In Hearing, Banks Object to Plans for CU-Owned Credit Card Banks
A new impediment to regulatory relief emerged last week during hearings before the Senate Banking Committee when the bankers raised objections to two credit union projects in the works that would create credit card banks for credit unions.
Terry Jorde, CEO of CountryBank USA, Cando, N.D., who was representing the Independent Community Bankers of America, asked the senators to rein in the expansion of non-bank industrial loan companies, specifically two ILC projects undertaken on behalf of credit unions.
Industrial loan companies, so-called back-door banks, have become a major impediment to regulatory relief as growing numbers of non-financial entities have entered the banking business through ILC charters. A recent application by Wal-Mart Stores has stoked fears that the retail giant will use an ILC charter to compete with community banks and credit unions.
But just as objectionable, according to the bankers, are recent applications by two credit union groups to use ILC charters to create credit card banks for credit unions. The two applications, for a Utah ILC by a group including CUNA Mutual Group, Corporate One FCU, Card Services for CUs and Certegy; and for a California ILC charter by Wescom CU, are being reviewed by the FDIC, which must approve federal deposit insurance for the entities.
In his Senate testimony, the ICBA's Jorde asked lawmakers to reject provisions that would expand the powers of ILCs or of credit unions through ILCs. "Both ILCs and credit unions already have unfair regulatory and tax advantages over community banks," said Jorde. "In addition, ILCs pose unique safety and soundness risks, as well as conflicts of interest by mixing banking and commerce."
"In a particularly strange twist, credit union groups in California and Utah have applied to acquire or establish ILCs. These combinations would allow credit unions to expand their reach beyond any conceivable common bond restriction," said the banker.
Last week's hearing was considered a good sign that the Senate is finally poised to take up regulator relief in earnest. Sen. Michael Crapo (R-ID), who is working to draft a bill, said he hopes to move quickly to a committee drafting session and vote soon after the hearing.
When it does draft a bill, the Senate is expected to vote a package similar to one that passed the House Financial Services Committee in November and is expected to be voted by the full House later this month. That bill has about 15 provisions for credit unions, but not the major one that NCUA and the trade associations have been lobbying for, that is, enactment of a risk-based capital system for credit unions.
NCUA Chairman JoAnn Johnson once again asked lawmakers to add the risk-based capital proposal to the bill, but it appears unlikely the measure will find its way into the legislation.
A Senate bill is likely to include provisions to:
- Ease new merger accounting rules in order to allow credit unions to continue counting the capital from both entities after a merger.
- Allow FCUs to retain their select groups after converting to a community charter.
- Allow federal credit unions to offer check cashing, wire transfers and remittances to non-members within their fields of membership.
- Allow NCUA, instead of Congress, to set limits on permissible investments and loan maturities for federal credit unions.
- Increase the cap on member business loans, now at 12.25% of assets.
- Allow privately insured credit unions to join the Federal Home Loan Bank System.
Several of the credit union provisions, particularly the ones expanding services to non-members, received a boost when consumer advocates testified on their behalf. But the consumer groups, which included the credit union-backed (Self Help CU) Center for Responsible Lending, Consumers Union, ACORN and National Community Reinvestment Coalition, also called for expansion of several consumer laws, which is opposed by the credit unions, as well as the banks.
Among other things, the groups asked that: check hold times be shortened because of the Check 21 law speeding up check clearing; that the Electronic Funds Transfer Act be amended to require fee and other disclosures on debit cards; and that disclosure requirements of the Truth In Lending Act be applied to overdraft, or "bounce protection" programs.
The consumer groups also took aim at ILCs, asking the senators to limit the powers on the non-bank banks. However, the group did not cite the credit union efforts to charter ILCs.
Once again, the bankers took aim at credit union proposals, even while asking for lawmakers to expand their own powers. The American Bankers Association, for example, called on the Senate panel to reject credit unions' request to increase business lending capacity or to amend the current CU rules on minimum capital.
The various credit union constituencies, including CUNA, NAFCU and NASCUS, all testified on behalf of various credit union provisions.