Troubled bank industry continues California lobbying

Banks that received billions of dollars in federal bailout funds continue spending heavily to lobby in the state Capitol against increased regulation of their industry.

Players in the California financial industry spent $4.4 million lobbying state lawmakers in the first quarter of this year, just $500,000 less than the $4.9 million they spent in the first quarter of 2007, before the nation's financial meltdown.

Bank of America Corp., which has received $15 billion from the federal Troubled Asset Relief Program, has increased lobbying expenditures in California year over year, from about $24,000 in the first quarter of 2005 to about $80,000 in the first quarter of this year.

BofA representatives attribute the increase to the recent hiring of support counsel, and the company's greater presence and exposure to risk in California after the purchase of Countrywide Financial and Merrill Lynch. The company is trying to cut costs, spokeswoman Shirley Norton said, but it's important to have a say in policy decisions at the Capitol.

"You want to have an opportunity to have your side heard," Norton said.

Four years ago, JPMorgan Chase Co. didn't spend money lobbying in California. That changed in 2007, when the company spent $32,103. JPMorgan spent $36,504 in the first quarter of 2009. The bank recently repaid its $25 billion in TARP money, and on Thursday announced strong quarterly earnings of $2.7 billion.

Officials from the state Legislature and from competing lobbying groups say bank lobbyists have become more aggressive as public perception of their industry sours.

"They see all these various bills as nibbling away and creating the impression that banks are engaged in all this duplicity in lending behavior," said Tom Clark, counsel to the Assembly Judiciary Committee. "They've become more defensive."

The result this session: Some bills that started out with tough consumer protection language were rewritten after running into fire from financial industry lobbyists.

"It's the way the process works, is everything gets kind of watered down," Clark said.

Two bills get the treatment

This year, the bank lobby has focused its attention on Senate Bill 660 and Assembly Bill 329, bills that would provide more disclosure and protection for seniors taking out reverse mortgages. Reverse mortgages allow people 62 and over to take out loans against their homes that they don't have to repay until they move out or die. Reverse mortgages are increasingly popular, but some consumer advocates warn of high fees and complex terms.

Sen. Lois Wolk, D-Davis, said she experienced heavy opposition by banks and credit unions after she introduced SB 660. In its original form, the bill would have required sellers of reverse mortgages to exercise a "fiduciary duty" to put the client's interest first. SB 660 also would have required lenders to make a determination that the reverse mortgage was a suitable product for the customer.

As many as eight bank and credit union lobbyists crowded into an initial meeting on the legislation, recalled Craig Reynolds, Wolk's chief of staff.

"They lobbied against it furiously," talking individually with legislators and staff, writing letters, visiting daily and nearly eliminating SB 660, Reynolds said.

Faced with such a fierce fight, Wolk rewrote her bill. It now requires simply that lenders exercise "honesty, good faith and fair dealing" when recommending reverse mortgages in anticipation of financial gain. It also requires that lenders publish cautionary language in bold type.

The bill passed the state Senate and awaits action on the Assembly floor. It is still opposed by the California Bankers Association, the Credit Union League of California, the California Financial Services Association, the California Independent Bankers Association and the California Mortgage Bankers Association.

The other reverse mortgage bill that attracted intense interest from the banking industry was AB 329, by Assemblyman Mike Feuer, D-Los Angeles.