TESTIMONY OF RALPH NADER

HR 10

COMMITTEE ON BANKING AND FINANCIAL SERVICES

U. S. HOUSE OF REPRESENTATIVES

February 11, 1999

Mr. Chairman, members of the House Banking Committee, thank you for the invitation to comment on HR 10.

These hearings mark the third consecutive Congress in which financial deregulation has dominated the agenda of this Committee. Thousands of hours of the time of Members of Congress and their staffs have been expended in a futile effort to craft a bill that will be embraced by the maximum number of corporate lobbyists.

Unfortunately, little of this time and legislative labor have been used for a broad detailed examination of the issues which affect the safety and soundness of our financial system and the needs and desires of citizens who will use the system. Little time and few resources of the Congress have been allocated to devise a rational and modern regulatory system which protects the taxpayers and ensures the delivery of financial services to all citizens on a nondiscriminatory basis.

HR 10 is not a bill for consumers. It is a bill designed to create new profit centers for a relative handful of banking and financial services corporations--corporations that will form combinations which will dominate the delivery of financial products and fuel the already alarming trend toward mega mergers and the concentration of economic power.

Apparently the sponsors of HR 10, themselves, have major questions about where this legislation will lead and what problems may emerge when banks, securities firms, insurance companies merge under common ownership. Section 186, for example, requires the Federal Deposit Insurance Corporation (FDIC) to conduct a study of how these mergers will affect the safety and soundness of the taxpayer supported deposit insurance funds. Elsewhere in the bill, the General Accounting Office is instructed to determine the impact of HR 10 on community banks and consumers, again only after the legislation is enacted..

These are critically important questions that go to very heart of the bill. These are areas where the Committee needs to determine the facts before HR 10 becomes law. What happens if the FDIC and the GAO do, indeed, find serious defects, problems that could seriously jeopardize the health of the financial system? Does anyone believe that major remedial action will be possible against the opposition of the combined lobbying forces of the financial industry--the political power of conglomerates that will reach into virtually every Congressional district across the nation.

The opportunities for change will be few. Congress needs to get it right now, not after the fact. At the moment, the leaders of the various segments of the financial community want something from Congress. While the corporations have their hands out, Congress is in a position to insist on protections for consumers and communities. That leverage will disappear the moment that the President signs HR 10 into law.

Instead of dealing with issues involving safety and soundness and the economic well being of consumers and communities, most of the effort has centered on mediating the differences between competing industry groups, all of which want deregulation on their own terms. As a result, the current version of HR 10 is a patchwork of inter-industry compromises that fall far short of meeting the sponsors' self-serving claim that they are "modernizing" the financial system.

HR 10 is designed to create a financial system for the more affluent in our society. In the financial world envisioned under HR 10, the needs of middle and low-income consumers have been largely ignored or shunted aside in the rush to accommodate the high rollers.

Don't be taken in by industry and political propaganda that financial deregulation--or "modernization" as its proponents prefer--is consumer friendly. The legislation does contain some important disclosure requirements regarding uninsured products, but for the vast majority of citizens, the mega conglomerates created by HR 10 will only add new hurdles to the already nightmarish task of obtaining basic financial services without incurring outlandish and arbitrary fees and being sent off to the wasteland of endless 1-800 numbers and pricey automatic teller machines.

What consumers can expect from conglomerates created by HR 10 is more of the kind of "service" that is currently being ladled out by banks like First Union Corporation of North Carolina which has gobbled up smaller banks up and down the east coast. First Union, under the guidance of its chairman, Ed Crutchfield, provides service on the basis of how much profit each customer provides the bank.

First Union, the Wall Street Journal reports, monitors each account, color codes the account in the bank's computer system. When a customer calls, the computer designates the profitability by showing a small block of color next to the customer's name-- green for highly profitable; yellow for so-so profitability and red for customers who don't do all that much for the bank's bottom-line. As might be expected, the bank personnel leap to attention in handling calls from the customers with the "green" block by their names. But, as the Journal notes, the bank employees "rarely budge" for a call from a less profitable customer--one where a red block pops up beside the name.

