BA Committee Hearing Transcript for 02/22/2005

REPRESENTATIVE DOYLE: Okay, I'd like to call the public hearing to order. I have, we have two signups here. We're going to stick with the traditional department heads. It's not too many so I think it will work.

For the first speaker is Commissioner Burke, right behind the deck is Representative Powers. Commissioner Burke, please.

COMMISSIONER BURKE: Good afternoon.

REPRESENTATIVE DOYLE: Could you please push the button, Commissioner? There you go, thank you.

COMMISSIONER BURKE: Button's on? My comments today, my official comments will be very brief. You have before you two, only two of our bills were raised, Senate Bill 1069, and Senate Bill 1070.

I'll comment briefly on Senate Bill 1069, AN ACT CONCERNING DOMESTIC AND INTERNATIONAL BANKING ACTIVITIES. The bill is hopefully relatively benign, and should create no controversy.

What we're trying to do is simplify, in part of the bill, is simplify the process of applying for a branch application.

We have an area, for example, when someone decides to move a branch, and they apply to move a branch, they want to build a branch, they have to put down two applications.

We feel that's kind of redundant and unnecessary, so we're trying to do away with that. In addition, we're not going to, I should put it this way, we are currently charging when an international bank changes its name.

They pay us to do that. We have no authority, we've discovered, to either disapprove or approve that, so it doesn't seem appropriate that they ought to be paying us.

And it's a $100 fee, but it's a nuisance fee, so we're getting rid of that. I guess we're just trying to be good guys in this case.

The other thing of import is that, particularly in regard to banks, when someone is doing something inappropriate or improper, or in some cases illegal, we currently have the authority to find them, but no authority to issue a cease and desist.

And what this does, and I believe it's just an oversight of past legislation, we've added that authority to the Banking Commissioner to tie in with the ability to issue fines where appropriate.

We can issue a cease and desist, which makes it a matter of public record, and I think it's important that we have that ability. Beyond that, I don't have any other comments on that bill. On the other bill, Senate Bill 1070, it is exactly--

REP. DOYLE: Commissioner, can I interrupt you? Maybe just for simplicity, I'll ask if any Committee members have questions on that bill, just to make it easier.

Any questions? Okay, thank you. Representative Barry?

REP. BARRY: I do, Sir. Sorry for my laryngitis today. You were just mentioning the, in your testimony here, your written testimony, you were talking about unsafe or unsound practices related to the Connecticut banking industry.

COMM. BURKE: Yes. That's one of the things we do evaluate with a branch application, to be sure that it doesn't violate or look like it was an unsafe or unsound practice to do that.

REP. BARRY: Okay, and are there particular standards in regulations that define what unsafe or unsound practices are?

COMM. BURKE: No, there are things we look at for unsafe or unsound practices, and the major one in this case could be capital impairment, if they can afford to do what they're doing without endangering the rest of the operation.

In other words, if they're building an extremely large branch, spending lots of money on nonperforming assets, and they don't have the capital to do that, and that affects their future earnings flow, their future forecast of earnings, we might under that basis say that's an unsafe and unsound practice.

There are no lists of unsafe and unsound practices. It becomes a judgment call on the part of the examiner.

REP. BARRY: On the part of who?

COMM. BURKE: Our bank examiner.

REP. BARRY: Your bank examiner? Okay, thank you very much.

REP. DOYLE: Are there any questions on this particular bill? Seeing none, thank you Commissioner, could you go to your next bill please?

COMM. BURKE: The next bill is Senate Bill 1070, AN ACT MAKING TECHNICAL REVISIONS TO VARIOUS STATUTES RELATIVE TO THE BANKING LAWS IN CONNECTICUT.

And they're just that, I don't have any additional comments on that. We normally have a bill like this, this is just kind of a cleanup bill to straighten out some of the language that was put in, in previous sessions. And that's what this bill is.

REP. DOYLE: Thank you, Commissioner. Any questions from Members of the Committee on this bill? Any other questions for the Commissioner? Senator DeLuca?

SEN. DELUCA: Thank you, Mr. Chairman. Good afternoon, Commissioner. Not specifically on the two bills that you spoke about, but there are some proposed bills, one in particular that I noticed, that put some restrictions on State-chartered banks.

And that has happened on a few occasions in the past years. And since we have no restrictions on whether State-chartered banks could convert to federally chartered and vice versa.

Being new to the Committee, that's why I'm asking you this. Is this, in your opinion, or can you comment on some of these restrictions, would further give incentive to maybe State-chartered banks to convert to federally chartered, and which we have no restrictions on that?

COMM. BURKE: Yes, Senator, thank you. Unfortunately, the word that is bandied about a lot now is preemption.

And essentially what we're talking about is the ability of national banks or federal banks, which are chartered by the Office of Thrift Supervision to preempt state law.

And therefore, whatever passes here in this House affects only our State-chartered institutions, of which there are now 47, I believe, at this point in the count.

And if it impacts them in a negative way, such as restriction on fees, I notice there is an ATM fee bill up for consideration. That becomes a sore point for them.

And they have the ability, there hasn't been anybody that has been turned down to shift over to a national and federal charter. We have had this situation.

We lost a bank this year who were concerned about some of the limitations we have on conversions to stock.

There was a bank converted last year which got a fair amount of publicity. There was some concern on their part that there might be some limitations put in by the State, so they converted to a federal charter.

We lost them. And we lose complete control of them. We have no way to access them, no way to respond to consumer complaints, or anything else, so it's really not a good thing.

SEN. DELUCA: Does, in your opinion, does that affect consumer and business customers, when a State-chartered bank converts to a federal? Does it impact them in any way?

COMM. BURKE: Not really from the point of view of service. I think the bank stays in the same service.

The case that I'm talking about still operates locally. It provides the same, if you will, the same products and the same packages. The thing that can hurt the consumer is if there is a problem.

And we deal with that head to head, we know their personalities and we have, obviously, the leverage of the Department to do that. If it is a national or a federal bank, we have no recourse to help that consumer.

That consumer, in the case of an OCC, must end up calling Houston, Texas, to try to get an answer, which we don't think really is helpful. That's where, I think that's where the difficulty comes.

SEN. DELUCA: Most consumers would automatically assume that the Banking Commission of the State of Connecticut is where they would go, correct?

COMM. BURKE: We get that call all the time. We try not to send them out, if in fact the national or federal bank will cooperate with us.

And in most cases they will, they'll try to solve the problem, but in some cases they can literally tell us to go mind our own business, frankly, and that has happened.

SEN. DELUCA: And at its best it does extend the situation, it takes longer to resolve, even at its best.

COMM. BURKE: No question about it.

SEN. DELUCA: Thank you very much, Commissioner. Thank you, Mr. Chairman.

REP. DOYLE: Thank you, Senator. Any other questions to the Commissioner? I just have one question for the Commissioner.

We see today on our agenda, unrelated to the bills you've already testified on, we have three bills, one, two, and three on the agenda relating to reversed mortgages.

I'm just trying to be honest that the Committee, and myself in particular, are going to get educated on the issue today.

I'm wondering if maybe, I don't know, it may be unfair at this point, but do you know how many complaints has your Department had in recent years about this issue?

I'm just curious to try to find the problem and how widespread it is.

