As the House Financial Services Committee prepared to hear testimony Tuesday on easing the process for chartering new financial institutions, one congressman with a credit union background was bullish on the need for more CUs, but bemoaned the industry's decision to side with banks on the gutting of Dodd-Frank.
“There ought to be as many credit unions as a reasonable level playing field enables to be created,” U.S. Rep. Denny Heck (D-Wa.) said in an interview shortly before the hearing. Early on in his career, before coming to Congress and serving on the House Financial Services Committee, Heck was marketing director at Vancouver, Wash.-based Columbia Credit Union – a position which gives him an insight into credit union matters that many of his colleagues on the Hill don’t have.
While the last decade has seen significant contraction within the industry, Heck observed that the last ten years “aren’t exactly the best sample” given the impact of the financial crisis and the Great Recession.
“There wasn’t a lot of start-up activity” for financial institutions, he noted. “As part of trying to avoid that in the future, we adopted a framework which places an excessive amount of compliance requirements on smaller institutions and that makes it a little harder for there to be start-up financial institutions – and I would but credit unions and community banks in that same bucket.”
Making things particularly onerous for CUs, he added, is that the low-rate environment of recent years, which Heck said “works disproportionately against the interests of credit unions.”
“Generally speaking, credit unions are less dependent upon fee income than they are from the normal interest rate spread that enables them to continue to grow, and as a consequence of very low interest rates, it’s been very hard for financial institutions in some ways,” he said. “Now we’re coming out of [that low interest rate environment], but if you’ve been less fee dependent, it’s more difficult. If you’re small, as are most credit unions, additional burdens of regulatory compliance have made it more difficult…We have some problems that need to be overcome to enable the creation of more financial institutions on a bit more robust level than the near zero we’ve had for some time.”
While some CU observers weren’t optimistic that this week’s hearing would lead to any action, Heck painted it as a precursor to the potential passage this summer of the CHOICE Act – legislation “which basically guts Dodd-Frank,” he said.
“It will be sold on the basis of ‘This will make it easier for small financial institutions.’ That’s a subterfuge,” he said. “It’s meant to largely deregulate an entire sector of the economy, and that’s not a place where we’re going to go.”
Heck predicted that the CHOICE Act may well pass the House, but he said it is unlikely to pass the Senate, which opens up the prospect for revising the legislation in a way that can provide more relief for credit unions while also hopefully leaving certain consumer protections in place.
Getting along better?
In 2014, near the end of his first term and running for reelection, Heck told CU Journal that better relations between banks and credit unions might be
Banks and CUs are getting along better at least as far as the CHOICE Act is concerned, “which has nominal support from the credit union industry,” said Heck, adding that the legislation would be at the cost of “gutting Dodd-Frank.”
“I understand why [CUs support that], but I wish they weren’t,” he said. “But it is what it is. They see this as an opportunity to get something versus nothing. I do a different kind of cost-benefit calculus on that particular outcome.”