ONE-STOP SHOPPING CENTERS AND CONSUMER PRIVACY

Proponents have tried to sell HR 10 by promoting the concept of "one-stop shopping centers" where consumers can play the stock market, be sold insurance products and have access to a variety of banking products. So far, the industry has failed to produce any evidence that consumers are beating on their doors, demanding that all these services be bundled under one roof and under one corporate umbrella.

What we hear from consumers are not demands for one-stop financial shopping centers, but a steady stream of wide ranging complaints about the deteriorating quality of service provided by financial institutions--and the failure of Congress to halt the rising wave of arbitrary fees imposed on customers--fees which last year totaled more than $18 billion. .

The idea of these corporations extending their reach--and their unconscionable fees-- through one-stop shopping centers does not thrill consumers. The propaganda in support of HR 10 hides the realities of the marketplace where "captive customers" will be trapped in unwanted and anti-competitive cross-marketing schemes generated among the multitude of financial affiliates that will be created by this legislation--accompanied by a wholesale invasion of personal privacy.

The financial conglomerates created by HR 10 will have an unprecedented amount of the most sensitive information about consumers including account balances, CD maturity dates, sources of deposits, medical histories and detailed data on the assets of individuals.

Not only can this information be shared among the affiliates, but the data can be

sold to third parties such as a direct marketer, another financial institution or an Internet web site without notifying the customer that the information is being shared or obtaining the customer's consent.

At a minimum, HR 10 should provide that no information be shared with either

affiliates or third parties unless the consumer gives contemporaneous approval in writing --a specific "opt-in" by the consumer. Industry-promoted "opt-out" schemes are inadequate to protect privacy rights. Under "opt-out" corporations are free to share the information unless the consumer has affirmatively objected.

In obtaining written permission for release of the information, the institutions should be required to inform the customer what information is to be disclosed and when and to whom for what purposes. In addition, the consumer, before signing a release, should be given an opportunity to review the information to ensure its accuracy.

Some industry lobbyists are quietly passing the word that an "opt-in" protection for privacy will be a "poison pill" for the legislation. If this proves to be the case, this will provide an interesting test for the Committee--will the Members vote to protect the privacy of their constituents or will they support the industry's demand for a free wheeling use of confidential information for profit-making cross-marketing purposes?

SAFETY AND SOUNDNESS AND TAXPAYER RIGHTS

This Committee played a commendable role in cleaning up the costly savings and

loan debacle, albeit with a massive bailout provision.. Chairman Leach, you and Henry Gonzalez formed a strong team that not only pushed most of the rascals out of the industry, but led the way to reforms which were essential to restoring the confidence of the American people in our financial system.

Most of the Members of the present Committee, of course, were not in office when the financial reform legislation was adopted in 1989 and 1991 in the wake of the huge failures in both the savings and loan and banking industries.

Mr. Chairman, I think you will agree that there was an implicit promise to the American people from this Committee, the entire Congress and then-President Bush that new risks would not be added to deposit insurance and the federal safety net without commensurate strengthening of regulation.

HR 10 does not keep that promise.

Rather than strengthening and rationalizing the disjointed and overlapping financial regulatory system, the legislation makes the system worse by scattering regulation, not only among six federal agencies, but among agencies in the 50 states, the District of Columbia and Puerto Rico--all under the excuse of preserving "functional" regulation--as if that was some regulatory holy writ.

Regulators, banking officials, financial analysts, key Members of Congress and the General Accounting Office have often pointed to the inefficiencies, conflicting interpretations of regulation, and the lack of accountability created by the current system.

Through the years, bills have been introduced to create a single coordinated

agency that would have the sole responsibility of regulation,. The legislation has failed in the face of opposition from the different segments of the financial community, each wanting to keep its own familiar agency. The agencies, in turn, have resisted any legislation which might endanger their share of the regulatory turf. This combination has so far been able to stymy change.