COMM. BURKE: We've had no complaints about reversed annuity mortgages, at all. As you may recall, when we put through the predatory lending bill, now I think almost four years, the reverse annuity did fit under that, because of the way they were set up.

They were excluded from that, and yet since that time we've had no difficulties with those bills, I mean with that type of mortgage.

We've had lots of problems with other mortgages, but never specifically with reverse annuity ones.

REP. DOYLE: Thank you, Commissioner. Any other questions for the Commissioner? Thank you, Commissioner.

COMM. BURKE: Thank you very much.

REP. DOYLE: Next stop is Representative Powers, and then on deck after this, Senator Christopher Murphy.

REP. POWERS: Good afternoon, gentlemen. I'm over in Executive Noms, and we've got the Commissioners of DEP, AAG, and Rebecca Loboa next, so I'm going to be real quick, and then I'm going to disappear.

One of the bills that you just referred to, one, two, and three is actually is mine. Senator McDonald and I were sitting together at a Seniors' Providers of Services meeting in January, the beginning of January.

And one of the individuals who is a service provider stood up and indicated that he had been seeing over the last couple of years individuals who were having difficulties with the reverse mortgage.

And he said do you understand that they are exempted from the, I want to get this right, from the Abusive Home Lending Practices Act.

I looked at the Senator, and he looked at me, and I said I didn't know that, did you? And he said no. I said why. And the gentleman didn't know.

So Senator McDonald and I said, okay, you put in a Senate one and I'll put in a House one, and we'll see what's going on. And that's why they are before you, and thank you for raising them.

The bill that is mine, actually it's a Committee Bill, the concept that I put in, which is House Bill 5178, was simply to take that exclusion out.

I understand the AAG's bill is much more complicated and lawyerly, as it should be, so I will leave that to you guys to sort out how you want to handle that.

My message is quite simply that it seems to be an issue, and it was brought to our attention, so we have brought it to your attention.

Clearly the real estate market has been a very hot market for the last three years. It's probably the single sector in our economy that has done well, and continues to do well.

The numbers that just came in for January are that they were better for last January. So clearly we need to make sure our seniors are informed, that they are handled properly, that they don't feel like they have been cheated in some way.

Sometimes people feel like they've been cheated and they haven't, but they just don't understand the process. Those are some things that I think need to be looked at.

And as I said, I will leave that in your capable hands, and I know that you will do the best that you possibly can for our seniors. Thank you.

REP. DOYLE: Thank you, Representative. Any questions for Representative Powers from Committee Members? I guess I'll ask you one question.

I'm honestly just trying to, I'm looking for like, when you were at the meeting, did you hear any specific examples of how people were hurt?

REP. POWERS: No, he was reluctant, he was not, well, you know, we were all sitting behind a table and they were all out there.

It was not that kind of a situation where you could say was it a specific bank. Was it a specific individual? Was it a cluster of mortgages in a specific town?

These were providers providing services for lower Fairfield County.

REP. DOYLE: Well, I would just ask, if you can come across any details, it would be helpful to kind of educate the Committee, is how I'm looking at it.

Any other questions for Representative Powers? Senator Finch?

SEN. FINCH: Did you know about the mandatory referral a senior must have?

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REP. POWERS: Under HUD, yes. But HUD does, I guess the number is 85%.

SEN. FINCH: Your lips were moving, and those weren't the words coming out. I thought you were able to throw your voice. That's pretty good, I want to learn that.

REP. POWERS: No, my understanding is that HUD does about 85%--

SEN. FINCH: Hold on a second. I want the record to preserve what you're saying.

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SEN. FINCH: I think we're fine now.

REP. POWERS: Oh good. It's my understanding that HUD does about 85% of these mortgages, and they require the counseling and the explanation and all that kind of stuff.

It's the other 15% that aren't covered that way. Now I'm sure that a careful lender will do that anyway, but we just want to make sure that, in fact, the seniors that are not up to the 15% are clear on what it is they're signing, they're clear on what's going to happen.

If in fact they have someone who helps them with their bills, or signs things, or manages their money for them, that person's involved, and signs for them as well. Just kind of the basic things we're dealing with with our seniors.

SEN. FINCH: Do you know why there're 15% that don't have to go through a not-for-profit agency for the mandatory counseling? Maybe we'll get to that as we hear more.

I just want to thank you, and I will get a chance to talk about this more, but I know the Committee is very concerned that there could be something that could discourage people from using reverse mortgages.

We know there's not enough money in the world that would solve all the staying at home healthcare issues.

And as a matter of public policy, we want to make sure that people felt secure in this type of lending, because it has such a social import to all of us, that we use reverse mortgages.

So I think the impetus that we had hearing from you, Senator McDonald, the Attorney General, was just make sure that reverse mortgages are used as much as possible for the consumers who need them so terribly.

So we want to thank you for bringing it to our attention, especially, and just to ask you that if you hear of other information about this, the Committee is very eager to get that, if you could forward it to one of us, and we'll get it to the Committee. And thank you.

REP. DOYLE: Thank you, Representative. Senator Murphy.

SEN. MURPHY: Good afternoon, Senator Finch, Representative Doyle. I've submitted written testimony on Committee Bill Senate Bill 158, that you were so kind to raise for public hearing today.

I will let that written testimony stand, only to let you know that what I think the proposed bill, which you've turned into a Committee Bill, gets at is curing probably a technical oversight in our law on disclosure of customer financial records.

This was brought to my attention by a friend and colleague of mine, and I have no expertise or experience on this issue.

It appears that in writing the Statute on the disclosure of banking information that we allowed for a mandatory minimum 10-day grace period from which you request a subpoena, and then the records are actually disclosed.

When we went and allowed for the customer to challenge that subpoena, we limited that challenge to only that ten-day period.

So a simple example is a subpoena is issued with 30 days between the issuance of the subpoena and the need that the records be disclosed.

The customer, actually, under current law has to wait until the last ten days before the records are disclosed, to challenge that subpoena.

It seems as if we just didn't carry language over within the Statute, and all that the colleague of mine and I are suggesting here is that we allow for that challenge to the subpoena to happen immediately upon it being issued, and that they don't have to wait until ten days beforehand.

In my testimony, I've just recommended some additional language which may clear up the challenge still has to occur before the records should be disclosed.

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SEN. MURPHY: Again, see I can do it too.

REP. DOYLE: It was more convincing with Representative Powers.

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SEN. MURPHY: Again, I think this is getting towards the initial intent of the law, and this will make it clear to customers and the financial institutions that have to disclose these records as to the legal disposition of that challenge as early as possible.

I'd certainly appreciate the Committee taking a look at this issue.

REP. DOYLE: Any other questions for Senator Murphy? Seeing none, thank you, Senator. Next up on the public officials is Vanessa Burns, from the African-American Affairs Commission.

VANESSA BURNS: Good afternoon, Senator Finch, Representative Doyle, and ranking Members of the Banking Committee.

I just want to say, every time I come to this Committee, it's the most well-dressed audience out of all the committees that I attend to. I just want to say that's kind of interesting.

My name is Vanessa Burns, and I'm the executive director at the African-American Affairs Commission.

The Commission is a State legislative agency charged with influencing policy and legislation affecting the socioeconomic status of African-Americans in the State.

The Commission is pleased to appear today on a number of what we call consumer protection issues.

