Friend And Foe, LaFalce Presents A Predicament

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Washington, D.C. - The question hanging over the credit union lobby may now be, "Who lost LaFalce?"

That's LaFalce, as in John LaFalce, the highest ranking Democrat on the House Financial Services Committee, who played an important role in drafting HR 1151 and is expected to play a similar role writing the impending regulatory relief bill.

But LaFalce, during the June 13 mark-up (or drafting session) for the credit union-backed relief package, served notice that the proposed roll-back of a dozen-or-so credit union provisions won't be a cakewalk, at least if he has anything to do say about it.

First, LaFalce expressed his doubts about the whole package because of the credit union provisions. "I have a number of concerns at several credit union provisions that make major reforms to legislation that this Committee passed over four years ago," he said, referring to HR 1151.

Those provisions would allow credit unions to offer and count secondary capital towards NCUA's minimum capital rules (prompt corrective action), ease rules on voluntary mergers, and exempt religious based loans from HR 1151's cap on member business loans (MBLs).

Another provision targeted by LaFalce would allow federal credit unions to retain their select employee groups (SEGs) after converting to a community charter, something currently forbidden under HR 1151.

LaFalce suggested that the credit union provisions should be subject to greater scrutiny through separate legislation and hearings, even though the bill with the credit union provisions in it had already been subjected to two separate hearings and two separate mark-ups (before the Financial Services Subcommittee on Financial Institutions and before the full committee, itself).

Throughout proceedings on credit union issues the past five years LaFalce has hewed to a consistent vision of credit unions, one in which credit unions maintain their common bond heritage and community underpinnings, both of which he sees as closely tied to the federal tax exemption. LaFalce, of course, is not the only important lawmaker to adhere to this vision, as Senate Banking Committee Chairman Paul Sarbanes (D-MD) and Phil Gramm of Texas, the ranking Republican on the committee, both of whom were instrumental in the passage of HR 1151, seem to share this vision of credit unions.

But there appears to be other issues bothering LaFalce, as well. During debate at the regulatory relief mark-up over the proposal to allow secondary capital, LaFalce launched into an attack on NCUA. Noting that NCUA would set the terms of any secondary capital, he said, "This would be solely in the hands of Na-Cu-A, and I don't trust them. I don't trust them one iota."

Observers were puzzled by the unusual attack on NCUA, whose prior chairman, Norm D'Amours, was a close friend and former House colleague of LaFalce. But several sources familiar with LaFalce said the Democratic lawmaker is upset at top NCUA officials whom he believes torpedoed the nomination of LaFalce's aide Dean Sager to be the administrative assistant to new NCUA Board member Deborah Matz, a rare rejection by the White House of an NCUA political appointment. LaFalce's office did not return phone calls seeking comment.

Then later on in the mark-up, LaFalce attempted unsuccessfully to kill provisions to allow privately insured credit unions to join the Federal Home Loan Bank System, then to exempt religious loans from the 12.25% (of assets) MBL cap in HR 1151.

It must be noted that despite his claims to being a credit union friend, LaFalce has dropped the ball on several promised credit union initiatives. On separate occasions LaFalce made promises to credit union crowds, which he did not keep. During CUNA's Governmental Affairs Conference three years ago it was to introduce legislation to provide financial assistance to small credit unions. He never did. Then, two years ago, LaFalce promised attendees at NAFCU's Congressional Caucus he would introduce legislation aimed at reforming the federal credit union charter along the lines of what NAFCU had been lobbying for. That bill did not materialize, either. Grandstanding, or just political posturing? The credit union lobby is still wondering.

The LaFalce stance could come back to haunt the credit union lobby if the 14-term congressman wins a 15th term next year. In the past few weeks that "if" has grown in size as the New York state legislature recently approved a House redistricting plan that will pit LaFalce against eight-term incumbent Louise Slaughter in the Democratic primary. LaFalce alluded to this during the mark-up session, saying, "First of all, I would like to recognize all of my constituents from Rochester (Slaughter's current district) to Buffalo (LaFalce's)."

If LaFalce survives he will at least return as the top Democrat on the Financial Services Committee and thus, play a major role in the regulatory relief bill that is sure to return next Congress. If the Democrats win back control of the House LaFalce would chair the important committee. That could jeopardize the whole bill, unless the credit union lobby finds a way to win back their on-again, off- again ally.

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