs designed to assist consumers with credit scores at or below 660;

(G) consumers with credit scores at or below 660 have substantially increased due to economic conditions, and the capacity of these consumers to manage their financial obligations has worsened;

(H) there is a need to create a financial institution whose primary purpose is to assist the underbanked, the unbanked and consumers with credit scores at or below 660; and

(I) the new financial institution could become a bridge by which the underbanked, the unbanked and consumers with credit scores at or below 660 gain greater access to credit and other financial services and build or rebuild their credit history and credit scores in order to become a more integral part of the financial mainstream and contribute more to the economic growth of the United States.

(2) PURPOSE.—The purpose of this Act is to create a bridging bank depository institution as a special purpose financial institution primarily dedicated to serving the underbanked and the unbanked consumers and consumers with credit scores at or below 680, enabling those consumers to more easily transition to or back to the financial mainstream through a program of comprehensive banking services, including, but not limited to, access to credit products, financial and credit training, loan restructurings and other tailored financial products and services designed to meet the needs of such consumers.

SEC. 3. Definitions.

For purposes of this Act, the following definitions shall apply:

(1) APPROPRIATE BANKING AGENCY.—The term “appropriate banking agency” means any appropriate Federal banking agency and State bank supervisor (as such terms are defined in section 3 of the Federal Deposit Insurance Act) and, in the case of any insured credit union, the National Credit Union Administration Board.

(2) BRIDGING BANK DEPOSITORY INSTITUTION.—

(A) IN GENERAL.—The term “bridging bank depository institution” means a de novo bank chartered by the Comptroller of the Currency, a de novo savings association chartered by the Director of the Office of Thrift Supervision, a de novo insured credit union chartered by the National Credit Union Administration or a de novo bank chartered by a State bank supervisor created pursuant to this Act that—

(i) has a primary mission of providing a comprehensive array of financial services to the underbanked, the unbanked and consumers with credit scores at or below 680 in order to provide a vehicle to transition consumers into the financial mainstream;

(ii) serves as a vehicle for providing access to credit products predominately to consumers with a credit score at or below 680;

(iii) provides financial and credit training, loan restructurings and other tailored financial products and services designed to meet their needs;

(iv) provides a full range of financial products and services (including, but not limited to, traditional retail products such as savings and debit products, credit products such as mortgage loans, automobile loans, credit cards and bill payment services as well as specialized services such as home repair, weatherization and energy efficient upgrades) to meet the needs of the underbanked, the unbanked and consumers with credit scores at or below 680;

(v) provides programs designed to assure financial literacy and product-based, individualized financial education such as budgeting, financial planning, the mortgage process and financial disclosures, the credit scoring process, communications with financial institutions and rights of obligations of borrowers and lenders;

(vi) provides savings and other deposits and deposit products to the underbanked, the unbanked, consumers with a credit score of 680 or below and a broader range of customers the interest on which is free from Federal income tax; and

(vii) has limits placed on its profits equal to a 20 percent return on equity (on a generally accepted accounting principles basis) per annum, and returns excess profits to decrease the costs of loans and other financial products and services for the underbanked, the unbanked and consumers with credit scores at or below 680.

(B) EXCEPTIONS.—No entity may be treated as a bridging bank depository institution for purposes of this Act unless the entity is—

(i) is either an insured depository institution or an insured credit union; and

(ii) is a member of a Federal Reserve bank or is a depository institution (as defined in section 19(b)(1)(A) of the Federal Reserve Act).

(3) INCLUDED TERMS.—The terms “insured depository institution”, “national bank”, “savings association”, and “State bank” have the same meaning as in section 3 of the Federal Deposit Insurance Act.

(4) INSURED CREDIT UNION.—The term “insured credit union” has the same meaning as in section 101(7) of the Federal Credit Union Act.

(5) UNBANKED.—The term “unbanked” means individuals or families who do not have an account with an insured depository institution or an insured credit union or a transaction account with a money market mutual fund or brokerage firm.

(6) UNDERBANKED.—The term “underbanked” means individuals or families who have a deposit account with an insured depository institution or an insured credit union and have limited or no ability to access nondepository services from insured depository institutions or insured credit unions.

SEC. 4. Chartering of bridging bank depository institutions.

(a) De novo bridging bank.—Only de novo bridging bank depository institutions may be created pursuant to this Act. A de novo bridging bank depository institution may become a bridging bank depository institution by obtaining a charter as such from its appropriate banking agency.

(b) Licensing requirements.—Any person desiring to establish a bridging bank depository institution shall submit an application and obtain prior appropriate banking agency approval.

