...But Some In Congress Question The Crack Down
NCUA's ruling invalidating the ongoing conversion ballots at two Texas credit unions came under fire on Capitol Hill last week, where lawmakers were being urged by lobbyists for the Community CU and OmniAmerican CU to intervene in the matter.
Rep. Brad Sherman (D-CA), a strong credit union supporter, told NCUA Chairman JoAnn Johnson during hearings on regulatory relief he believes the agency overreacted by invalidating the voting of the two credit union giants on what he sees as a technicality. "The bottom line," said Sherman, during a hearing before the House Financial Services Subcommittee on Financial Institutions, "is did credit union members get everything they needed to decide which way to vote."
Rep. Jeb Hensarling, a Texas Republican drafting the regulatory relief bill, also wondered about the NCUA ruling, which he attributed to "the way a piece of paper was folded."
Earlier in the hearing, Johnson clashed with the federal thrift regulator after the two were asked by Rep. Sue Kelly (R-NY) whether there is too much regulatory burden involved in such charter changes.
Richard Riccobono, acting director of the Office of Thrift Supervision, which also regulates credit union conversions to mutual savings banks, said he thought NCUA has made it more burdensome with recent rules changes increasing disclosures and other requirements governing voting. "The current system, I believe, today has become more burdensome simply because (of NCUA's requirements) on taking a membership vote," the thrift regulator told lawmakers.
But Johnson, who was sitting next to Riccobono before the panel, said NCUA's rules on membership votes were enacted to protect credit union member/owners during the conversions. Recently adopted disclosure requirements, such as those used to disqualify the voting at the two Texas credit unions, are aimed at ensuring that member/owners/consumers are fully informed of the ramifications of the change in charters, Johnson insisted. "Putting forth information that membership needs to be informed, bringing it into the sunshine, is the way to go for consumer protection," she said.
The airing of the rare regulators' disagreement came after top executives of the Community CU, including its CEO Gary Base, and OmniAmerican CU, attended by high-powered Washington lobbyists, spent several days visiting lawmakers to obtain support in their ongoing dispute with NCUA.
During the hearing Johnson stressed NCUA's support for a new risk-based capital system to replace the current minimum capital rules, known as prompt corrective action, or PCA. Johnson said a risk-based system, similar to one applied to banks and thrifts, is necessary to ease capital restraints imposed by the 1998 CU Membership Access Act, which enacted PCA.
State credit union regulators also endorsed adoption of a risk-based system, but went even further. George Latham, Virginia's credit union supervisor and who was speaking on behalf of NASCUS, said state regulators support a provision that would allow credit unions to raise secondary capital and count it as net worth. Such a proposal has all but been abandoned in favor of a risk-based system by CUNA, NCUA and other groups that had been studying, but never fully endorsed secondary capital.
Latham also asked Congress to act to stop NCUA and other federal regulators from preempting state consumer protection laws and regulations, like those aimed at combating predatory lending or expanding disclosure requirements on credit cards. Latham's suggestion, which was also endorsed by state banking regulators, comes as NCUA and the banking agencies have increasingly ruled to invalidate state laws with regard to federally (national) chartered credit unions and banks.
The state credit union regulator also expressed support for several other proposals not endorsed by the federal regulator (NCUA), including allowing state chartered, privately insured credit unions to join the Federal Home Loan Bank System; lifting the cap on the amount of member business loans a credit union may hold from the current 12.25% of assets; and raising the definition of a member business loan from the current $50,000 to a the same $360,000 level for conforming loans set by Fannie Mae and Freddie Mac.
NCUA's and NASCUS' recommendations will be used, along with those offered by the credit union and bank trade groups last month, in drafting a regulatory relief bill, expected to be introduced over the next few weeks. A bill with many of the same provisions being proposed this year was passed by the House in the last Congress but was never voted by the Senate.