New laws modernize banking rules in Pa.Tim Stuhldreher
State government recently took what one official called “a big step toward bringing Pennsylvania banking into the 21st century.”
The official is Glenn Moyer, secretary of the state Department of Banking and Securities. The "big step" is a package of three laws — Acts 170, 171 and 172 of 2012 — that eliminate archaic and conflicting provisions and streamline regulation, Moyer told legislators in testimony earlier this year.
Gov. Tom Corbett signed the laws last month. They modernize, respectively, the Banking Code of 1965, the Department of Banking and Securities Code, and the Loan Interest and Protection Law.
The Pennsylvania Bankers Association worked with the state Department of Banking and Securities on the legislation for more than a year, said association senior adviser and former president and CEO Jim Biery.
"It's banking modernization," Biery said. "These are very, very good bills."
Act 170 overhauls many aspects of Pennsylvania's bank law. It streamlines and updates language on consumer loans, business loans and mortgages. It eliminates the banking code's references to "national banks," which are redundant because such banks must comply with national regulations.
Many of its provisions are technical, but at least one should benefit banks seeking to grow, Moyer said in an interview.
Previously, banks could not spend the equivalent of more than 25 percent of their capital on fixed assets such as new branches without obtaining special clearance. Act 170 raised that limit to 100 percent, in line with nationally chartered banks.
That removes a disadvantage of the state charter for banks that want to expand their bricks-and-mortar presence, Moyer said.
Depending on circumstances, it can be significantly cheaper for a bank to own its branch properties than to lease them, said Jim Gibson, president and CEO of Camp Hill-based Integrity Bank. The savings give banks that much more capital to support lending, he said.
"A bank is much stronger when it has that money," he said. "This is a good move that Secretary Moyer is making."
Another provision addresses a frequent consumer complaint, Moyer said. Until now, when setting up a deposit account, customers could only name two beneficiaries. Act 170 repeals that limit.
Many parents want to have all their children named as beneficiaries and were frustrated that they couldn't, he said.
Act 171 bolsters the Department of Banking and Securities' enforcement authority. It allows the department "to remove unscrupulous individuals from bank management and boards," according to Moyer's testimony, and allows it to fine them for regulatory violations and breaches of good faith.
"Both banks and borrowers should be glad" about that provision, said Elaine Stanko, an attorney who practices in Harrisburg-based McNees Wallace & Nurick's financial services group.
The law requires state and local entities, including the attorney general's office, to obtain the department's approval before initiating a civil enforcement action against a bank. That gives the department the chance to weigh the effect of an action, such as a fine, on the bank's soundness, Stanko said.
The attorney general's office would still have authority to bring criminal cases against banks, Moyer said.
Act 172 modifies certain state rules on adjustable mortgage interest rates. It repeals state disclosure requirements that are duplicated in federal regulations, lessening the pile of documents homebuyers must deal with at closings.
Banks in the U.S. can choose to function under state charters or a national charter. The net effect of the three laws should be to make Pennsylvania state charters more appealing, Moyer said. More banks should want to operate in Pennsylvania, bringing more competition to the industry and more banking options for consumers and businesses, he said.
The laws should not add to banks' compliance costs, Moyer said. If anything, those costs should be lessened a bit. That was the department's goal, given the greater federal regulatory burden banks face under Dodd-Frank, he said.
Stanko, too, expressed optimism about the laws' effect.
They "will improve Pennsylvania's position, competitively speaking," she said.
Proposal would convert state S&Ls
The Department of Banking and Securities has another proposal for legislative modernization it would like to see enacted, department Secretary Glenn Moyer said.
A law to repeal the Savings Association Code of 1967 was part of the modernization package that the department encouraged legislators to enact. It passed the state House in October and was referred to the Senate Committee on Banking and Insurance, where it awaits action.
The code regulates state-chartered savings and loan associations. Pennsylvania once boasted hundreds of them, but their number dwindled to four following the savings and loan crisis of the 1980s. Rather than maintain a separate regulatory structure, the department proposes repealing the code and converting the quartet to state-chartered savings banks.
The four institutions are the Armstrong County Building and Loan Association of Ford City, ESSA Bank & Trust in Monroe County, Fidelity Savings and Loan Association of Bucks County and the Slovenian Savings & Loan of Canonsburg in Washington County.
All four support the change, the department said.