(c) Scope.—This section describes the procedures and requirements governing appropriate banking agency review and approval of an application to establish a bridging bank depository institution.

(d) Definitions.—For purposes of this section, the following definitions shall apply:

(1) CONTROL.—The term “control” has the same meaning as in section 2 of the Bank Holding Company Act.

(2) FINAL APPROVAL.—The term “final approval”, in connection with a bridging bank depository institution, means the appropriate banking agency action issuing a charter certificate and authorizing a bridging bank depository institution to open for business.

(3) HOLDING COMPANY.—The term “holding company” means any company that controls or proposes to control a bridging bank depository institution whether or not the company is a bank holding company under the Bank Holding Company Act of 1956.

(4) ORGANIZING GROUP.—The term “organizing group” or “organizer” means 5 or more persons acting on their own behalf who apply to the appropriate banking agency for a bridging bank depository institution charter.

(5) PRELIMINARY APPROVAL.—The term “preliminary approval” means a decision by the appropriate banking agency permitting an organizing group to go forward with the organization of the proposed bridging bank depository institution.

(6) WELL CAPITALIZED.—The term “well capitalized”, when used in connection with a bridging bank depository institution means the bridging bank depository institution—

(A) has a total risk-based capital ratio of 10 percent or greater;

(B) has a Tier 1 risk-based capital ratio of 6 percent or greater;

(C) has a leverage ratio of 5 percent or greater; and

(D) is not subject to any written agreement, order, capital directive or prompt corrective action directive from an appropriate banking agency.

(e) Statutory requirements.—

(1) IN GENERAL.—The name of a proposed bridging bank depository institution shall include the word “bridge” or “bridging”. In determining whether to approve an application to establish a bridging bank depository institution, the appropriate banking agency shall verify that the proposed bridging bank depository institution has complied with the requirements contained in this chapter, including the following requirements. A bridging bank depository institution shall—

(A) draft and file articles of association, articles of incorporation, or other appropriate organizational documents with the appropriate banking agency;

(B) draft and file an organization certificate containing specified information with the appropriate banking agency;

(C) ensure that all capital stock is paid in prior to commencing business;

(D) have at least five elected directors; and

(E) submit to the appropriate banking agency for approval a business plan which, among other things, provides in reasonable detail evidence of the knowledge, understanding and experience of the board of directors of the bridging bank depository institution and the senior management of the bridging bank depository institution of the unique underwriting requirements not typically adequately addressed by analytics and processes used for underwriting extensions of credit for consumers with credit scores at or above 680 for initially extending credit to the underbanked, the unbanked and consumers with credit scores at or below 680, and ongoing account management practices that take into account the attributes of risks specific to a consumers group which has derogatory events in its credit history and is likely to have subsequent derogatory events in its efforts to graduate to a credit band with a higher credit score and better credit profile.

(2) COMMUNITY REINVESTMENT ACT OF 1977.—The appropriate banking agency shall take into account a proposed bridging bank depository institution’s description of how it will meet its Community Reinvestment Act of 1977 objectives in the same way that a national bank is required to meet its Community Reinvestment Act objectives.

(3) GRADUATION PROGRAM.—The appropriate banking agency shall take into account a proposed bridging bank depository institution’s program to develop and implement a phased approach to moving consumers with credit scores at or below 680 from their current credit score into higher bands of credit scores and the implementation of specialized policies and procedures, practices and technology to encourage and support the success of the customer Graduation Program. The Graduation Program shall include an education component which provides in reasonable detail what a consumer shall do to move from 1 credit scoring band to a higher credit scoring band, including providing opportunities for the consumer to develop a favorable credit history with the bridging bank depository institution.

(f) Policy.—

(1) IN GENERAL.—The marketplace is normally the best regulator of economic activity, and competition within the marketplace promotes efficiency and better customer service. Accordingly, the appropriate banking agency's policy shall be to approve proposals to establish bridging bank depository institutions that have a reasonable chance of success and that will be operated in a safe and sound manner. It shall not be the policy of the appropriate banking agency to ensure that a proposal to establish a bridging bank depository institution is without risk to the organizers or to protect existing institutions from healthy competition from a new bridging bank depository institution.

(2) POLICY CONSIDERATIONS.—In evaluating an application to establish a bridging bank depository institution, the appropriate banking agency shall consider whether the proposed bridging bank depository institution—

(A) has organizers who are familiar with applicable Federal and State banking laws and regulations, and the credit and training needs of the underbanked, the unbanked and consumers with credit scores at or below 680;

(B) has competent management, including a board of directors, with ability and experience relevant to the types of services to be provided, especially the ability and experience to design and provide financial services to the underbanked, the unbanked and consumers with credit scores at or below 680;

(C) has minimum capital of at least $10,000,000 and that is sufficient to support the projected volume and type of banking business that focuses on the needs of the underbanked, the unbanked and consumers with credit scores at or below 680;

(D) can reasonably be expected to achieve and maintain profitability within a reasonable time;

(E) will be operated in a safe and sound manner; and

(F) will be well capitalized for the first three years after opening for business.