House Bill 5486, AN ACT CONCERNING PAYDAY LOANS, House Bill 6695, AN ACT PROHIBITING ABUSIVE PRACTICES IN MAKING A REVERSED ANNUITY MORTGAGE LOAN, and Senate Bill 618, AN ACT CONCERNING PROTECTING CONSUMERS FROM PREDATORY LENDING PRACTICES ASSOCIATED WITH REVERSE MORTGAGES.

Firstly, in reference to House Bill 5486, AN ACT CONCERNING PAYDAY LOANS, the Commission strongly opposes loans that initially, essentially keeps borrowers trapped in a kind of never-ending cycle of revolving debt.

Accordingly, the Commission asks the Legislature to enact stronger laws to safeguard the public from the abusive lending practices of certain payday lenders in the State.

Research demonstrates that such abusive lending practices, or maybe we should say modern day loan sharking disproportionately affects minorities from low income backgrounds and other disadvantaged groups.

An actual study found that African-American households are more than twice as likely to borrow from a payday lender as white households.

Fringe banking centers like check cashing and payday loan offices favor location neighborhoods with high minority populations.

Although payday loans are marketed as one-time emergency assistance during a financial emergency, a 2003 study by the Center for Responsible Lending found that 91% of all payday loans are made to borrowers with five or more payday loans per year.

Borrowers, on average, receive 8 to 13 payday loans from a single payday vender per year. Most payday borrowers go to more lenders, dramatically increasing their total number of payday loans per year.

Only 1% of all payday loans are made to one-time emergency borrowers. The issue of predatory lending is not limited to payday loans.

It also affects individuals with families struggling to buy or maintain homes, such as the elderly, minorities, and immigrants.

As many here are aware, homeownership continues to be the only avenue available to many low income families in building assets and gaining wealth in today's competitive economy.

Many predatory lending practices have misled them into making the wrong choices and sunk them deeper into debt. I just want to give you a couple of examples.

We have had, in the past year, at least three or four calls from elderly minority citizens who, for example I had one lady from, I think it was Waterbury, who, somebody basically came to her neighborhood and told her that they knew that she needed to get some work done on her house.

And she ended up signing papers, and ended up paying about, I think it was $1,700 a month, and was in crisis in not knowing how to pay something that was sold to her kind of as a bill of goods.

What we did, I know, was be in contact with the Department, the Banking Commission, and they were working with her as well.

I think that both the Banking Commission that I talked to about the woman, and the other cases that we've had, sometimes by the time they get to the Banking Commission, or they get to call somebody like us, it's almost at the end.

Their houses are almost in foreclosure because of their inability to pay those loans.

I think the Commission's position is that we know that people are, you know, in business, but we want to make sure that people are required to give complete notice, even if it means potentially that people have to go to somebody like a credit counselor before they can get some of those loans.

A lot of times, in the three or four instances that I know about, and if we've gotten three or four instances, there're a whole lot more we never see because they don't know who to call, is that it is a problem.

And as the real estate market has increased, it is more of a problem, because people see it as a way to get out of debt, and what happens is they get more into debt.

So what we feel you guys should work on is effective legislature to address the abusive lending.

And I had to laugh, the reason on page three, I'm not referring to Franklin Raines anymore, because I should say the former chairman of Fannie Mae made it that as many as half of the borrowers who receive high-cost sub-prime loans could have indeed qualified for traditional mortgages at lower interest rates.

As an example, I had a friend who needed to get refinanced. She went and had one or two bad things on her credit, but generally it was not a bad number, in terms of credit number.

She was told that it was not good enough for her to get a regular mortgage. She went and got a sub-prime mortgage, and then subsequently found out that that was not true.

She then paid off the new mortgage that she had gotten, but she had to pay $20,000 upfront.

So when she went to refinance at a lower rate, she had to rollover the money, because you know they do the interest upfront, so she rolled over, so it cost her $20,000 to get out of that debt.

I'm only saying that it is an issue of education, and we clearly need to do more of that throughout the country. Thank you.

REP. DOYLE: Any questions for Ms. Burns? Representative Scribner.

REP. SCRIBNER: Thank you, Mr. Chairman. I just wanted to clarify something you stated earlier in your testimony in regard to some exchange that took place with someone you referenced was experiencing a problem with the reverse mortgage, that there was some exchange of information with the Banking Department in regard to that.

VANESSA BURNS: Yes, the Banking Commission was working on it, but they really didn't understand what the Banking Commission was saying.

Because they didn't understand, I think they were looking for someone to interpret for them, because they didn't understand what the Banking Commission people were saying to them.

And I think in part, it wasn't that the Banking Commission was not trying to be helpful.

I think the financial capacity of the person to understand, competency to understand the whole dynamic was what got them in trouble in the first place.

Even by the time it got to the Banking Commission, the fact is, the Banking Commission at the time was saying that it was duly noted, duly signed, and there was nothing they could do about it.

They didn't understand that they wanted somebody to help them. And I think they were looking for somebody to help them, and in fact it was probably too late.

REP. SCRIBNER: So then, you interpreted the exchange that went back and forth as seeking information and assistance, as opposed to a complaint being filed?

VANESSA BURNS: Oh, no, it was definitely a complaint, and the complaint was at the Banking Commission, and I'm not sure whether that was a reverse mortgage, or just a regular mortgage that a predatory lender had come in there, so I can't remember the details of that.

But in either case, I think it's the same issue, in that there are people that are being taken advantage of.

REP. SCRIBNER: I just wanted to clarify that, because the Commissioner had stated earlier in his testimony that the Commissioner had not received any actual complaints in regard to reverse mortgages.

And so I wanted to ensure that what you had stated was not viewed as that.

VANESSA BURNS: But if you, right, but if you asked the same question about whether they have been receiving complaints regarding predatory lending, I think you'd have a different answer.

REP. SCRIBNER: I'm certain of that.

VANESSA BURNS: The other thing that, very quickly, that I'd also like to say, and I don't think it's in the body of any of your bills.

The whole issue of, for example, going to H&R Block and other companies like that doing taxes, and getting instant loans.

REP. DOYLE: We do have a bill on that. Not today, it's coming up.

VANESSA BURNS: Right. But because, in fact, you can get it in ten days anyway so, you know, I think there's a whole range of things, and I applaud you for going to start looking at that.

REP. DOYLE: At the next public hearing it will be on the agenda, so feel free to testify. Any questions, any other questions? Thank you very much.

VANESSA BURNS: Thank you.

REP. DOYLE: At this point, are there any other public officials, elected officials who want to speak? Seeing none, we'll go to the public agenda.

First person on our list is Filis Stober, from Connecticut Bankers Association.

FILIS STOBER: Good afternoon, Senator Finch, Representative Doyle, and Members of the Committee.

I'm here to testify on behalf of the Connecticut Bankers Association, and I'm going to talk about Senate Bill 450, AN ACT PROHIBITING BANKS FROM IMPOSING FEES OR CHARGES FOR THE USE OF TELLER SERVICES AND THE CASHING OF CERTAIN CHECKS.

I'm also here to talk about House Bill, or Committee Bill 6014, AN ACT ELIMINATING FEES OR CHARGES REGARDING DORMANT BANK ACCOUNTS.

And we have submitted written testimony on both of those. I'd just like to point out a couple of things.