In 1994, Comptroller of the Currency Eugene Ludwig, in a burst of candor, told the Congress "it is never entirely clear which agency is responsible for problems created by faulty, or overly burdensome, or late regulation.'

The former head of the General Accounting Office--Charles Bowsher--frequently pled with Congress to change and coordinate the system. In 1993, he told this Committee:

"The current regulatory structure has evolved over more than 60 years as a patchwork of regulators and regulations...we question the ability of the current regulatory structure to effectively function in today's complex banking and thrift environment. We believe the House and Senate Banking Committees, in conjunction, with the Administration, should assess the appropriateness of continuing with the present regulatory structure and develop viable alternatives to that structure.

That was six years ago and before Congress contemplated the current legislation to greatly expand the responsibilities of the regulatory agencies by combining banks, insurance companies, securities firms and, in some cases, non-financial corporations under common ownership. If Comptroller General Bowsher questioned the efficacy of the system in 1993, what would he say about the same system if Congress goes through with its plan to pile on the vast new responsibilities of HR 10?

Like so much of the bill, the Rube Goldberg regulatory structure of HR 10 is the result of a patchwork of compromises adopted in meeting industry demands and resolving the different industry perspectives of the shared jurisdiction of this Committee and the House Commerce Committee.

Mr. Chairman, I have no illusions about the degree of difficulty of reworking, strengthening and coordinating the financial regulatory system. It would be tough. But, you have decided to make a monumental change in the landscape of the nation's financial system. If the upheaval in financial structure is the high priority that you have assigned it, then it follows that the same priority must be applied to changing the regulatory structure.

Modernizing one without modernizing the other is a recipe for financial disaster and an invitation to another round of taxpayer bailouts. I know that reforming the regulatory system would create turmoil for this Committee and the Congress. But, surely that turmoil is infinitely preferable to the turmoil of a failed regulatory system.

Mr. Chairman, it is an open secret that this legislation is creating a new generation of "too big to be allowed to fail" institutions. If this Committee and the Congress fail to set up a strong and rational regulatory system, the taxpayers will be left to pick up enormous tabs for bailouts--bailouts that will make the savings and loan collapse look small. It would be shameful for this Committee to provide for trillion dollar conglomerates and leave taxpayers protected by the current rickety, overlapping and inadequate regulatory apparatus.

WHY THE SPECIAL TREATMENT FOR INSURANCE COMPANIES?

Insurance companies receive special treatment under HR 10, testimony to their immense financial and lobbying clout These companies will be allowed to become federal financial services holding companies without facing federal safety and soundness regulation.

They will continue to be regulated by insurance departments in the 50 states--insurance departments that, for the most part, are woefully underfunded, understaffed and overly dependent on the companies they regulate. Not only will these companies avoid federal safety and soundness examination, but they will also escape CRA-like community responsibilities and will not be required to report where they make investments and sell policies as commercial banks are required to report where they make loans under the Home Mortgage Disclosure Act (HMDA).

As is true in the recent Travelers Group-Citicorp merger, insurance companies will be the dominant corporate entity in many of the holding companies. Should they fall on bad times or fail, these insurance companies would have the potential to drag down the entire holding company including banks guaranteed by taxpayer-backed insurance funds. The federal safety net--but not federal regulation--will be extended directly and indirectly to these insurance affiliates.

Federal regulators would be subservient to state insurance departments. Except under extraordinary circumstances, federal regulators would be required to defer to the state regulators on examinations, capital requirements as well as interpretations and enforcement of regulations.

In 1990, during a period of rising insurance company failures, the House Commerce Committee found "numerous weaknesses and breakdowns in this (state) system, including lack of coordination and cooperation, infrequent examinations based on outdated information, insufficient capital requirements and licensing procedures, failure to require use of actuaries, incomplete audits and improper influence on regulators.

