Even though this is an election year — typically a time of minimal legislative output — the sagging economy and an anxious electorate mean that Congress and the Bush administration will grapple with at least a handful of financial issues with real pocketbook implications.

Democrats will press legislation to expand disclosure requirements for managers of 401(k) plans to ease retirement worries. They’ll also press for expanding aid to homebuyers hit by the mortgage crisis.

Republicans are likely to oppose new regulations for 401(k) plans. But there may be bipartisan support for targeted mortgage relief that provides homebuyers more credit options.

Other financial issues, closely watched by business interests, will include an attempt to streamline insurance regulation. And Democrats are eager to place limits on retail companies seeking to set up commercial banking operations.

Both parties likely also will continue to make their cases for overhauling the tax code, spurred on by a controversial proposal from House Ways and Means Chairman Charlie Rangel (D-N.Y.).

Lobbyists and Congressional aides, however, concede real tax reform likely will not be broached until the 111th Congress, although they say this year’s debate could offer clues as to where future tax legislation is headed.

Roll Call’s CongressNow prepared the following rundown of key financial issues that lawmakers are expected to consider in the coming months.

Tax Debate Sets Stage for ‘09

Lawmakers will do a lot of talking about revamping the tax code in the coming months, but a dramatic overhaul seems unlikely to pass either chamber in the 110th Congress. Instead, Democrats will lay the groundwork for a tax reform package that could be passed in the next Congress — with, they hope, broader majorities and a Democrat in the White House.

Rangel will stick to his original plan of beginning reform talks this spring. His hearings will examine legislation he introduced last year as well as solicit input from tax experts on how best to overhaul the system. The Bush administration also has been encouraged to take part in the discussion.

“We’ve heard from some in the administration who are critical [of the chairman’s plan],” said a Rangel spokesman. “But yet in the seven years they have been in office they have never submitted a plan for consideration — if not [Rangel’s] idea, then what?”

Rangel’s plan got a cool reception from more than administration officials, however: No other lawmakers have signed on as co-sponsors of the legislation.

The Tax Reduction and Reform Act of 2007 lowers the top corporate tax rate to 30.5 percent from the current 35 percent level, permanently repeals the individual alternative minimum tax and reduces taxes for a broad swath of middle- and lower-income taxpayers. All of those proposals have been applauded roundly. However, enthusiasm has waned over plans for eliminating or severely curtailing tax deductions for those with more than $200,000 in annual income.

A reform plan has yet to emerge in the Senate. Recently, Finance Chairman Max Baucus (D-Mont.) said a reform plan should be in place before lawmakers consider extending President Bush’s 2001 and 2003 tax cuts that expire in 2010.

“Sen. Baucus certainly intends to dig in on the issues surrounding tax reform in the coming months,” his spokeswoman said. “This year is a perfect opportunity to take a hard look at the facts and lay the groundwork for thoughtful and comprehensive reform in the near future.”
— Jay Heflin

Congress Eyes 401(k) Plans

Lawmakers in 2008 will pursue modest efforts to ensure retirement security that will focus on increasing transparency in 401(k) retirement plans by providing investors with more information about the fees they pay, Congressional aides and lobbyists said.

House Education and Labor Chairman George Miller (D-Calif.) is leading efforts to provide beneficiaries with more information through his bill, The 401(k) Fair Disclosure for Retirement Security Act of 2007 (H.R. 3185). The bill will be marked up early this year.

“Helping workers to make better-informed decisions about their retirement options is a critical step towards increasing retirement security for America’s workers,” an aide to Miller said.

Miller’s bill would require 401(k) plan administrators to: disclose all fees charged to employees each year; provide employees with information on all fees and conflicts of interest; provide more detailed information about investment risks and returns; and include at least one lower-cost option within the investment lineup. Miller has said that hidden fees cut into employees’ 401(k) benefits without giving them the information necessary to choose the most cost-effective plan.

However, Miller faces significant opposition from Republicans and the Bush administration.

Education and Labor ranking member Howard McKeon (R-Calif.) said the bill requires too much disclosure and will unnecessarily burden 401(k) plan operators. Moreover, opponents argue the new requirements could lead to higher prices for consumers, diminish access to plans and confuse investors.

Opponents want to delay action on any legislation until the Labor Department finishes issuing rules on expanded 401(k) disclosure requirements, which are due in the near future. Labor “should be given the opportunity to run their own course before the Hill gets involved,” a financial services lobbyist said.

Consideration of that rule and other administrative efforts regarding fees could slow down consideration of bills as Members learn of the specifics to those regulations, the lobbyist added.
— Stephen Langel

Life Insurers Looking for Federal Charter

Life insurers may have a better chance at securing an optional federal charter this year if Congress decides to deal separately with the question of whether property-casualty insurers should be granted the same option.

According to House Financial Services Chairman Barney Frank (D-Mass.), there may be some incentive to have separate debates on the creation of an optional federal charter for life and property-casualty insurers.

Frank said lawmakers were closer to agreement for an optional federal charter for life insurers, but he added that “neither one is off the table, but neither one is a done deal.”