I'd also like to point out that the Connecticut Bankers Association supports House Bill 6696, AN ACT PREVENTING BANK IMPERSONATION AND MISLEADING ADVERTISEMENTS, and that is a bill that we strongly support and feel is very important.

The other two bills I'm going to talk about, in opposition to those bills. One of the main reasons we oppose those bills, which both regard eliminating certain types of fees, is something the Commissioner talked about a little while ago, the issue of preemption.

We're very concerned that, because of the federal preemption which has been supported by the courts, very recently Wells Fargo v. James, Fifth Circuit Court of Appeals court supported the preemption of a state law that would have eliminated the possibility of charging service fees to non-customers for cashing checks.

They took the position that, because the National Bank Act says that a national bank can charge service charges, that that preempts the state's ability to say that they can't.

They said that even though that Act applies to customers, the interpretation by the OCC, that a customer includes someone who comes in to cash a check, was something that had been delegated by Congress to the OCC.

Because probably about 60% of the depositors in Connecticut do go to federally chartered institutions, these bills would only affect a smaller percentage of depositors.

Again, they would affect the State-chartered banks who, as the Commissioner said, have the ability to convert their charters if they're not happy.

There's nothing that the State can do to prevent that, and there have been recent examples of banks that have converted to national charter.

So that's one of our main concerns. Another thing is that we don't actually feel that these bills are necessary.

Under Federal Truth in Savings and the Connecticut Depositors Comp Contract Tax, which was in place long before Federal Truth in Savings, banks are required to disclose to their customers all of the fees that they charge before the account is open, and, if it's a new fee, 30 days before the fee is imposed.

That gives customers an opportunity to shop around. Banks are also required to disclose fees upon request, so if someone's looking around at different banks and wants to see what fees are charged they're entitled, by law, to get a copy of the bank's fee schedule.

Therefore they can shop around at different banks before they open the account. We feel that there's plenty of choice, there's choice even within a particular bank as to what's the best account for a particular person, and the individual consumers have the opportunity to shop around.

We also don't want to eliminate a ban's ability to charge a fee, because that can be helpful. It can actually make an account less expensive.

For example, with regard to fees for using teller services, the Social Security Administration, several years ago, adopted legislation to encourage banks to open electronic transfer accounts.

With an electronic transfer account, the Social Security deposit would be directly deposited into the account, but it would have to be a low-cost account.

The charge couldn't be any more than $3 per month. The bank would have the opportunity to have the list, to have the free transactions be limited to four free electronic withdrawals per month.

And the purpose of this legislation was to provide a low cost alternative to people who currently don't have bank accounts.

By imposing a law that says that you cannot charge for seeing an actual teller, it would eliminate a bank's ability to provide these low cost bank accounts.

Many banks in Connecticut are providing these, in accordance with the Social Security regulations.

Also, some of the fees are legitimate, because there are legitimate expenses the bank have to help prevent fraud, and to protect their own customers.

For example, check cashing over the counter for non-account holders requires a bank to take certain steps to try to the best that they can to eliminate fraud.

They need to identify the person who's cashing the check, and more sophisticated systems will also allow them to see if that particular check is also one that was authorized by that particular customer.

For example, a recent scam that I've been hearing a lot about is counterfeit payroll checks, where a group of people will hit a lot of branches simultaneously with counterfeit payroll checks of the same business.

They can withdraw thousands or tens of thousands of dollars in a very short period of time, because they just walk in, one right after the other, in multiple locations to cash these checks.

Well, with sophisticated systems, such as a positive pay system, where a bank is able to determine if that is in fact a check that hasn't been paid and that has been authorized by the customer.

A lot of that fraud can be prevented. So there are legitimate expenses that the bank should have an opportunity to recoup with reasonable fees.

So for these reasons we oppose those two bills. We don't think they're necessary.

We're concerned about preemption, and we think in some cases we could be throwing out the baby with the bathwater, so to speak, by eliminating some of the flexibility banks have as far as their pricing and the types of accounts they offer.

REP. DOYLE: Any questions on those two bills, anyone? Representative Serra.

REP. SERRA: Thank you, Mr. Chairman. Let me ask you, what is the general bank policy for dormant accounts? At what point does the maintenance fee kick in?

FILIS STOBER: That varies. The policies for dormant accounts and when there's a fee, of course, varies from bank to bank.

As we mentioned, some banks will have one, some banks don't. It will depend on the type of account. Typically the policy for when a savings account is found to be dormant is going to be a longer period of time, several years, without having heard from the customer.

It may be a little bit shorter for a checking account, because you usually expect checking accounts to have a lot of activity.

That may be somewhat shorter, but again it can be a couple of years, or there may not be a dormancy fee at all, especially for a lot of accounts like this.

Certificates of deposit wouldn't have a dormancy account, a dormancy fee rather, because that's an account where you don't expect to have a--

REP. SERRA: Let me tell you what my concern is, and I've heard from many people, in fact I hate to admit it happened to my family a long time ago, so.

Grandparents or parents start accounts when their grandchildren are born, or their children, and they put money in.

As you raise a family, as you go through life, and I think we all know it, other pressures come into the family. Money is not as readily available, so you forget about the account, so to speak.

If my recollection is correct, up until the age of 18, I don't think banks can charge a dormancy account on somebody under 18 years old. But I stand to be corrected.

After that, they start deducting a monthly maintenance fee if there's no activity. What happens is parents or grandparents are rummaging through their drawers, and they see these bank books.

They call their grandchildren in, or their children, and they say here's the bankbook I started when you were four or five years old, or at the time you were born.

They go down to the bank, and there's no money there, and the account is closed, because it was taken by the bank. Am I correct in saying that?

FILIS STOBER: --Well, obviously you said it's something you've experienced. It can happen, so let me point out there is actually not a prohibition on charging the fee on children under 18, but most banks voluntarily waive the fee on children under 18.

So that's a sign of how well the system works, is that banks will not impose that on children under 18. The fees, of course, can kick in if there's a small amount in the account. That can happen.

Whoever opened the account will have gotten notice that there was a fee when the account was opened, if they went in to check on the account, or update the interest, the fee will generally not kick in at most banks. So it's fairly simple to avoid.

You can have a situation where the account is so small that in a short period, you know, if they've got a very small amount of money in it, naturally the fees could use the balance.

I don't think that that, in and of itself, is a reason to totally prevent this type of fee, because I think it's something that the marketplace can take care of.

People do have some responsibility to look at disclosures, to update their passbooks, and to keep track of it to some extent.

REP. SERRA: Let me ask you another question. Do dormant accounts accrue interest as they're there?

FILIS STOBER: Yes, dormant accounts would still accrue interest.

REP. SERRA: Okay, so I hear that the biggest issue for banks is the fact that they must maintain these accounts, and this is a tremendous cost to the bank.

In today's day and age, with computers and everything, I don't agree with that. I don't think that's the case.

I think it was the case 30, 40 years ago, where you did a lot of manual work in a bank, with individuals.

FILIS STOBER: Let me say a couple of things about that. Sometimes the fee is not actually a dormancy fee. Some of the people who feel that the fees have used the account, might have been a minimum balance fee.

There might have been a very small amount in the account. And there is a certain cost to maintaining every account, and of course the cost doesn't change that much, because it's a very low balance, so the minimum balance fee is a legitimate service fee that most accounts have.