Last year, the Wall Street Journal used the state of Indiana as an example in a story on lax state insurance regulation. In Indiana, the Journal reported, financial examiners--accountants who verify the financial soundness of the companies--make at most $31,980 yearly. The division assigned to investigate consumer complaints has no investigators on its staff, only "consumer consultants" who told the Journal that they do little more than forward complaints to companies. The department does not have a single actuary on staff to examine the fairness of insurance rates.

Even in the handful of states where insurance departments are reasonably funded and staffed, the emergence of hundreds of companies that do business across state lines as well as overseas makes it impossible for a single state department to monitor and assess risks. Adding to the difficulty is the growing complexity of investments engaged in by these companies.

The insurance industry has resisted successfully attempts to extend anti-redlining requirements to insurance companies--provisions that would require the companies to report by census tract where they write policies and make investments. They blocked federal anti-redlining legislation in 1993. Similarly, big insurance companies in 1996 maneuvered behind the scenes to scuttle a proposal of the National Association of Insurance Commissioners to conduct an industry-wide study of redlining.

Not only does HR 10 fail to extend anti-redlining provisions to insurance companies, but it makes it easier for the mutual insurance companies to rip off mutual policy holders--the true owners of the mutual companies. To facilitate this quick grab of the assets of policy holders, the legislation preempts state laws so mutual companies can change their domicile to states with laxer laws governing the rights of consumers when a company converts to stock ownership, At stake are tens of billions of dollars worth of assets that belong to the policy holders.

Sound regulatory policy that protects not only the safety and soundness of holding companies, but access to insurance by citizens and small businesses in all neighborhoods should not be sacrificed to the powerful insurance lobby. Insurance companies want this legislation badly. They should be willing to meet minimum regulatory standards--and the Committee should insist that they do.

THE DANGERS OF THE FEDERAL RESERVE AS LEAD REGULATOR

Faced with the dilemma of a disjointed regulatory system and lacking the courage to restructure the system, HR 10 tilts heavily toward anointing the Federal Reserve System as regulatory czar. More power for the Federal Reserve is not the answer.

Supporters of HR 10--and the media--often hang their arguments for deregulation on what they describe as an urgent need to wipe out "depression-era" laws--as if the mere date of these laws was enough rationale for a wholesale wipe out.

If the proponents are worried about what they describe as "outdated" statutes they might take a look at the Federal Reserve Act of 1913. It is doubtful that such a law, riddled with built in conflicts of the interest, lack of accountability and CIA-like secrecy would be taken seriously today as a proper framework for a federal regulatory agency.

Just as it was enacted in 1913, the Federal Reserve Act allows commercial banks to select two thirds of the board of directors of each of the 12 Federal Reserve Banks. As a result, not only are bankers on these boards, but representatives of corporations including securities firms and insurance companies. Among the functions of these Federal Reserve Banks are examinations and supervision of holding companies and state chartered banks that are members of the Federal Reserve.

The Federal Reserve Board also faces frequent conflicts between its primary role as the monetary policy czar and its role as a bank regulator. Hard-nosed regulatory decisions that protect the safety and soundness of banks and the taxpayer-supported deposit insurance funds do not always coincide with a central bank's concept of what promotes its desires on monetary and economic policy at any given moment.

Last fall's near collapse of the big hedge fund--Long Term Capital Management--is an example. The Federal Reserve--led by Chairman Alan Greenspan and President William McDonough of the New York Federal Reserve Bank--engineered a $3.5 billion corporate bailout of the hedge fund, claiming that there was danger of a "market meltdown." In the process, the Fed leaned on three big commercial banks under its day to day supervision--Bankers Trust, J. P. Morgan and Chase--to put up $300 million each for the bailout.

It takes no great analysis to realize that the Federal Reserve was pushing for the bailout money to assist its self-perceived role as economic czar, not as a bank regulator that believed the most prudent banking decision was for three federally-insured institutions to cough up nearly a billion dollars in credit to a sick hedge fund.