(g) Additional factors.—The appropriate banking agency may also consider additional factors listed in section 6 of the Federal Deposit Insurance Act, including the risk to the Deposit Insurance Fund, and whether the proposed bridging bank depository institution’s corporate powers are consistent with the purposes of the Federal Deposit Insurance Act and this Act.

(h) Appropriate banking agency evaluation.—The appropriate banking agency shall evaluate as a whole a proposed bridging bank depository institution’s organizing group and its business plan or operating plan. An organizing group and its business plan or operating plan shall be stronger in markets where economic conditions are marginal or competition is intense.

(i) Organizing group.—

(1) IN GENERAL.—Strong organizing groups generally include diverse business and financial interests and community involvement. An organizing group shall have the experience, competence, willingness, and ability to be active in directing the proposed bridging bank depository institution’s affairs in a safe and sound manner. The bridging bank depository institution’s initial board of directors generally should be comprised of many, if not all, of the organizers. The business plan or operating plan and other information supplied in the application shall demonstrate an organizing group’s collective ability to establish and operate a successful bridging bank depository institution in the economic and competitive conditions of the market to be served. Each organizer should be knowledgeable about the business plan or operating plan.

(2) MANAGEMENT SELECTION.—The initial board of directors shall select competent senior executive officers before the appropriate banking agency may grant final approval. As a condition of the charter approval, the appropriate banking agency shall have the right to object to and preclude the hiring of any officer, or the appointment or election of any director, for a 2-year period from the date the bridging bank depository institution commences business.

(j) Financial resources.—

(1) Each organizer shall have a history of responsibility, personal honesty, and integrity. Personal wealth is not a prerequisite to become an organizer or director of a bridging bank depository institution.

(2) Any financial or other business arrangement, direct or indirect, between the organizing group or other insider and the proposed bridging bank depository institution shall be on nonpreferential terms.

(k) Organizational expenses.—Organizers are expected to contribute time and expertise to the organization of the bridging bank depository institution. Organizers should not bill excessive charges to the bridging bank depository institution for professional and consulting services or unduly rely upon these fees as a source of income.

(l) No contingency fees.—A proposed bridging bank depository institution shall not pay any fee that is contingent upon an appropriate banking agency decision. Organizational expenses for denied applications are the sole responsibility of the organizing group.

(m) Business plan or operating plan.—

(1) IN GENERAL.—

(A) SUBMISSION REQUIRED.—Organizers of a proposed bridging bank depository institution shall submit a business plan or operating plan that adequately addresses the appropriate statutory and policy considerations. The plan shall reflect sound banking principles and demonstrate realistic assessments of risk in light of economic and competitive conditions in the market for serving the underbanked, the unbanked and consumers with credit scores at or below 680.

(B) OFFSETTING DEFICIENCIES.—The appropriate banking agency shall offset deficiencies in 1 factor by strengths in 1 or more other factors so long as the ability to serve the underbanked, the unbanked and consumers with credit scores at or below 680 is the most important factor and entitled to the greatest weight.

(2) EARNINGS PROSPECTS.—The organizing group shall submit pro forma balance sheets and income statements as part of the business plan or operating plan.

(3) MANAGEMENT.—

(A) EVALUATION OF MANAGERIAL ABILITY.—The organizing group shall include in the business plan or operating plan information sufficient to permit the appropriate banking agency to evaluate the overall management ability of the organizing group, especially the ability to provide financial services to the underbanked, the unbanked, and consumers with credit scores at or below 680.

(B) AGENCY OBJECTION TO PROPOSED OFFICER OR DIRECTOR.—The organizing group may not hire an officer or elect or appoint a director if the appropriate banking agency objects to that person at any time prior to the date the bridging bank depository institution commences business.

(4) CAPITAL.—A proposed bridging bank depository institution shall have initial capital of at least $10,000,000.

(5) COMMUNITY SERVICE.—

(A) The business plan or operating plan shall indicate the organizing group’s knowledge of and plans for serving the underbanked, the unbanked and consumers with credit scores at or below 680. The organizing group shall evaluate the banking needs of the underbanked, the unbanked and consumers with credit scores at or below 680. The business plan or operating plan shall demonstrate how the proposed bridging bank depository institution responds to those needs consistent with the safe and sound operation of the bridging bank depository institution.

