NCUAs One Corporate Per CU Proposal Is One Bad Idea, Say CUs
ALEXANDRIA, Va. – A proposal by NCUA to restrict credit unions to membership in a single corporate could be prove to be anti-competitive and drive credit unions outside the corporate system for vital services, credit unions are telling NCUA.
“In general this would certainly limit the choices for credit unions and would take away the incentive of corporate credit unions to remain competitive,” said New York’s Actors FCU President Jeff Rodman, in a comment letter to NCUA on the proposal. “Non-competitive corporate credit unions would soon find little need to deliver top quality services at competitive prices.”
“If we could not make investments in another corporate you are basically telling me how to run my credit union, when that is up to our credit union’s Board of Directors,” wrote Jennifer Tiedman, president of First Pace CU, West St. Paul, Minn. “This proposed amendment is restricting free market enterprise and could create a monopoly by limiting choice.”
The one corporate rule is part of a number of amendments NCUA is proposing to its new corporate regulation and is aimed at discouraging corporates from offering ever-higher rates in order to attract more money–the main cause identified in the failure of WesCorp FCU.
In addition, multiple corporate memberships meant that thousands of credit unions were wounded multiple times because they held capital in more than one of the corporate failures, WesCorp, Southwest Corporate FCU, Members United Corporate FCU and Constitution Corporate FCU. Actors FCU, for example, has membership in four different corporates, including Members United and Constitution.
But several commenters said that higher rates is just one of the numerous reasons credit unions may join multiple corporates. Sharon Davidson, president of Dyersburg (Tenn.) CU, said her $12 million credit union has been a long-time member of its home state Volunteer Corporate CU, but recently joined Southwest Corporate FCU for its asset liability management services, and this summer joined Corporate One FCU to access its new private student loan program offered in conjunction with Sallie Mae. “Different corporates have different things available and we should not be restricted to only one,” wrote Davidson.
“The regulation,” commented Tommy Cobb, president of Tuscaloosa (Alabama) CU, “has the unintended effect of focusing only on “rate shopping.”’ Corporate correspondent services such as ACH settlement, cash delivery, wire transfers and other partnerships that leverage the economy of scale corporates provide are more important to a CU my size than rates. A mandate to limit membership to one corporate will drive up the cost to a natural person credit union which in turn drives up cost to members.”
Dan Morrisey, president of Queen of Peace Arlington FCU, in Arlington, Va., said a restriction to a single corporate will force credit unions to go outside the credit union system for services. “I am therefore concerned that if the proposed NCUA rules are adopted that we, as well as many other credit unions, may be unable to get the required services from a corporate credit union because we must become a member (with a commitment to permanent capital) before getting services, but can not leave a current corporate credit union because our capital is “permanent.’”
Tuscaloosa CU’s Cobb said in general he believes competition has been good for corporates and natural person credit unions. “Competition did not cause the corporate meltdown because there are corporates remaining that are healthy. The problem was greed and complacency,” wrote Cobb. “Unfortunately, regulations don’t fix that kind of problem.”