The influence of the Assembly Banks Committee has waned as financial institutions have elected to be regulated by federal law. But in the wake of the sub-prime mortgage crisis, the committee has resurged, considering far-reaching lending legislation.
The rising home foreclosures have highlighted the tension in Albany between the desire to protect the consumer, often championed by Democrats, and the desire to moderate the regulation of state banks, generally defended by Republicans.
Committee Chair Darryl Towns (D-Brooklyn) is trying to strike a balance between the two interests.
Members try to avoid “getting caught up in ‘pro-consumer’ versus ‘pro-institution’ debates,” he said.
The 31-member committee meets at least once per month for about 30 minutes, considering eight to 10 bills each time, Towns said. State chartered banks, the mortgage industry, money transmitters, check cashers, and finance companies are within its purview. National banking issues, like credit cards, are not.
In part because bank companies have grown to include branches in other states and countries, they have put themselves under federal, instead of state, regulations. Once they receive their federal charters, the banks no longer pay regulatory fees to the state. The state Banking Department reported in December 2006 that revenue had dropped by 30 percent on account of the bank exodus.
The question being debated in Albany is how to contain the foreclosure crisis in the state, which has affected more than 50,000 homes, without chasing more lending institutions from New York.
A package of bills addressing rising foreclosures in the state, known as the Responsible Lending Act, supported by Assembly Speaker Sheldon Silver (D-Manhattan) and introduced by Towns, was reported out of the committee in January and passed the Assembly May 7.
A bill backed by Gov. David Paterson (D) was introduced in April and is before the committee now.
A companion bill to Paterson’s is currently in the Senate Banks Committee, but the New York Bankers Association opposes a number of its provisions, and its future is uncertain.
Committee Member Rory Lancman (D-Queens) said the future of the package for this session was unclear.
“It is possible a rework of the sub-prime package with negotiations with the Senate would come through the committee,” he said. “But the Senate may not be interested in this kind of legislation.”
The GOP’s ranking committee member, Andrew Raia (R-Suffolk), supported Towns’ sub-prime bill, but was wary of over-regulation of banks.
“Obviously, the sub-prime mortgage crisis is the top priority. In the district I represent on Long Island there are high property values and high taxes but not necessarily high income,” he said. “They are house rich and not necessarily cash rich.”
But Raia insisted any new laws must be fair to local institutions. 
“We need to ensure in New York State’s zeal to correct some of these problems that we don’t unfairly put state-chartered banks at a disadvantage to federally chartered banks,” he said.
One of Towns’ goals since becoming chair in 2006 was to craft legislation encouraging banks to return to the state charter. Toward that end, he introduced legislation to allow local municipalities to deposit funds in savings banks, savings and loans, and credit unions. Currently, funds have to be deposited in a commercial bank.
The legislation was reported by the committee in April over the opposition of Raia and other Republicans, and was passed by the Assembly in May. A companion bill is in the Senate.
Another option Towns is considering would be to cut or reduce the mortgage recording tax paid by state chartered banks. The tax is not paid by federally chartered banks.
“How do we create a balanced environment so some federally chartered entity would take a second look at the state?” Towns said. “If we can move just one, I think we can get others to follow.”