public hearing on june 14 to discuss industry practices, including those pertaining to pre - payment penalties, the use of escrow accounts for taxes and insurance, stated - income and low - documentation lending, and the evaluation of a borrower ’ s ability to repay. the discussion and ideas we heard were extremely useful, and we look forward to receiving additional public comments in coming weeks. based on the information we are gathering, i expect that the board will propose additional rules under hoepa later this year. in coordination with the other federal supervisory agencies, last year we issued principlesbased guidance on nontraditional mortgages, and in june of this year we issued supervisory guidance on subprime lending. these statements emphasize the fundamental consumer protection principles of sound underwriting and effective disclosures. in addition, we reviewed our policies related to the examination of nonbank subsidiaries of bank and financial holding companies for compliance with consumer protection laws and guidance. as a result of that review and following discussions with the office of thrift supervision, the federal trade commission, and state regulators, as represented by the conference of state bank supervisors and the american association of residential mortgage regulators, we are launching a cooperative pilot project aimed at expanding consumer protection compliance reviews at selected nondepository lenders with significant subprime mortgage operations. the reviews will begin in the fourth quarter of this year and will include independent statelicensed mortgage lenders, nondepository mortgage lending subsidiaries of bank and thrift holding companies, and mortgage brokers doing business with or serving as agents of these entities. the agencies will collaborate in determining the lessons learned and in seeking ways to better cooperate in ensuring effective and consistent examinations of and improved enforcement for nondepository mortgage lenders. working together to address jurisdictional issues and to improve information - sharing among agencies, we will seek to prevent abusive and fraudulent lending while ensuring that consumers retain access to beneficial credit. i believe that the actions i have described today will help address the current problems. the federal reserve looks forward to working with the congress on these important issues.

the board to consider requiring, by regulation, a number of measures to improve the check system. many of these measures focused on improving the process by which unpaid checks are returned to the bank of first deposit. other suggested measures related to check truncation. the board has used its authority under the efaa to make several important improvements to the check system. the board's ability to adopt some rules to improve the check system is hampered, however, by the efaa's limitation on the board's ability to impose or allocate the risks of loss or liability related to payment transactions. the efaa authorizes the board to impose on or allocate among only depository institutions the risks of loss or liability, and only up to the amount of the check giving rise to the loss or liability, except where there is bad faith. these limitations have prevented the board from adopting by regulation some important innovations that could substantially improve the efficiency of the check system. for example, the board cannot adopt by regulation the changes called for in the proposed check clearing for the 21st century act, because the bill affects the rights of the end users of checks ( including businesses and consumers ), in particular their right to receive their original checks, and allocates liability for not only the amount of the check but also interest, litigation costs, and in some cases consequential damages. conclusion in conclusion, although an increasing number of payments are being made electronically, it is clear that checks will continue to play an important role in the nation's payments system for the foreseeable future. we believe that, over the long run, the concepts embodied in the proposed check clearing for the 21st century act will spur the use of new technologies to improve the efficiency of the nation's check collection system and provide better services to bank customers. because the act should result in substantial cost savings, it would also be desirable to begin obtaining these savings in the near future, ideally before the bill's proposed 2006 effective date. there are some technical matters in the current version of the bill that could be improved or clarified, and we look forward to working with the committee as it further considers this legislation. thank you for your time and i would be happy to answer your questions. 12 u. s. c. § 4008 ( c ) 12 u. s. c. § 4007 ( b ) 12 u. s. c. § 4008 ( b ) the board has adopted rules