In an op-ed article in the Washington Post, Chairman Leach wrote:

...it is difficult not to be struck by the fact that shrewdest in the hedge-fund industry could commit such investment errors; that the most sophisticated in banking would give a blank check to others in an industry which they are also considered to be experts; and that the U. S. regulatory system could be so uncoordinated and so easily caught off guard.

In the 1987 stock market downturn, the Federal Reserve was also busy filling potholes in the economy. During this period, Continental Illinois exceeded legal limits on extensions of credit to one of its ailing subsidiaries, First Options. Continental's primary regulatory agency--OCC--cited the violation and ordered the bank to cease and desist

in further loans to the subsidiary.

But, the Federal Reserve, agonizing over monetary policy and a major drop in the fortunes of the stock market, decided that its purposes were best served by propping up the affiliate. As a result it let the holding company parent--over which it had regulatory jurisdiction--extend more credit to First Options, effectively negating what the Comptroller had decided was the proper move to enforce safety and soundness regulations.

Conflicts between monetary policy and bank regulatory policy is the reason that many nations separate the two functions. These include Great Britain, Austria, Belgium, Canada, Denmark, Finland, Germany, Japan, Mexico, Norway, Sweden and Switzerland.

Aside from this conflict of roles, the Federal Reserve does not have a sterling record as a banking regulator. A few years ago, the GAO raised a number of questions about the Federal Reserve's performance, noting that "lack of minimum inspection standards has resulted in a superficial approach to the bank holding company inspection process." Superficial examinations of HR 10's huge conglomerates could be disastrous.

And, of course, this is the same Federal Reserve that failed to realize that BCCI, the international rogue bank, had secretly moved into the U. S. banking system--even though BCCI's major takeover was First American Bank, located a short six blocks from the Federal Reserve's offices in Washington, D. C. It was only after the governments of other nation's uncovered BCCI operations did the Federal Reserve realize it had missed the bank's illegal presence in this country.

An expanded role for the Federal Reserve cannot be good news for consumer and community groups.

Dr. Kenneth Thomas of The Wharton School, who has published detailed studies of the federal regulatory agencies, describes the Federal Reserve in this manner:

"The problem is that the Fed almost always takes a pro-banking, rather than a pro-consumer view on major issues. Perhaps this shouldn't be surprising considering the large number of bankers, bank lawyers and lobbyists who are former Fed employees or, conversely, the large number of Fed Board members (like Alan Greenspan) who are from Wall Street or financial districts instead of Main Street or low and moderate income neighborhoods."

Two years ago, the Federal Reserve severely damaged fair lending initiatives by refusing to adopt regulations that would have allowed the collection of data on race and gender of applicants for consumer and small business loans--something that community and civil rights organizations argue is essential in ferreting out discriminatory patterns and practices and in the enforcement of Equal Credit Opportunity Act.

The Justice Department and the Office of the Comptroller of the Currency pled with the Board to adopt the regulations, but back came a flat "no." How did the Board justify its refusal to help promote fair lending? On the grounds that it didn't have sufficient guidance on national policy on the issue. The Fed doesn't know we have a national policy against discrimination?. Nonsense.

The Federal Reserve should be left with its monetary policy functions. It has not earned a promotion to czar of all in the financial world.

COMMERCE AND BANKING--A VOLATILE MIXTURE

Mr. Chairman, once again I congratulate you for winning the battle against mixing banking and commerce when this legislation was on the floor in the last Congress. You fooled the experts who predicted your efforts were doomed to failure.

But, the issue will be back before this Committee, and the battle will have to be joined again. We also know that Senate Banking Chairman Phil Gramm is planning to introduce a version of HR 10 which includes a significant basket of banking and commerce.

It is ironic that these proposals continue to be promoted after we have so recently witnessed the problems that have stemmed from this type of "crony capitalism" in Japan, Korea and other Asian countries.