(B) As part of its business plan or operating plan, the organizing group shall submit a statement that demonstrates its plans to achieve Community Reinvestment Act objectives.

(C) Because community support is important to the long-term success of a bridging bank depository institution, the organizing group shall include plans for attracting and maintaining community support.

(6) SAFETY AND SOUNDNESS.—The business plan or operating plan shall demonstrate that the organizing group is aware of, and understands, Federal and State banking laws and regulations, and safe and sound banking operations and practices in the context of serving the needs of the underbanked, the unbanked and consumers with credit scores at or below 680.

(7) PROCEDURES.—

(A) PREFILING MEETING.—The appropriate banking agency shall require a prefiling meeting with the organizers of a proposed bridging bank depository institution before the organizers file an application.

(B) BUSINESS PLAN OR OPERATING PLAN.—An organizing group shall file a business plan or operating plan that addresses the requirements of the appropriate banking agency.

(C) CONTACT PERSON.—The organizing group shall designate a contact person to represent the organizing group in all contacts with the appropriate banking agency. The contact person shall be an organizer and proposed director of the new bridging bank depository institution or another person approved by the appropriate banking agency.

(8) DECISION NOTIFICATION.—The appropriate banking agency shall notify the contact person in writing of its decision on an application.

(9) ACTIVITIES.—

(A) ESTABLISHMENT.—Before the appropriate banking agency grants final approval, a proposed bridging bank depository institution shall be established as a legal entity. A proposed bridging bank depository institution may offer and sell securities prior to appropriate banking agency preliminary approval of the proposed bridging bank depository institution’s charter application, provided that the proposed bridging bank depository institution has filed articles of association, articles of incorporation, or other appropriate organizational documents, an organization certificate, and a completed charter application and the proposed bridging bank depository institution complies with the securities offering regulations of the Comptroller of the Currency, 12, Code of Federal Regulations, 16 and any applicable State securities law.

(B) ELECTION OF BOARD.—In addition, the organizing group shall elect a board of directors.

(C) PUBLIC OFFERING.—For all capital obtained through a public offering a proposed bridging bank depository institution shall use an offering circular that complies with the securities offering regulations of the Comptroller of the Currency, 12, Code of Federal Regulations, 16 and any applicable State securities law.

(D) CAPITAL.—A bridging bank depository institution in organization shall raise its capital before it commences business. Preliminary approval expires if a bridging bank depository institution in organization does not raise the required capital within 12 months from the date the appropriate banking agency grants preliminary approval. Approval expires if the bridging bank depository institution does not commence business within 18 months from the date the appropriate banking agency grants preliminary approval.

SEC. 5. Limitation on powers of appropriate banking agency.

Notwithstanding any other law or regulation, no bridging bank depository institution may be required to use risk weights or other capital adequacy measures which make the bridging bank depository institution unable to properly price its products and services or otherwise serve the underbanked, the unbanked and consumers with credit scores at or below 680, and no banking authority may require the use of risk weights or capital adequacy measures for a bridging bank depository institution that makes the bridging bank depository institution uncompetitive, makes its products and services too expensive for the underbanked, the unbanked or consumers with a credit score at or below 680 or otherwise prevents the bridging bank depository institution from serving the underbanked, the unbanked and consumers with a credit score at or below 680. Neither the Federal Deposit Insurance Corporation nor the National Credit Union Administration Board shall discriminate in its insurance premium charges against bridging bank depository institutions and shall charge bridging bank depository institutions the same premium that it would otherwise charge a traditional community bank or traditional credit union, as appropriate, which does not serve the underbanked, the unbanked or consumers with a credit score at 680 or below.

SEC. 6. Coordination and promotion of the Community Reinvestment Act of 1977.

To strengthen the effectiveness of the Community Reinvestment Act of 1977 and to encourage financial institutions subject to the Community Reinvestment Act of 1977 to support the efforts of bridging bank depository institutions, the appropriate banking agencies shall grant the highest level of weighted Community Reinvestment Act of 1977 credit to financial institutions subject to such Act in each case, as appropriate, under the lending test where a loan is made to a bridging bank depository institution, under the investment test where an investment is made in a bridging bank depository institution, under the service test where a service is provided to a bridging bank depository institution and under the community development test when a donation is made to a bridging bank depository institution.

SEC. 7. Additional powers of a bridging bank depository institution.