Thus far, legislation introduced on the subject would allow both life insurers and property-casualty insurers to opt for federal regulation.

Reps. Melissa Bean (D-Ill.) and Ed Royce (R-Calif.) introduced the National Insurance Act (H.R. 3200) to create a dual regulatory system modeled after the banking industry, which allows banks to choose between a state regulator or a federal one. Enactment of the 1999 Gramm-Leach-Bliley Act (PL 106-102), which modernized the regulatory structure for banks and securities firms, left insurers clamoring for a similar regulatory system.

Insurers opting for a federal charter would be monitored by a national insurance commissioner within the Treasury Department. The federal overseer would focus more on solvency and market conduct rather than rates and product regulation, as is common under state regulatory control.

Advocates of an optional federal charter accuse states of running inconsistent and inefficient regulation and enforcement operations and say that such regulatory regimes pose obstacles to introducing new and innovative insurance products. They also argue it would be far easier to deal with a single regulator than monitors from each state.

Other industry groups that oppose such legislation include the Property and Casualty Insurers Association of America and the National Association of Mutual Insurance Cos., who say an optional federal charter could push smaller firms out of business.

Frank said the Subcommittee on Capital Markets, Insurance and Government- Sponsored Enterprises, chaired by Rep. Paul Kanjorski (D-Pa.), would hold hearings on the issue this year. Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) said his panel also would hold hearings on the issue.
— Charlene Carter

Dodd Still Focused on Industrial Loan Companies

Even after Wal-Mart and Home Depot dropped bids to set up commercial banking operations, Congress remains wary of retailers becoming bankers and will consider legislation this year to restrict such enterprises.

Dodd wants to revive the Senate debate on proposals to restrict retailers from entering the banking industry, arguing for clear rules so there is no blurring of the line between commerce and banking.

Dodd announced that his panel would act on draft legislation he circulated last fall to overhaul the regulation of those operations, known as industrial loan companies, and to begin to close the loophole that allows commercial entities to own taxpayer-insured depository institutions.

ILCs are state-regulated entities that generally offer limited financial services such as processing transactions. To date, 59 companies operate ILCs, most of them chartered in Utah and California. Many have limited federal oversight, and some have none.

“During this time when the financial system is experiencing unprecedented volatility and instability, it is important to advance legislation that can help improve the safety, soundness and competitiveness of the lending sector,” Dodd said.

Atlanta-based home improvement retailer Home Depot recently announced that it was dropping its application to acquire EnerBank, a Salt Lake City-based company offering home improvement loans. The company issued a statement saying the acquisition is “no longer part of our strategy as we are focusing all of our resources on our core retail business.”

Wal-Mart earlier dropped plans to set up an ILC.

Home Depot had been one of the eight applicants awaiting approval from the Federal Deposit Insurance Corp. The FDIC’s 18-month moratorium on the applications expired last month, but FDIC Chairwoman Sheila Bair said it would take several months to process pending applications.

Dodd’s draft bill would allow companies to own an ILC as long they are subject to supervision by federal banking regulators. It contained a carve-out for auto companies, a provision that would help cut down costs of auto financing for customers, supporters say.

In the recent past, key Senators — including Sen. Bob Bennett (R-Utah), whose home state charters many of the existing ILCs — have questioned the need for such measures and effectively stalled House efforts to pass ILC legislation. Last May the House passed a bill (H.R. 698) to prohibit a company from owning an ILC unless it generates at least 85 percent of its revenues from financial activities.
—C.C.

Mortgage Help Due in Various Bills

Congress was poised to approve an economic stimulus package late last week that would help expand credit options for homeowners facing foreclosure.

Congressional leaders reached agreement on a package (H.R. 5140) that would increase Federal Housing Administration loan limits up to $729,750 for one year in order to expand affordable mortgage loan opportunities for families at risk of foreclosure, and would increase the loan limits for single-family homes from Fannie Mae and Freddie Mac from $417,000 up to $729,750 for one year to enhance credit availability in the mortgage market.

The increased loan limits would allow the agencies to insure and lend for higher-cost homes, providing an alternative to riskier adjustable rate products. After the rates on many of the zero and low interest rate mortgages reset to higher rates, homeowners were left struggling to pay the higher loan costs.

Despite agreement to raise loan limits for Fannie Mae, Freddie Mac and the FHA, other provisions to update the powers of the FHA — which provides mortgage insurance on loans made by FHA-approved lenders — were not included in the stimulus bill.

Frank said he was “puzzled” that the other components of FHA modernization legislation would no longer be included in the stimulus package. House Democrats had been working with Treasury Secretary Henry Paulson on the plan.

Other modifications to the program in the House and Senate FHA bills (H.R. 1852 and S. 2338) would allow the agency to offer no-down- payment mortgages to certain consumers and to link mortgage premiums to the risk posed by borrowers.

Since those provisions are not in the aid package, lawmakers have said they could move later this year as stand-alone bills or in a separate stimulus package.
—C.C.