April 23, 2010 No TBA S LEGISLATIVE YEAR IS WRAPPING UP

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Job Wilkinson
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1 April 23, 2010 No TBA S LEGISLATIVE YEAR IS WRAPPING UP The talk around Legislative Plaza continues to be on the Legislature closing up shop by the end of May so those running for re-election can begin working on what s been looming in the back of their minds for months: fundraising for the upcoming elections. Nearly all subcommittees have shut down and several committees announced their closure this week or plan to meet one final time next week. Not only is the end of session in sight, so is all of the legislation TBA has been supporting, tracking, and opposing. The week began with one piece legislation as TBA s only remaining major issue deficiency judgments. Negotiations and drafts of bills were traded back-and-forth for weeks. At times, a compromise seemed likely; at other times, not so much. However, the In This Issue: Legislative Year Wrapping Up Pg. 1 Senate Prepares to Vote on Reg Reform Pg. 2 Derivatives Bill Approved by Senate Ag Committee Pg. 4 Senate Finance Holds Hearing on Large Bank Tax Pg. 4 Overdraft Compliance Pg. 5 excellent response of our bankers provided TBA an upper hand in negotiations, and TBA is happy to report that Rep. Vance Dennis (R-Savannah), who took the lead in negotiations in recent weeks, drafted compromise language over the weekend that was acceptable to everyone. The agreed upon bill provides that in an action brought by a Creditor for a deficiency judgment, there will be a rebuttable presumption that the sale price of the property was equal to the fair market value ( FMV ) of the property at the time of the foreclosure or trustee s sale. The deficiency would then be for the total debt (plus costs) less the sale price. To overcome this presumption, the Debtor must prove that the sale price was materially less than the FMV at the time of the sale. If the burden is overcome, the deficiency would be for the total debt prior to the sale (plus costs) less the FMV as determined by the court. The most troubling part of the bill to negotiate was what it would take for the Debtor to overcome the presumption that the sale price equals FMV. TBA proposed requiring the Debtor to show the sale price was substantially or significantly less than FMV; the Homebuilders proposed materially. TBA believed material was essentially the same as significant or substantial, and thus accepted the Homebuilders language. Copyright 2010 Tennessee Bankers Association. The material contained herein is provided for general informational purposes and should not be considered legal advice. Please contact your local counsel for application to any specific matter. Timothy L. Amos, Senior Vice President/General Counsel; Amy Smith, Associate Counsel Colin Barrett, Vice President/Director of Member Services

2 TBA Legislative Update No , Pg. No. 2 Both the Homebuilders bill (HB 2000) and TBA s bill (HB 3057) passed out of the House Judiciary Committee late Tuesday afternoon, but only after considerable discussion and testimony from TBA s Tim Amos and John Farris, who represents the Homebuilders. If you would like to watch their testimony, you can view the Judiciary meeting video online at The Homebuilders bill in the Senate (SB 1589 by Finney) also came up in the Senate Judiciary Committee on Tuesday (TBA s bill in the Senate (SB 3039 by Faulk) has already passed out of the committee and is being held in the Calendar and Rules Committee). After a brief discussion and testimony, the Committee delayed voting on SB 1589 until Wednesday. Before the Senate passed the bill on Wednesday, the committee included an amendment that provides the new law will not take effect until September 1, 2010, and it will only apply to actions based on foreclosures or trustees sales with first notices of publications occurring after September 1, Although there are two identical versions of the legislation, the legislature is expected to pass only TBA s bill (SB 3039/ HB3057), which is scheduled on the House floor calendar for Monday night. It will also likely be on the Senate floor next Thursday. TBA will continue to keep you updated on the progress of the bills. Please continue sending your questions and comments TBA appreciates everything its members have done thus far in helping contact legislators and draft a bill that is acceptable and reasonable for all parties. Tennessee s Budget and Tax Issues. The saga about Tennessee s budget woes has continued; in fact, it has escalated in recent weeks. The newest budget debate has centered on Governor Bredesen s proposal to bridge a $105 million gap by removing the single-article sales tax cap, which could produce as much as $85 million for the state. Republicans were less than receptive to the Governor s proposal and are expected to offer an alternative proposal of making cuts to the budget, which could include cuts to state employees salaries. Already included in the Governor s budget are several tax and fee measures aimed at increasing state revenue that Republicans have also expressed opposition to. Such measures include ending the sales tax exemption for cable TV customers for the first $15 of their bills and requiring hotels and motels to pay a tax on the food they serve at their free continental breakfasts. But, both parties have agreed to support a separate $230 million coverage assessment on hospitals net patient revenues, which would be used to draw down $430 million in matching Medicaid funds from the federal government. U.S. SENATE PREPARES TO VOTE ON REG REFORM LEGISLATION As Tennessee legislation seems to be winding down, legislation on the federal level is definitely picking up steam specifically, the financial regulatory reform bill. The Senate Banking Committee passed the reg reform bill (S. 3217) on a party-line vote nearly a month ago, and reports in the beginning of the week had the bill going before the full Senate by week s end; however, recent reports indicate that Senate Majority Leader Harry Reid (D-Nev.) has scheduled a cloture vote for late Monday, which will allow the bill to be considered next week.