The great concern about mixing banking and commerce, of course, is the potential for banks to make credit decisions on the basis of incestuous corporate relationships, rather than on credit worthiness. Such combinations ultimately would lead to a concentration of banking and economic resources as well as creating lending decisions that could damage safety and soundness of insured banks and place taxpayer-supported deposit insurance funds at risk.

The distortion of the allocation of bank credit would eventually have a substantial adverse effect on competition and the overall productivity of the economy. It would also have a negative impact on independent banks that would likely be shut out of business relationships with the commercial affiliates and the suppliers and customers of these affiliates..

Mr. Chairman, it is regrettable that "grandfather clauses" are contained in HR 10 which will allow some banking and commerce combinations to be continued for a period of 10 years with the Federal Reserve allowed to extend this grandfather for an additional five years. There are also grandfather clauses that allow unitary thrifts formed prior to October 7, 1998 to engage in commercial activities.

Grandfather clauses, particularly those extending a decade or longer, have a habit of becoming permanent. They also provide "lobbying fodder" for competitors who will be knocking on the doors of Congress, demanding "equal treatment" and level playing fields.

This Committee and the Senate should pay close attention to the counsel of former Federal Reserve Chairman Paul Volcker who has crusaded against the dangers of banking and commerce.

For those who would try to slip "small baskets" of banking and commerce into this legislation on the grounds that the baskets are limited and benign should remember these words from Mr. Volcker:

Once the foot is in the door, the pressure to ease the necessarily arbitrary limits, lubricated by ever larger political contributions, will grow stronger. The fissures in the dike will erode, new compromises will be struck, and the risks and concentrations will inexorably mount.

CRA SHOULD KEEP PACE WITH FINANCIAL CHANGES

The Community Reinvestment Act is one of the great success stories of our economy. It is has helped to generate a trillion dollars of commitments of bank credit in under served urban and rural areas, according to data compiled by the National Community Reinvestment Coalition. It has opened new markets for lenders. It has encouraged the utilization of private resources and has saved local, state and federal governments millions of tax dollars through the encouragement of the investment of private funds. It has raised the hopes of citizens in areas where there was little hope and has brought untold numbers of volunteers into grass roots community efforts.

But, if the Congress changes the financial landscape, as contemplated by HR 10, it is essential that CRA be "modernized" so that it remains a viable and vital part of the new system.

If HR 10 becomes law, no longer will community groups be knocking on the doors of just traditional banking corporations. In many communities across the nation, the financial center will no longer be just a bank, but giant conglomerates that may contain a big securities firm, a big insurance company, and possibly a sizeable industrial corporation along with a bank. Management and financial resources of the conglomerates, in many cases, will be shifted from banks to affiliates. All this will mean fewer resources will available and evaluated for CRA purposes.

The turf war between the Federal Reserve and the Office of the Comptroller of the Currency (OCC) also figures to some degree in the future of CRA. If the Federal Reserve wins this battle, most of the non-bank activities will be housed in a holding company structure where CRA does not apply.

OCC is battling to retain authority for non-bank activities to be housed in operating subsidiaries in the banks. Under the OCC op-sub structure, the income flows from the subsidiaries to the bank and would be counted as part of the bank's assets which can be evaluated in judging the bank's ability to serve community needs. Under the Federal Reserve model, income flows to the holding company parent, not to the bank.

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If the Committee retains the Federal Reserve holding company structure, it needs to require that the affiliates meet a CRA-like community test. Like the banks, these affiliates need to help meet the needs of their communities. Opponents of this concept will undoubtedly argue that the affiliates do not have deposit insurance and safety net protections enjoyed by banks and, therefore, there is no rationale to extend a CRA-like responsibility.