Most accounts that don't get eaten away have a minimum balance fee, these happen to be accounts that had a very small amount, and the customer was not focusing on it.

With regard to dormant fees, there are some particular costs associated with dormancy, dormant accounts, that you might not be aware of.

For example, putting aside the issue of the state SG rules, an auditor will expect a bank to be paying extra-close attention to dormant accounts, because of the opportunity for fraud with regard to the dormant account.

So if an account has had no activity for a long time, and suddenly someone comes in and starts to have a lot of activity, the bank will be required by its auditors, as a matter of safety for the protection of its customer, to go in and take a harder look at that account, to see what's going on there.

So those are some legitimate costs regarding dormant accounts that banks do have. And again, you know it's hard to say in a particular instance exactly what fee had kicked in.

What was the exact situation, how long had it really been since there had been any contact with the bank, and what the actual balance was in the account.

REP. SERRA: The other question, you know I understand that. I just think that the banking industry, at least from my perspective, at a certain point, a letter should be going out telling, especially younger people who maybe just started to take charge of their own financial destiny so to speak, that there hasn't been any activity in this account, and if there is no activity in this account within a certain described time, this is what's going to kick in.

At the same time, I think it's important, if the bank was smart, and I'm sure they are, to also state maybe on that letter, the services they can provide to this young adult as they move into adulthood.

And at least, you know, I mean, I won't show you the name of the bank, people would recognize it, these are all fees scheduled.

There's got to be a specialized attorney in this area, you know. The other thing I don't agree with is when you go to a bank, and you go to open a checking account, absolutely.

You go in there asking what's the minimum balance and all of that. But people who open a savings account are not discussing dormant fees and this or that, in terms of the interest rate.

So my concern is not as much to do away with, I understand you're in the business to make money, and I understand that, but I think the customer should get a fair shake.

It's their money, and you're really taking it as a dormancy fee, maybe that's not the right word, some kind of a fee.

I think they should be notified that if you don't do something with your account, this is what's going to happen.

FILIS STOBER: Well, you know, as I started off talking about disclosure and how there is disclosure, I think there's been an effort in the law to make sure there's adequate disclosure.

But to the extent that a little additional disclosure may be helpful, I'm sure that's something that the industry [Gap in testimony. Changing from Tape 1A to Tape 1B.]

REP. SERRA: The fee is one thing, but I think with a smile, the banking industry can say, hey, listen, you've got this small amount of money here, if you don't do something with it, because we have to maintain it monthly, we're going to start removing some money.

We're just letting you know, do something with it. At the same time, I think that's a vehicle for the bank to tell them what they're all about.

Usually this happens to young people, whose parents or grandparents have started these accounts and totally forgot about them, and then find them.

FILIS STOBER: I think the possibility of additional disclosure is something that the industry would look into at this point.

REP. DOYLE: Any other questions? Representative McCory?

REP. MCCORY: In regards to the ATM fees. In your testimony stating that the customers have the option of shopping around, it's odd because, I guess up until about three years ago, I could find one ATM machine in my neighborhood.

So the option of people shopping around wasn't there. And I guess I don't have a problem with the fees, it's just, okay, when we start at a certain point, when does it end.

Last year it was $.50, two years ago it was $.50, last year was a dollar, now it's a $1.75, so we're charging people almost 10%.

If someone goes to an ATM to take $20 out, we're charging them 10% of their own money. At some point the person, the rate is just going to get to a point that, I guess a lot of people are going to say that enough is enough.

Is there some kind of sliding scale we can use based on the amount of money we withdraw from the ATM machine or something like that, to make it a little more progressive?

I'm just concerned that next year, we'll be charged $2.25 just to get $20 out of the ATM machine. That's my only comment. And you also said something to the effect that you use the funds from the ATM to prevent fraud.

I'm still, when I go to the bank, I still get ID'd. That's part of the process too, when you're doing banking. You still ID me when--

FILIS STOBER: Let me just clarify that, and touch on your other point. What I was saying is that if there was, the fee for a non-customer to cash a check can help to compensate for the cost of the bank in making sure that that non-customer isn't committing fraud, doesn't have a counterfeit check that they're actually cashing.

That was the point I was trying to make there. With regard to the ATM fees, I think that this bill was really about teller services, and the cost of actually using a regular teller.

But with regard to the ATM fees, there are different accounts that will charge for different things.

Some will charge for using a teller, some will charge for a foreign ATM. Some banks will charge more than other banks will, and the fees are disclosed.

If you get a fee that you don't, you know, the customer, or anybody has a fee that they think was exorbitant is free to look around and try to find a bank that has a different free structure, or a more conveniently located ATM so they don't have to use foreign ATMs and incur a fee.

At some banks, it might be less expensive to go to the teller. At some banks it might be less expensive to go to the ATM.

There are various fee structures, and our position is that these are disclosed, that the market can control, and that even if we passed this legislation, the majority of deposits in the State being national or federal banks won't be touched by it.

And then you'll have a situation where you have this kind of two chair system about what banks can charge for fees within the State, which we think is problematic for our State-chartered banks.

And we think it's problematic for maintaining the two-tier system, and having State-chartered banks, because of the fees of conversion.

So we have some differences that aren't solely based on whether or not a particular fee is a good fee or not.

You know, we obviously think that customers should take advantage of their ability to shop for a better fee structure.

REP. DOYLE: Representative McCory, do you want to follow up? Representative Guerrera.

REP. GUERRERA: Good afternoon. On House Bill 6014, I just want to piggyback on what Representative Serra was saying. And I apologize for coming late. I was at another meeting.

What is this, the format that the banking system uses? Do they set out a letter to someone that has a dormant account?

FILIS STOBER: Currently that's not required by the law.

REP. GUERRERA: I know it's not required, but do they do it?

FILIS STOBER: Some banks may do that. I can't say that every bank, at the time the dormancy fee is about to see, currently sends a letter, because, you know, it's not a specific requirement.

What is required is the time that the fee becomes a part of the fee structure for that account they have to notify the customer in advance.

REP. GUERRERA: Is there any reason why they don't send a letter, do you know? Is there a cost?

FILIS STOBER: Well, obviously there's a cost factor every time you do an additional mailing. But as I said, that would be something that I believe the industry would be willing to look at.

REP. GUERRERA: Thank you.

REP. DOYLE: Any other questions? Senator Finch.

SEN. FINCH: First off, as a former branch manager, I know what a pain in the neck the dormant accounts can be.

But I think, as Representative Serra pointed out, and I think it gets the point where we don't need legislation to do this, we just need branch managers that are more on their toes.

Because it is an opportunity to you know, get in good with the customer, and tell them what a great country we have, where we forget we have money.

I think that's a pretty nice thing to say about our country. I wanted to ask you about 450, Senate Bill 450.

I think that the tenor of your comments is pretty much regarding foreign transactions, you know, other banks.

The maker of this piece of legislation told me that he's being charged to cash a bank drawn on his own bank, even sometimes from his own account.

Now it would seem to me, in the pricing structure, that with all the push towards electronic information, the banks know how many paper transactions there're going to be, and how many electronic ones there will be for most customers.

Most customers will have far more electronic than paper, or at least a similar amount. Can you tell me what's giving rise to charging your own customers for charging their own check?

