WASHINGTON – Bank and credit union trade groups exchanged blows late Wednesday, renewing the age-old rivalry in the financial services industry.
Over the years, credit unions and banks have found a number of areas of common ground: a mutual dislike for a number of aspects of the Dodd-Frank Act and a shared concern about data security, for example, while the Supreme Court battle over field of membership had largely gone quiet.
Until now.
NCUA is considering a proposal that would allow federal credit unions to expand their field of membership beyond what is considered a core based statistical area by the Office of Management by eliminating the "core" requirement and allowing them to serve beyond a single county, among other initiatives designed to make it easier for credit unions to grow.
The first sweeping change to rules put in place in the wake of the aforementioned Supreme Court case has ripped the bandage off an old wound that runs deep.
The comment period on the proposal closes Feb. 8, and fearing that the NCUA does not change course, the American Bankers Association and Independent Community Bankers of America sent a letter to Congress asking it to intervene.
"NCUA's sweeping proposal will have significant policy implications, dramatically expanding Federal tax subsidies, diminishing government revenues that support needed services, and causing substantial harm to taxpaying community banks who serve their communities without the benefit of such subsidies," the ABA and ICBA letter said.
Even before the letter was written, ICBA Chief Camden Fine was threatening to sue NCUA if it moves forward with the proposal.
However, the head of NAFCU quickly fired back a response of his own, saying the agency's proposal would simply modernize requirements that haven't been updated in years.
"NAFCU members believe that the federal credit union charter must keep pace with changes in state laws, technology, and the progressiveness of the financial services industry," NAFCU President and CEO Dan Berger's wrote in the letter.
He added that "NAFCU is disappointed that the ABA and ICBA have chosen to attack efforts at regulatory relief for credit unions and their 101 million members."
The bank trades wrote that the change represents a policy shift rather than a regulatory adjustment. "This proposal is not 'regulatory relief' – it is wholesale charter enhancement in contravention of Federal statute and policy intent."
Additionally, ABA Executive Vice President James Ballentine said "The banks see it as a slap in the face that a tax exempt industry would be asking for even more authority to lend beyond what they lend already and that is the crux of the disagreement."
He added that expanding what is considered a field of membership for a credit union would also circumvent the business lending cap of 12.25%.
"This would explode the business lending cap, it would basically render the cap meaningless because if you are able to expand your geographic areas you are going to have lenders that are going to be making loans well beyond what their capacity is," Ballentine said, noting that most credit unions are below their small business lending limit but an expansion of their membership territory would allow more of them to push up against that limit.
But NAFCU Executive Vice President Carrie Hunt said "All this new proposal does is follow statistical definitions that other government agencies use to define population centers."
"Credit unions want to be able to provide their services to more consumers and a lot of times credit unions will face a roadblock," Hunt said, and added that "everyone loses" when a person comes into a credit union looking for financial services but the credit union cannot serve them because they fall outside their field of membership.
"If there is a fresh way to look at the rules so credit unions can reach more consumers and provide more affordable financial services and at the same time keeping up with the federal credit union act and stay within congressional intent, we fully support that," she said.
Paul Merski, executive vice president and chief economist at the ICBA argued that if credit unions are allowed to expand their membership they should also lose their tax exempt status.
"If you open up your membership to everyone there is really no justification anymore for your tax exemption," Merski said,k suggesting that Congress "could be receptive to taxing credit unions, particularly with a large deficit and looking at tax reform."
But NAFCU's Berger pointed to an independent study that found that "The cumulative benefit not-for-profit credit unions provide the greater economy totals over $17 billion a year."