3 TBA Legislative Update No , Pg. No. 3 As of last Friday, however, all 41 Senate Republicans were opposed to the bill as drafted and encouraged Reid to take a "bipartisan and inclusive approach" to the legislation. Senate Banking Committee Chairman Chris Dodd (D-Conn.), panel GOP ranking member Richard Shelby (R- Ala.) and other key Republican and Democratic senators are expected to negotiate throughout the weekend in an effort to reach a compromise on the legislation. Meanwhile, President Obama urged Wall Street to join us, instead of fighting us during a speech in New York yesterday. Obama struck a largely conciliatory tone as he praised the importance of financial firms and free markets, and made his case for why the financial industry should support the reg reform legislation. ABA position. ABA urged all Senate members early this week to consider the negative impact the reg reform bill s 27 new or expanded types of regulation would have on community banks already crushing burden. ABA emphasized in a letter that many of those regulations have nothing to do with the financial crisis. For example, the bill s proposed Consumer Financial Protection Bureau ( CFPB ) would subject all banks, regardless of size, to new rules that would apply new broad, untested, and poorly defined standards to retail bank products, the letter said. The standards would give the CFPB wide latitude to influence what products are offered, on what terms, and under what circumstances. Also, the bill s proposed elimination of the Federal Reserve s authority to regulate state member banks is unnecessary, and its elimination of the federal thrift charter going forward is unjustified. To read the bill s new or expanded regs, please follow this link: ICBA position. ICBA recently issued a new fact sheet that highlights the myths and facts about how this legislation would really affect community banks. The fact sheet notes that many concerns about the regulatory burdens the bill would place on community banks have been exaggerated. It also outlines the direct benefits several provisions in the bill would provide the nation s community banks, such as addressing the too-big-to-fail problem and expanding the FDIC deposit-insurance assessment base. Despite ICBA supporting some provisions of the bill, it is urging community bankers to contact their senators to make certain revisions, including expanding the Deposit Insurance Fund assessment base statutory; increasing the role of prudential regulators in writing consumer-protection rules; maintaining consumer-protection supervisory restrictions on nonbanks; and including a prefunded systemic-risk dissolution fund. To read ICBA s fact sheet, please follow this link: TAKE ACTION!! Bankers and bank employees should contact their senators today to express opposition to the Senate s current financial regulatory reform bill (S. 3217). Broad participation by bankers and employees across the country is crucial. Unless the bill is improved, it will vastly increase costs for traditional banks and put them at a further competitive disadvantage to nonbanks. Phone calls are needed to provide maximum impact on the Senate s debate. ABA has set up an automated call-alert page that looks up senators phone numbers, instructs callers to ask for the