Because I think up until now, and correct me if I'm wrong, that's been a very taboo kind of a thing.

FILIS STOBER: Well, I think that banks are getting more into having various pricing structures. I mentioned, for example, the pricing example for the ETA account, where you would probably charge for someone cashing a check at a branch.

Yet that might serve a particular segment of the society because the monthly service charge would be so low, and the number of times that a customer would actually have to go into the bank to cash the check would be so low, because they would have direct deposit, that they're actually going to be overall paying a lot less monthly for their account, even though if they did go to see a teller and cash a check there might be a charge.

I think that what banks are doing, is they're structuring accounts in different ways. Some banks will have a minimum balance which some people simply cannot meet, but then they will have no monthly service charge.

For those people it might be less expensive to use the ATM where they may not get a fee, for example let's say with an ETA type of account, no fee for using the ATM, that might be less expensive for them.

They might not need to go to the bank to cash a check. They might work certain hours where it's inconvenient even to go to a bank and cash a check, and primarily only use the ATM.

In those cases, it might be a lot less expensive for that customer. So I think it's more a matter of choice and structuring accounts in different ways, and people can look at what will work for them.

SEN. FINCH: So the person who has one of those accounts, it's probably a low number of transactions account, a no-frills account.

What you're saying is don't hamper the private marketplace, let the marketplace regulate this and offer these products, and just try to educate the consumer that they're getting a charge on this check.

That sort of flies in the face of what we're used to, but you're getting it because you're getting other considerations from the institution in return.

FILIS STOBER: Exactly. Yes.

SEN. FINCH: Can you tell me how many of your members charge their own customers, or have accounts that might allow them to charge their own customers for cashing their own checks?

FILIS STOBER: I don't have a number on that, but we can certainly look into it.

SEN. FINCH: Is it prevalent?

FILIS STOBER: I don't believe that it's generally prevalent, except banks that are offering these special low-cost accounts, like the ETA account.

I do draft a lot of deposit contracts for banks, and I have not seen that as an account charge that has been listed.

SEN. FINCH: Do you know if there's any difference between the federally chartered and the State-chartered on this issue?

For example, are the federally chartered banks more likely to charge you for cashing your own checks, or less likely? Is it an advantage to Connecticut, I guess is my question.

FILIS STOBER: Is it an advantage to Connecticut to have this legislation?

SEN. FINCH: No. Well, I mean, yeah. I mean, is there an advantage for Connecticut banks, to allow, allowing them this flexibility to charge?

FILIS STOBER: Well, the national banks have the flexibility to charge, so taking away the flexibility would be a disadvantage.

So I think in order to make it a level playing field so to speak, that the Connecticut banks need to have the flexibility.

I have not seen this being used frequently, or used, but we haven't done a survey. I have only anecdotal evidence at this point. I could look into that further.

SEN. FINCH: Thank you, Filis.

REP. DOYLE: Any other questions for Ms. Stober? Representative Barry. You're a popular woman today.

REP. BARRY: I don't mean to keep you much longer. I just had a question that was about check fraud.

I have a constituent in my district who's an owner of a business, it may not be particularly laser-directed on point to Senate Bill 450, but he owns a business, and he had someone in his business writing checks and signing his name to them.

They were drawn on two different bank accounts, Bank A and Bank B. He went to the police when he found out the checks were forged, and there was some fraudulent activity there.

The police told him to go report to both banks A and B, close out the accounts, report the fraudulent activity. He did so. And with the first bank he was immediately remitted $30,000 or $40,000.

With the second bank, he was only told that he did not in a timely fashion report the fraudulent activity, the forged checks to the bank.

And they said they had an internal policy of a 30-day period from the statement date on which those checks appeared in photocopy to advise the bank that they were forged checks.

The problem that I've come into, dealing with bank B now, is I guess I was just wondering what the, from your vantage point, are banks considering.

It seems like there's this hodge-podge of internal policies regarding fraudulent activity, and responding to consumers who go in and fill out reports.

And this guy, it appears to me, he was treated one way in one bank, and treated another way in another bank. And they are fiduciaries, like you say in your testimony, to their customers.

I was just concerned that some banks say 90 days. Some banks say 30 days. I was just wondering if you had any idea whether banks were thinking about trying to set up a uniform standard for that across all banks.

FILIS STOBER: Well, I'm not sure I said they were fiduciaries, but of course they care about what happens to their customers. They also care about preventing fraud and following the law.

Now the Uniform Commercial Code sets forth a lot of rules about what happens when there are forgeries, and there are some circumstances where the Uniform Commercial Code places the responsibility on an employer or a customer for various reasons.

Sometimes it's statute of limitations type reasons. Sometimes it's negligence type of reasons.

Sometimes it's failure to notify them when they could have prevented future forgeries, because this same person had been doing forgeries for a long time, and nobody looked at the statements.

There are various defenses, and those are set forth in a uniform way in the Uniform Commercial Code. So the banks are under laws.

The Uniform Commercial Code was designed by a group of people who spend years, literally, coming up with how to balance the rights of both the customers and the banks. Quite a few banks will bend over backwards and actually do better than the law requires them to.

But again, there are so many factors in each particular situation, I can't comment on a particular situation, other than to say that there is a very complex set of laws in place. It's pretty uniform throughout the country.

REP.BARRY: I appreciate your candor, and I have done a fair amount of commercial litigation regarding the Uniform Commercial Code.

I know in this particular instance, one of the banks defenses was that this person put that person in a position or place to allow that employee an opportunity to forge checks.

And that's a pretty good defense from a bank standpoint, point of view. But their number one defense was the time limit.

It just seemed to me to be, for this business, to go to one bank and say, yeah, you're going to get a check tomorrow for $40,000, and the next, you know, go 10 minutes down the road to another bank, and they say, you missed your timeline, it was 30 days.

It just seems to me to be that--

FILIS STOBER: No, I can't comment on that particular situation.

REP. BARRY: Thanks very much.

REP. DOYLE: Thank you. Any other questions from Committee Members for Ms. Stober? Seeing none, thank you very much. Next up is Peter Bell, and then Joyce Kuhn.

PETER BELL: Good afternoon, Senator Finch, Representative Doyle, and Members of the Committee. I appreciate the opportunity to appear before you today.

You all have my written statement before you for the record, and what I would like to do is briefly summarize the salient points of the written statement.

The National Reverse Mortgage Lenders Association, along with several of our member lenders who are here with us today, Webster Bank, Richfield Bank, Wells Fargo, Financial Freedom, and Amston Mortgage, among others, applaud the Committee for looking into this growing resource that helps senior homeowners live more comfortable lives.

Reverse mortgage usage is growing across the country. Nationwide there was 120% growth in reverse mortgage production last year. In Connecticut, there was 87% growth.

We saw an increase from 366 federally insured home equity conversion mortgage loans in 2003, to 686 loans in 2004.

This is happening because seniors are recognizing the versatility and safety inherent in the verse mortgage programs that are available in today's marketplace.

Numerous safeguards are built into today's mortgage products by statute, by regulation, and by project design.

Key among these are, first of all, the reverse mortgage products that are available all have standard interest rates and capped interest rates.

The interest rates are the same for any product, from any vendor that you go to. It doesn't matter which of the vendors in this room, or any lender in the country you go to, the same product will always have the same interest rate.

