For a brief, shining moment, banks and credit unions were allies, working the halls of Congress shoulder-to-shoulder in an effort to win lawmakers' signatures on a letter urging reconsideration of a controversial plan to change the way financial institutions reserve for loan losses.
Since that letter was made public last week, however, normalcy has set back in, which is to say the two industries are back at each other's throats.
The latest battlefront between the longtime rivals is a well-trodden one: credit unions' fields of memberships. Monday saw the close of a 60-day comment period linked to a
NCUA Public Affairs Specialist John Fairbanks said Tuesday it has received more than 10,500 comment letters—including thousands from bankers and bank lobbyists who were often scathing in their criticism.
And the letter count, which may climb higher still, since NCUA will accept late-arriving letters postmarked Feb. 8, easily shattered the agency's record for comment letters. The previous high came last year, when the agency received more than 3,100 commenting on proposed changes to member business lending regulations.
In sum, bankers argue the proposed field-of-membership revision, which was unveiled Nov. 19, pushes well beyond the limits on credit union membership embedded in Title I of the Credit Union Membership Access Act. Enacted in 1998, CUMAA limits fields of membership for community charter credit unions to "well-defined local community, neighborhood or rural district."
The comment period started in December, after NCUA published its draft in the Federal Register.
As written, NCUA's proposal continues to limit community charter credit unions' fields of membership to 2.5 million people, but it removes a number of geographic restrictions. Perhaps the most significant is a provision that constrains credit unions' ability to use core based statistical areas to define their fields of membership. Presently, institutions aren't allowed to cite core-based statistical areas with more than 2.5 million people. Under the revised rules, they'll be able to use any "well-defined" portion so long as the population doesn't exceed 2.5 million.
NCUA's FOM overhaul also quadruples the population threshold for rural districts to 1 million people and permits community charter credit unions to cite entire congressional districts as a field of membership.
Both industries have blasted changes proposed by the Financial Accounting Standards Board that would require financial institutions to begin reserving for loan losses as soon as they book a loan. Banks and credit unions alike believe FASB's planned Current Expected Credit Loss standard will be costly to implement and will lead to a significant increase loan loss reserves.
Any hope, however, that the common front against CECL would lead to a thaw in overall bank-credit union relations was quickly and comprehensively dispelled by the letter-writing binge brought on by NCUA's FOM plans.
In a Feb. 5 letter, James Chessen, executive vice president and chief economist at the American Bankers Association, claimed the rule changes "would effectively render the concept of a common bond among credit union members meaningless."
"From quadrupling population thresholds to reimagining definitions of plain language statutory terms, this proposal would eviscerate many major limitations placed on credit union field of membership expansion," Chessen wrote.
Bankers' letter writing, moreover, hasn't focused solely on NCUA. Fifty state banking associations signed onto another letter, also dated Feb. 5, complaining about the FOM amendments to the House Ways and Means Committee and the Senate Finance Committee. According to the banker groups, the FOM changes "should call into question" whether credit unions still deserve their exemption from federal income taxes.
Bankers claimed the tax exemption costs the federal government nearly $27 billion but advocates for credit unions counter that their industry uses the exemption to provide financial benefits worth more than $10 billion to their members.
Credit unions were quick to counter the banker claims, noting that CUMAA empowers NCUA to define what a "well-defined local community" is, and note the federal charter badly needs overhauling to remain competitive with state credit union charters.
Indeed, even before that Feb. 5 letter came out, CUNA President and CEO Jim Nussle wrote Feb. 3 that "the federal charter is falling behind many state charters and thus has become a barrier to the flexibility needed to operate dynamic and efficient cooperative financial institutions."
Dan Berger, president and CEO of the National Association of Federal Credit Unions, said in a statement Friday that federal credit union require changes that go beyond those in the current proposal.
"This proposal is a good first step toward modernization, and we thank the NCUA Board and staff for their hard work in this regard. But it is just that, a first step," Berger said.
Among other things, NAFCU wants the 2.5 million-person population threshold increased.
Community Bankers see expanded fields of memberships as a distinct competitive threat. David Lacy, president and CEO at $402 million-asset Community Bank and Trust in Waco, Texas, wrote on Feb. 1 that credit unions in his market are offering loans at 1.9%, which is beyond what a tax paying entity can offer."
Scott Beuning, assistant vice president and commercial lending officer at $740 million-asset United Bankers' Bank in Bloomington, Minn., wrote in a Jan. 26 letter that the proposal amounted to little more than a lengthy list of ways for most credit unions to circumvent the field of membership requirements resulting in a broad expansion of the credit union industry's tax subsidy."
Though credit unions and banks have frequently been on the same—or at least similar—page with regard to a host of regulations that came out of Dodd-Frank and the Consumer Financial Protection Bureau—itself, a construct created by that same piece of legislation—the recent back-and-forth between the two groups over FOM hearkens back to previous fights over field of membership, member business lending, the CU tax exemption and more.
Indeed, Banks have been railing against expanding fields of memberships for decades. In 1998, they argued the issue to the Supreme Court and won a seemingly sweeping victory, when the justices issued a decision preventing credit unions from serving unrelated employer groups. Later that year, Congress blunted the impact of the court's ruling in CUMAA, permitting credit unions to serve "multiple common bonds."
