Just before Congress adjourned last week several key credit union supporters introduced a wide-ranging credit union reform bill that would once again expand field of membership allowances, lift restrictions on business lending, and allow NCUA to institute a risk-based capital system.
The bill has many of the same features as the regulatory relief package that has been stalled in Congress for the past two years and could serve as either a way to spur movement on that bill or to move the credit union reforms separately, credit union lobbyists said last week.
CUNA lobbyist Gary Kohn noted that one of the major impediments to the regulatory relief bill has been the bankers' opposition to the credit union provisions in the package, and the new bill could serve as a way around that.
"The regulatory relief bill has hit some snags. This could serve as a way to move forward on some of these issues," said NAFCU lobbyist Brad Thaler.
The bill includes almost all of the credit union provisions in the regulatory relief package, including allowing federal credit unions to retain their select groups after converting to community charters; easing voluntary mergers; allowing credit unions to lease excess space in underserved areas; give NCUA, instead of Congress, authority for setting standards on loan maturities and permissible investments for credit unions; and allow credit unions to provide limited services, such as check cashing and money transfers for non-members within their FOMs.
The bill does not include the provision, currently in regulatory relief, to allow privately insured credit unions to join the Federal Home Loan Bank System, or another provision favored by many credit unions, which would allow them to raise secondary capital and to count it as net capital under NCUA's PCA rules.
The secondary capital issue, according to Kohn, was left out of the new bill because of widespread disagreement on the issue inside the credit union movement, with some executives insisting on the need for alternative means to raise capital, but others concerned about the potential dilution secondary capital would cause to the traditional ownership structure of credit unions. The risk-based capital proposal, he said, could reduce the need for additional capital sources because of the way it would account for some holdings.
Dollar, who has been campaigning for a risk-based capital system throughout the year, agreed. "This would eliminate the need for secondary capital for probably 95% of credit unions that say they need it," he suggested.
The bill would also make several important changes to the member business loan rules, an increasing focus of credit unions as they expand their business lending. It would raise the ceiling on MBLs from the current 12.25% of assets, instituted at the bankers' behest as part of HR 1151, to 20%; and would raise the minimum amount of a loan that would need to be qualified as a member business loan to $100,000 from the current $50,000.
The bill would also make it more difficult for credit unions to convert to mutual savings banks, another growing concern among credit unions, by requiring that a minimum of 20% of all members vote on a conversion and that the vote be approved by a majority of those voters. Current law only requires a bare majority of voters to approve a conversion.
The bill was sponsored by a small bipartisan group of House members, including Reps. Ed Royce (R-CA), Paul Kanjorski (D-PA), Steve LaTourette (R-OH), and Carolyn Maloney (D-NY). Kanjorski and LaTourette were the two main sponsors of HR 1151, the landmark CU Membership Access Act of 1998. The California CU League was instrumental in shaping the bill through Royce, who was a major credit union supporter while serving in the California legislature, as well.
John McKechnie, chief lobbyist for CUNA, said they have been working closely with this group of lawmakers over the past few months to fashion an alternative to the regulatory relief bill, in case the relief package does not move. The credit union lobby will use the period between last week's congressional adjournment and the start of next year's session to contact lawmakers in their home districts in support of the bill, he said. "It's an extremely important first step in getting Congress aware of these issues," he said.