There are caps that the amount the interest can grow on each of the products. There are limitations on the fees that can be charged.

The origination fee on the HECM product is established with a maximum by the U.S. Department of Housing and Urban Development.

There are no shared appreciation or equity sharing features on any products available in the marketplace today. The only thing that a lender gets repaid is the sum of the funds that have been advanced plus the accrued interest.

All of the loans have a feature that we refer to technically as a non-recourse feature, which means that the amount due can never exceed the value of the house, even if the sum of the funds advanced plus the accrued interest in greater than the value of the house, the payment would be limited to the value of the house.

Conversely, if the sum that's due is less than the value of the house, the remaining value would accrue to the owner in a move-out situation, and to the State or the heirs in a death situation.

Beyond these key features, reverse mortgages utilize a disclosure that we call the total annual loan cost, which is something that was developed and required by the Federal Reserve Board.

This is the reverse mortgage equivalent of TILA, of the Truth in Lending Act. In the other mortgages you have an APR calculation.

Well, the APR calculation doesn't really fit in a reverse mortgage situation, so instead this TALC disclosure was created.

All of the products in the marketplace have a counseling feature on the FHA product, the predominant product in the marketplace.

This is there by statute.

Before any borrower can proceed with a reverse mortgage application or be obligated to any expenses, they must be referred out to an independent third-party counselor to review the transaction.

The counselors are typically employed by community based nonprofit organizations or state agencies. They are approved or funded by HUD, and they are trained by NARRP.

There is no maturity date on a reverse mortgage. An individual is never forced to leave their home. The loan is outstanding as long as the individual chooses to remain in that home.

There are no prepayment restrictions on reverse mortgages. If an individual decides they want to pay off a mortgage, and be done with the transaction at any point when they're living in a house, they do have that right.

And there is no obligation to purchase any product from anybody involved with a reverse mortgage.

The funds are always dispersed directly to the borrower, and it's made clear to the borrower, both by the lender and the counseling session, even though they might have been referred by a contractor or someone selling another product, the funds are theirs to use however they see fit. They have no obligation whatsoever to use the funds to purchase any particular product.

Twenty-two states, including Connecticut and the U.S. Congress, have specifically exempted reverse mortgages from high-cost mortgage laws.

In fact, in a lot of cases the reverse mortgage is used as an antidote to high-cost mortgages, to predatory loans that people have gotten themselves into.

We have the ability with a reverse mortgage, somebody has, somebody over 62 has an onerous mortgage, and is having difficulty making their payments, we can use a reverse mortgage to refinance that, get them out of that mortgage and get them to a situation where they don't have to make any payments any more.

The states that have done so, and the feds have exempted reverse mortgages have done so because on examination they realized that reverse mortgages are a different instrument than forward mortgages, and really need to be treated entirely differently.

Different types of protections are required for reverse mortgage clients. Such protections have already been well thought out, and are already in place.

As a result, we would urge the Connecticut Legislature to avoid adding unnecessary laws and regulations when adequate safeguards do exist on reverse mortgages today.

Therefore, we would urge the Committee to not move forward with House Bill 5178 or Senate Bill 618. It doesn't make sense to remove the exclusion and make reverse mortgages subject to the Connecticut Abusive Home Loan Lending Practices Act.

That's a shoe that would not fit. That's a wrong solution to a perceived problem that is already otherwise addressed.

I appreciate this opportunity to be here, and would be pleased to answer any questions I may that I can enlighten your understanding of reverse mortgages.

REP. DOYLE: Thank you. Any questions from Committee Members? Senator Finch.

SEN. FINCH: Other than the criteria for the relationship between the cost of the loan and the benefit of the loan that automatically would qualify a reverse mortgage as a predatory loan.

Other than that, are there other criteria intrinsic to a reverse mortgage that would automatically make it subject to predatory lending?

PETER BELL: Well, it would depend on the specific language in the statute, but we do have a, you know, our balance is growing, so I guess that could be construed to be a negative amortization situation.

The amount due does grow over time, but it's also because funds are being advanced on an ongoing basis. It just doesn't, you know, the product is so different.

What we share with mortgages is the word mortgage. The product is so entirely different that it doesn't make sense to take concepts that exist in the forward mortgage place, and then try and apply them to the reverse mortgage transaction.

It really requires a different mindset, and a different set of principles. That's why the states that have reviewed this and the federal government have selected to go a different route in regulating reverse mortgages.

SEN. FINCH: We heard that about 85% of the reverse mortgages have to go to the counseling?

PETER BELL: No, that's incorrect. Eighty-five percent have to go through it by statute, because it's a statutory provision of the FHA program.

But the other two products in the marketplace are Fannie Mae's Home Keeper product, and a jumbo reverse mortgage for higher value homes that's sponsored by a company called Financial Freedom.

Both of those products require counseling similarly. In Financial Freedom's case, they actually insist that their people go to the same counselors that are available for the HECM program, for the FHA program.

And in Fannie Mae's case, they use that network of counselors, plus they also maintain a network of Fannie Mae, the Fannie Mae Foundation funds.

SEN. FINCH: So what you're saying is that 100%--

PETER BELL: Every single reverse mortgage that is done in the country, the applicant does go and meet with a counselor, prior to proceeding with the reverse mortgage transaction.

SEN. FINCH: I understand this is sort of asking the other side of the issue to explain the other, but we have the Attorney General, we have a State Representative, and we have a State Senator all saying that there're problems with reverse mortgages.

That they're somehow excluded should be put under more scrutiny. Why are we doing that?

PETER BELL: It's not uncommon. It typically comes from a misperception, a misunderstanding of how reverse mortgages work, what are the safeguards that exist with the products today. It's not uncommon for people to think that way.

But you also heard the Commissioner say that he has not had any incidences of complaints about reverse mortgage transactions. I think that's because the program is so adequately safeguarded.

There's an important aspect to keep in mind with reverse mortgages, which is this. In a lot of fields, consumer protection comes in after the fact, because of abuses that have been experienced in the marketplace.

The reverse mortgage product was created, first and foremost, up front, by senior advocates, by AARP and others. So the consumer safeguards have been intrinsic to the program from the get go.

The program was designed to make sure that seniors will be handled completely safely.

SEN. FINCH: One other question, and that is, you said there were 22 states, like Connecticut, that have this exclusion from predatory lending.

That means there're 28 that don't. Does that mean that they make their predatory lending somehow applicable, even though it doesn't seem possible? What are the 28 other states doing?

PETER BELL: Well, I'd have to check the facts, but I believe that the other 28 states do not have a specific high-cost loan or predatory lending law, per se.

SEN. FINCH: They don't offer the product.

PETER BELL: Right. No, they don't have a law specifically to deal with that, they rely on--

SEN. FINCH: They don't have a predatory lending law to begin with.

PETER BELL: --Right. They rely on the federal law.

SEN. FINCH: I can tell you that, you know, the people on this Committee that I've spoken to want to encourage reverse mortgages, because there's probably not enough money in the State coffers to take care of all of us as we age.

The greatest source of capital is in our home, for most of us. I think the reason why the Committee was so interested in this is we don't want to have a cloud hanging over the product.

And we're glad that you came here today and gave us this information, but we definitely want to see more people understand this product, and where it's possible and appropriate for them, to look into it further.

