Bank Bill Is a Boon for Consumers

The battle over bank reform raged nearly all year, but now the Comprehensive Deposit Insurance Reform and Taxpayer Protection Act of 1991 is on President Bush’s desk, awaiting his signature. He’s expected to sign the bill by Friday.

Aside from providing much-needed funding for the bank’s deposit insurance system, the act contains several consumer-oriented provisions that should make it simpler for depositors to compare rates and for certain borrowers to get loans.

Indeed, some activists maintain that the banking bill pushed forward some of the most significant consumer protections in years. “Consumers were able to win some significant victories without the banks getting a lot more,” said Deepak Bhargava, legislative analyst at the Washington-based Assn. of Community Organizations for Reform Now, or ACORN. “These are definitely victories, but they are long overdue.”

The law aids consumers in a variety of ways:

* Truth in savings: The bill requires banks to pay interest on every dollar a customer deposits in an interest-bearing account. In the past, many banks would pay interest on only 88% of the deposit because the bank was required to set aside part of the money in reserves. The bank only paid interest on the “investable balance.” That made it difficult for consumers to compare rates because they didn’t know which banks used this investable balance method and which banks paid interest on the whole deposit.

Now all banks will have to pay interest on the full amount in the customer’s account each day. The investable balance method is eliminated, said Michelle Meier, counsel for government affairs at Consumers Union in Washington.

The law also requires more complete disclosure of account terms and conditions in both advertising and company literature.

* Loan discrimination: The bank bill attacks loan discrimination in several ways.

First, it provides several methods of enforcing the Equal Credit Opportunity Act, which bars loan discrimination on the basis of race, sex and religion. Because of limited penalties and little regulatory interest, there has been only one ECOA violation prosecuted in the past decade, Bhargava said.

The new law requires that all violations be referred to states’ attorneys general for prosecution. It also forces bank regulators to refer violations of the Fair Housing Act to the appropriate federal agency and to notify victims of discrimination that they have legal remedies.

Applicants for mortgages can now get copies of the appraisal reports used in the evaluation of a loan application. This is expected to limit the problem of low-balling home appraisals that give lenders an excuse to deny the loan.

Under the new law, those who believe that they have been discriminated against can sue the bank for both actual and punitive damages.

Finally, it gives banks incentives to invest in low-income neighborhoods, according to ACORN. Institutions that establish low-cost bank accounts, increase lending in distressed neighborhoods and invest in community development corporations or credit unions could apply for discounts on their deposit insurance premiums.

* Affordable housing: When the Federal Deposit Insurance Corp. closes and liquidates banks, it must now allow low- and moderate-income families to bid on a portion of the failed bank’s foreclosed real estate. However, losses from this program--based on the difference between the sale price to a low-income buyer and what could have been received in the open market--cannot exceed $30 million annually.

The FDIC is also authorized under this law to offer discounts on single and multifamily properties to public agencies and nonprofit organizations. The agency can provide below-market financing to nonprofits and public agencies as well.

* Branch closings: In the past several years there has been a spate of bank branch closures that have hit inner-city neighborhoods particularly hard, Bhargava said. Now if a bank wants to close a branch, it must give customers 90 days notice and justify the closure to regulators. If the branch is unprofitable, it will still be closed. But banks will not be allowed to close profitable branches in an effort to discourage certain types of loans, he said.

What was noticeably absent in this bill, however, was a provision that would have required banks to provide either low-cost checking accounts or provide free cashing of government checks. While bankers said the provision wasn’t needed because low-cost accounts are widely available, consumer advocates say they’ll try to push for it again, since bank services are becoming increasingly expensive.