4 TBA Legislative Update No , Pg. No. 4 senator s banking legislative assistant and,provides short talking points on the bill. To use the call-alert page and make a call, please follow this link: If you prefer to write a letter, you can generate a custom letter through ABA or ICBA s websites. To generate a letter through ABA s website, please follow this link: To generate a letter through ICBA s website, please follow this link: DERIVATIVES BILL APPROVED BY SENATE AGRICULTURE COMMITTEE The Senate Agriculture Committee on Wednesday approved by a 13-8 vote Chairman Blanche Lincoln s (D-Ark.) draft bill that would tighten regulation of the over-the-counter derivatives market and increase its transparency by requiring derivatives to be traded through third-party exchanges. Sen. Charles Grassley (R-Iowa) was the only Republican to support the legislation, which is expected to be folded into the massive financial regulatory reform bill (S. 3217). The bill, among other things, would give federal regulators the authority to take action on fraudulent or manipulative activities; mandate that Wall Street firms registered as banks spin off their swaps desks to be eligible for deposit insurance or access to the Federal Reserve discount window; and require a large segment of the derivatives market to trade through clearinghouses. The legislation, however, would exempt commercial end-users of derivatives products, such as manufacturers, airlines and other commercial companies, from having their transactions go through clearinghouses. Impact on Community Banks. The bill s push-out provision (Section 106) impacts a number of community banks that, even on a limited basis, use investment swaps to hedge risks on commercial loans. This provision could preclude certain banks from any form of federal assistance, which is defined to include FDIC insurance, if they engage in these transactions. This may ultimately deter banks from making longer term fixed-rate loans to small-business borrowers. SENATE FINANCE PANEL HOLDS HEARING ON LARGE BANK TAX The Senate Finance Committee held a hearing Tuesday to examine President Obama's proposal to levy a tax on large financial firms with more than $50 billion in assets that received government assistance -- either capital from TARP or debt guaranteed by Temporary Liquidity Guarantee Program. Neil Barofsky, the TARP special inspector general, testified at the hearing that he is unsure how the administration s proposed tax would be structured. Committee Chairman Max Baucus (D-Mont.) said during the hearing that he would examine the proposal and other options to recover TARP funds over the course of several additional hearings. We want to understand the best approach to designing a fee, to whom it should apply, and how it

5 TBA Legislative Update No , Pg. No. 5 might affect the economy and the markets, Baucus said. We need to learn whether banks will pass it on to consumers, and how it might affect lending to small businesses. Meanwhile, Senate Banking Committee Chairman Dodd said he doesn t want to add a large-bank tax to the financial regulatory reform bill. Dodd said he wants to keep his legislation focused on the issues he and fellow negotiators have been working on for the last several months. OVERDRAFT COMPLIANCE NEAR TBA learned this week that the OCC appears to have taken the lead in banks overdraft protection programs. The agency has been sending letters prior to upcoming exams requesting that certain items related to overdraft protection programs be available at exam time. The OCC s letter explains that the scope of its examinations will depend on the complexity of a bank s overdraft services and programs. Its primary focus is to assess current overdraft protection programs, including policies, procedures, internal reporting, charge-off practices, disclosures, and marketing of the programs. Below is a brief list of the items banks must have ready for exams: 1. Copies of consumer overdraft policies and procedures, including overdraft repayment programs. 2. Copies of the Dec 31, 2008 and Dec 31, 2009 Call Report Schedule RI 5.b. Service Charges on Deposit Accounts, and supporting documentation that reconciles and itemizes the fees in the service charge total (e.g.; overdraft protection fees, NSF fees, account maintenance fees, transfer fees, continuous overdraft penalty fees, ATM fees, account activity fees, etc.). 3. Most recent overdraft aging report. 4. Fee Schedule that includes all fees as they relate to overdraft products for all accounts overdraft programs are available. (e.g.; Initial program fees, usage fees, transfer fees, interest, cash advance fees, fees per item, penalty fees, etc.). 5. Overdraft reports that reflect: total number of customers with accounts eligible for ODP; total number of accounts where OPD services may be available; list of customers with 1-5 OD fees, and list with more than 5 OD fees, in any one or more of the past 12 months; and list of customers with OD fees/month greater than their average balance/month or deposit/month in past 12 months. 6. Most recent report on overdraft loss trends and most recent audit and compliance review of ODP program(s). 7. Most recent reports regarding customers who are participating in an overdraft repayment plan. 8. Copies of the following: Initial and subsequent disclosures and account contracts for all ODP eligible deposit accounts and for all ODP Services offered; Account Statements for each type of deposit account; Marketing Programs for all deposit accounts eligible for ODP services; Actual ATM receipts from each type of ATM machine the bank has in use; Consumer Complaints and Error Resolutions regarding ODP for the past 12 months.

April 2, 2010 No TENNESSEE LEGISLATURE: IS THE END IN SIGHT?

April 2, 2010 No TENNESSEE LEGISLATURE: IS THE END IN SIGHT? April 2, 2010 No. 10-13 TENNESSEE LEGISLATURE: IS THE END IN SIGHT? Since the General Assembly convened in mid-january, or perhaps even before that, there was talk of session ending early (April 15 was