The powerful banking lobby took aim last week at the credit unions' bid to ease regulatory and statutory restrictions by attacking the credit union provisions in the pending regulatory relief bill during hearings in Capitol Hill.
Representatives from all three national bank lobbies, the American Bankers Association, Independent Community Bankers Association and America's Community Bankers, urged lawmakers to scrap key credit union provisions during hearings before the House Financial Services Subcommittee on Financial Institutions.
One after another, the bankers expressed their opposition to provisions that would allow privately insured credit unions to join the Federal Home Loan Bank System; increase limits for investing and lending to CUSOs; expand member business loan allowances; extend the maturity limit on loans for credit unions; ease field of membership (FOM) restrictions, and allow credit unions to offer low-income services, like check cashing and money transfers, to non-members within their FOMs. "Unfortunately," stated Elizabeth Duke, vice president of SouthTrust Bank and representing the ABA, "the bill includes many provisions designed not to attack regulatory red tape of financial institutions, but to enhance the competitive position of credit unions."
Rep. Spencer Bachus (R-AL) the chairman of the subcommittee, likened the bankers' hostility to the credit union provisions to an old-fashioned food fight and urged the bankers to keep to the high road in order to further the chances for the bill.
Bachus, one of just three surviving House members to vote against HR 1151, the 1998 CU Membership Access Act, insisted he does not favor either side and said there is little evidence to support the bankers' assertions that credit unions are encroaching on their markets.
"I'm not sure we'll get a bill if we continue to argue whether credit unions get something," said Bachus. "I would urge you to use your dynamite and political might in looking for ways that will benefit consumers and eliminate red tape in a constructive way."
The bankers took particular issue at some of the credit union-backed provisions that would roll back parts of HR 1151, including measures that would ease voluntary mergers of credit unions, exempt religious-based loans from the HR 1151 cap on member business loans (MBLs), and to allow federal credit unions to retain their select employee groups (SEGs) after converting to community charters.
But William Cheney, president of Xerox FCU, El Segundo, Calif., who was testifying on behalf of NAFCU, said HR 1151 was flawed, even though it was a necessary measure to cope with the emergency situation after the Supreme Court invalidated NCUA's multiple groups FOM policy. The price for the bill, he noted, was for credit unions to accept several provisions they did not want, including the 12.25% (of assets) cap on MBLs, imposition of the "bank-like" minimum capital standards, known as Prompt Corrective Action, or PCA, and other limits on growth.
"Make no mistake about it," said Cheney. "CUMAA was a necessary piece of legislation for credit unions at the time of enactment. Was it perfect? No. Would NAFCU like to have changed various provisions in the bill? Yes. But CUMAA was an important piece of legislation at the time because it codified a number of fundamental credit union concepts embraced by both federal and state-chartered credit unions."
Charlene Gaither, president of Martinsburg, W.V.-based Eastern Panhandle Community FCU, testifying for CUNA, said credit unions will not oppose bank-backed provisions but will concentrate on achieving positive results in the bill. "We do reserve the right, however, to point out fallacies in their arguments and point out where they may indeed have certain advantages that outweigh those of others," she said.
Gaither also introduced a new initiative, sought by credit unions to address some of the limits imposed by HR 1151. She told the committee that CUNA supports efforts to allow credit unions to offer secondary capital and to be able to count it as net worth under NCUA's PCA rule, which currently restricts net worth to retained earnings. She said they are discussing the issue with several members of Congress in hopes of attaching such a measure to the appropriate legislation.
The current draft of the regulatory relief bill includes measures to:
* Expand the universe of permissible investments for federal credit unions to include corporate debt and asset- backed securities, with the approval of NCUA.
* Increase the maturity of federal credit union loans from the current 12 years to 15 years, or longer if approved by the NCUA board.
* Increase the amount a federal credit union may invest in a CUSO from 1% to 3%.
* Make several technical changes to NCUA authority, including allowing the agency to share confidential supervisory information with other agencies; clarify that NCUA may issue a prohibition against an institution- affiliated party even if that party is no longer affiliated with the credit union; and extend from 10 days to 30 days the time in which boards or individuals may challenge NCUA as a liquidating agent.