As we know, it really helps people stay in their homes, and that's a good thing that the product does often. I want to thank you for giving me this information.

PETER BELL: Thank you, I appreciate the opportunity to be here.

REP. DOYLE: Any other questions? Representative Harkins.

REP. HARKINS: Thank you, Mr. Chairman. Thank you, Mr. Bell, for your testimony today. Just kind of a follow-up to Senator Finch's comments.

The one thing we want to do is make sure this product continues to exist as an option to seniors.

If the bills that you oppose were enacted, what kind of adverse impact would that have on the marketing or availability of reverse mortgages in Connecticut?

PETER BELL: Well, if we tried to shoehorn the reverse mortgage product into the types of calculations, the APR and so forth that you have in a high-cost loan, it would restrict lenders' abilities to make the loans.

It would probably significantly reduce the fee structure on it, to the point where it probably would not be profitable for lenders to actually be able to offer the product, and go out and do the marketing and the kind of service.

This is a labor-intensive loan for a lender to make, compared to a first mortgage. When you go and get a first mortgage, there's a clock ticking.

You're either taking advantage of an interest rate window, you're closing on a home, you want to get it closed right away.

This is a lifestyle change with a reverse mortgage. The clock's not ticking in the same way.

It typically takes the borrower a bit more time to think it through, understand it, discuss it with their family, their trusted advisors.

All of that, that additional time is cost to the lenders, and they do a lot more work with the consumer in order to bring them to closing on a reverse mortgage.

REP. HARKINS: So in essence, if we adopt these bills, it could be the demise of reverse mortgages in the State of Connecticut.

PETER BELL: That would be my guess, yes.

REP. HARKINS: Thank you, Mr. Bell. Thank you, Mr. Chairman.

REP. DOYLE: Any other questions? Representative Barry.

REP. BARRY: Yeah, just a quick question. It's in your written testimony that if reverse mortgages become subject to the Connecticut Abusive Home Loan Lending Practices Act, reverse mortgages in Connecticut would become subject to an APR test as well as an additional limitation on prepaid finance charges.

And so, you talked about the difference between TILA, the Truth in Lending Act, and TALC. You mentioned here, as a result, the Federal Reserve Board created an alternative to TALC.

So would it be correct that if we were to allow reverse mortgages to become subject to the Connecticut Abusive Home Loan Lending Practices Act, we'd be doing something in contravention of federal law?

PETER BELL: Well, we would probably, where we would end up is we'd be giving the TALC, because we're required to under federal law, and then we'd be giving the APR under the Connecticut law.

They'd be so different from each other that I think it would be thoroughly confusing to the consumer.

The TALC is a very well-thought-out document that basically shows the consumer the cost of the reverse mortgage over different periods of time.

Since you are getting the benefit in small amounts over a longer period of time, how long you have the loan outstanding really impacts what the actual cost looks like.

So that TALC disclosure actually gives you three different points in time, whereas the APR is just a single number.

I think a prospective borrower would get these two papers and go, I can't figure these things out, these things have no relation to each other.

Which one do I make my decision based on? I think it just adds in an element of confusion, an element of disclosure that doesn't disclose. It just confuses.

REP. DOYLE: Thank you. I have a question, Mr. Bell. I don't know how familiar you are with the three bills on our agenda. But someone distinguished the first two versus the third one.

Do you find the terms of House Bill 6695 as acceptable or better, or any comment on the actual language of the bill?

PETER BELL: I think that all of them do the same thing, in that they add another layer of protections that, for the most part, the protections already exist.

To have to add another level of compliance and another test for the auditors and the compliance managers when it's already taken care of doesn't seem to make much sense.

And then certainly removing the exemption from the high-cost loan bill would be extremely problematic.

I think it would send the wrong signal to consumers, who would then believe that a reverse mortgage is a high-cost mortgage, and perhaps something they should be wary of, when in fact that's not the case.

REP. DOYLE: Thank you. Any other questions from Committee Members? Thank you very much. Joyce Kuhn, please, from Ridgefield Bank.

JOYCE KUHN: Good afternoon. There isn't too much I can add to what Peter has said. I've been originating reverse mortgages for over six years now.

During that timeframe I have never had a senior come back to me with regret, or a family member come back to me with regret because they've utilized the financial tool of a reverse mortgage.

Many of the things that these bills would burden the lender with would reduce the number of lenders who are out there and able to offer this product to seniors.

As Peter has said, this is a long timeframe for a senior to make this decision. When I am talking to a senior, I might talk to them five, six, seven, eight times before they actually even move forward to the step of getting their counseling.

Many of the things that are in these bills are also already in place. The senior does have a right of rescission, as we all do when we're lending, giving our home its security.

So I just wanted to come here today to give you an opportunity to talk to someone who sits down with a senior on a regular basis.

I felt that I could answer some questions to give you a general concept of how the seniors feel about the reverse mortgages.

REP. DOYLE: Thank you. Any questions from Committee Members? I have a question. Maybe you could help the Committee.

Just hypothetically, could you give us a hypothetical example of a reverse loan, and like the charges? Just a general example.

JOYCE KUHN: Right. I always break the charges down for the senior in two, three separate areas, so that they have an understanding of what those charges are.

If they've chosen the federally insured product, there is the FHA insurance premium. That premium serves a very important part to the borrower and to the bank that allows the bank to lend with no recourse to the senior, meaning that we're not looking to repayment to the senior. We're looking to repayment from the sale of their home at the time they're no longer living there.

Some of the other costs are costs that you and I would incur in a regular mortgage. There's an appraisal fee, there's a credit report, there's title insurance, there's an attorney fee, there's flood certification, which is required by federal law.

One of the differences is that in a reverse mortgage the bank has an opportunity to have an origination fee. When you're getting a forward mortgage, you choose that on your own.

If you want to pay a point to reduce your interest rate, you can do that. On a reverse mortgage, an origination fee is just charged because the lending institutions are not incurring any income from this loan, because there's no monthly repayment.

So there is an origination fee. The origination fee is directly tied to the FHA insurance premium, and it is capped at whatever the maximum FHA insurance premium is.

To give you a range of cost, on an average the loans that I do have a cost of maybe $10,000 total to the borrower. And that includes all the cost for the loan.

REP. DOYLE: $10,000. What's the standard amount of a loan? What's the maximum amount they could borrow in that hypothetical?

JOYCE KUHN: The maximum, I deal very specifically in Fairfield County, and the maximum cap that is allowed under the FHA program is about $312,000.

From there, the calculations are done for the senior on how much that $312,000 in equity they can draw. My average loan is about $200,000, is the equity that the senior can tap into.

REP. DOYLE: To be honest, $10,000 seems like a lot to me. But what's the breakdown? Is that contingent upon, what're the biggest charges of that?

JOYCE KUHN: Most of it is the FHA insurance premium, which allows the lender to provide the product, and guarantees to the borrower that they have no recourse, that it's only the sale of their home that's going to repay this loan.

REP. DOYLE: Okay. Any other questions? Thank you very much. Thanks for your help.

JOYCE KUHN: Thank you.

REP. DOYLE: Okay, at this point, I don't have any other speakers signed up. Is there anyone else here that is not signed up, an elected official or member of the public? Seeing none, I initiate a motion to adjourn the hearing.

[Whereupon, the hearing was adjourned.]