But, this argument ignores the fact that the large securities and insurance firms will be wrapped around one or more federally-insured banks in the conglomerates.. Neither regulators nor the Congress are likely to allow these affiliates to fail. If for nothing else the safety net would be extended to the affiliates for fear that their demise could drag down the insured banks in the conglomerate. The market will so assume and this will mean sizeable monetary benefits for the affiliates from this market perception.

As we know from the recent history of Long Term Capital Management, regulators--at least the Federal Reserve--are quick to leap in with rescues of financial entities, insured or not.

There is a clear rationale for non-bank affiliates--as well as banks--to be required to meet a community responsibility test. They will benefit from the federal safety net. .

The Chairman's version of HR 10 requires that, among other things, the formation of a financial holding company be conditioned on a "satisfactory" CRA rating by the banks that would become part of the holding company. But, I note that this version of the bill drops ongoing enforcement to ensure that the satisfactory level of CRA performance is maintained after the holding company is formed.

This weakens CRA significantly as it relates to financial holding companies. Banks that are part of these holding companies could just drop all pretense of meeting community needs after they pass the "satisfactory" test on opening day. This is absurd and should be corrected.

Similarly there is a big question as to why proponents of this legislation have dropped a provision for basic "life-line accounts" that was adopted as part of HR 10 by this Committee and the full House in the last Congress? Why this retreat from the amendment that Representative Waters offered successfully in the last Congress?

While Congress talks about financial modernization for mega financial institutions, more than 22 percent of the population, according to the Population Survey of Income Dynamics, do not have bank accounts. The current version of HR 10 does nothing about this problem. Consumer and community protections were sparse enough. The new version becomes even more an "industry only" bill.

GIVE CONSUMERS A CHANCE TO PROTECT THEMSELVES

After watching the Congress struggle with industry wish lists for three Congresses

and give little attention to the needs of consumers, it is time that consumers develop a more effective means of being heard on financial issues

What is needed is the formation of Financial Consumer Associations (FCAs) across the nation. These associations would be modeled on the Citizen Utility Board (CUB) concept which has been utilized in states like Illinois to give consumers the means to fight rate increases and promote awareness of energy conservation.

The Illinois CUB alone helped consumers save over three billion dollars in eight years and participated in a major settlement of six cases against Commonwealth Edison, resulting in a annual savings of $272 for the average single-family residential consumer and $1,750 for the typical small business.

Financial Consumer Associations would be state-chartered, nonprofit, nonpartisan organizations. FCAs would be supported by membership dues and would receive no tax money. The members would elect a board of directors which could hire researchers, organizers, accountants and lawyers.

These associations, among other things, could represent consumers before regulatory and legislative bodies, the courts and in negotiations with financial service providers. They could, as well, develop data that would provide consumers with the facts needed to deal with financial institutions and provide a means of shopping for best bargains in the financial marketplace. They could also monitor the availability of financial services to less affluent and minority borrowers and advocate policies to ensure access to credit by all consumers.

In past Congresses this Committee has considered legislation that would allow these associations to include notices in statements, billings and other mailings of financial institutions. These mailings would include notices about the existence of the associations and an invitation to join. The mailings would not cost the financial institutions anything and would be a modest reciprocity for the all the benefits of insurance, guarantees and the federal safety net that are bestowed on the financial industry.

The mailings are critical to the formation of FCAs. This process has been a huge success in attracting members to the Consumer Utility Boards. Legislation to authorize the FCA inserts was introduced in 1989 by Representative Charles Schumer, now the newly elected U. S. Senator from New York. The effort was supported by the then House Banking Committee Chairman, Henry Gonzalez. With the wide-ranging changes in the financial landscape contemplated by HR 10, now is a propitious moment to renew this effort.

I urge this Committee to include, as part of HR 10, an amendment which would allow these enclosures in the financial corporations' mailings. This would provide a chance for a broad based group of citizens to have a chance to defend consumers in a financial world that is growing more complex by the day. We have draft language which we will be happy to provide you for an amendment to HR 10. It would do much to balance the scales against the overwhelming tilt of HR 10 for financial corporations.