In addition to the powers granted herein and in any regulations issued by the appropriate banking agency, each bridging bank depository institution shall have all the powers otherwise applicable to a national bank, if the bridging bank depository institution is chartered by the Comptroller of the Currency, to a savings association, if the bridging bank depository institution is chartered by the Director of the Office of Thrift Supervision, to an insured credit union, if the bridging bank depository institution is chartered by the National Credit Union Administration, or to a State bank, if the bridging bank depository institution is chartered by a State bank supervisor, and, except as provided in this Act or in any regulations issued pursuant to the authority granted in section 106, shall be subject to the regulations otherwise applicable to such national bank, savings association, insured credit union or State bank, as the case may be.

SEC. 8. Reports to the Congress.

Before the expiration of the 120-day period beginning on the date of the first issuance of a charter pursuant to this Act, and annually thereafter, each appropriate Federal banking agency shall report to the appropriate committees of the Congress, with respect to each such period—

(1) an overview of actions taken by each such Federal banking agency in furtherance of the purposes of this Act;

(2) an overview of actions taken by bridging bank depository institutions to serve the needs of the underbanked, the unbanked, and consumers with credit scores at or below 680;

(3) a description of the impact of the exercise of such authority on the financial system, supported, to the extent possible, by specific data;

(4) an analysis of the effectiveness of the Graduation Program, including an analysis of any progress made from 1 credit scoring band to a higher credit scoring band and the number of consumers who moved from 1 credit scoring band to a higher credit scoring band;

(5) a description of challenges that remain in the financial system for the underbanked, the unbanked, and consumers with a credit score of 680 or below; and

(6) recommendations on additional actions that should be taken to further the purposes of this Act.

SEC. 9. Regulations.

(a) Regulations Required.—Before the end of the 180-day period beginning on the date of the enactment of this Act, each appropriate Federal banking agency, after consultation with each other appropriate Federal banking agency, and public notice and an opportunity for comment, shall prescribe regulations to carry out the purposes and provisions of this chapter, including regulations for the chartering of bridging bank depository institutions and prescribing the form and content of any application to be filed with such appropriate Federal banking agency in connection therewith.

(b) Effective date of regulations.—The regulations prescribed under subsection (a) shall take effect not later than 1 month after the publication in final form.

(c) Expedited Consideration.—Each appropriate Federal banking agency with chartering authority shall expedite its consideration of applications for the chartering of bridging bank depository institutions. The Federal Deposit Insurance Corporation and the National Credit Union Administration Board shall expedite its consideration of applications for deposit insurance with respect to applications to form de novo bridging bank depository institutions. The Board of Governors of the Federal Reserve System shall expedite its consideration of membership to the Federal Reserve System by bridging bank depository institutions.

SEC. 10. Corresponding changes to internal revenue code of 1986.

(a) The Internal Revenue Code of 1986 is amended by inserting after section 103 the following new section:

§ 103A. Interest on bridging bank depository institution deposits

“Interest on savings and other interest bearing deposits paid by bridging bank depository institutions (within the meaning of the Bridging Bank to Recovery Act of 2009) shall be exempt from income taxation now or hereafter imposed by the United States or by any State, territorial, or local taxing authority.”.

(b) Section 108 of the Internal Revenue Code of 1986 (relating to income from discharge of indebtedness) is amended by adding at the end the following new subsection:

“(l) Bridging bank depository institutions.—

“(1) IN GENERAL.—Notwithstanding section 61, income from the discharge of indebtedness in connection with the modification or repurchase of a subprime debt instrument shall not be included in gross income if a bridging bank depository institution (within the meaning of the Bridging Bank to Recovery Act of 2009) is the beneficial owner of such subprime debt instrument at the time of the modification or repurchase.

“(2) SUBPRIME DEBT INSTRUMENT.—For purposes of this subsection, the term ‘subprime debt instrument’ shall be defined from time to time by the Financial Institutions Examination Council.

“(3) AUTHORITY TO PRESCRIBE REGULATIONS.—The Secretary may prescribe such regulations as may be necessary or appropriate for purposes of applying this subsection.”.

(c) Section 1001 of the Internal Revenue Code of 1986 (relating to the determination of amount of and recognition of gain or loss) is amended by adding at the end the following new subsection:

“(f) Bridging bank depository institutions.—

“(1) IN GENERAL.—A modification of the terms of a subprime debt instrument shall not result in a sale or other disposition of property within the meaning of this section if a bridging bank depository institution (within the meaning of the Bridging Bank to Recovery Act of 2009) is the beneficial owner of such subprime debt instrument at the time of the modification.

“(2) SUBPRIME DEBT INSTRUMENT.—For purposes of this subsection, the term ‘subprime debt instrument’ shall be defined from time to time by the Financial Institutions Examination Council.”.