Senate: 'No Reg Relief Without Consumer Input'

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Members of the Senate Banking Committee made it clear last week that efforts to pass a regulatory relief bill won't go very far until regulators get more input from consumers on the process.

Sen. Paul Sarbanes (D-MD), the ranking Democrat on the panel, told banking regulators he was dismayed that recommendations endorsed by the federal agencies were drafted in concert with industry representatives but with little input from consumers. "Well, I have to tell you, I think there's a problem here," said Sarbanes, during a hearing on regulatory relief. "The consumer groups tell us they don't think they're getting a fair shake, they don't feel they're being heard. Clearly, these consumer groups have a role to play. The notion that the industry groups can get together with the regulators and that constitutes a recommendation isn't going to create confidence in the results."

Sarbanes remarks came after representatives of the FDIC, the Office of Thrift Supervision and Office of the Comptroller of the Currency described a process in which key proposals to roll-back consumer protections on Truth in Lending, rights of mortgage recession, privacy notification, the Community Reinvestment Act, and other regulatory requirements were drafted by and endorsed by industry representatives.

John Reich, vice chairman of the FDIC, explained to the senators how the regulators and the trade associations collaborated on a matrix that describes recommendations on more than 180 regulatory proposals without offering consumer groups an opportunity to review the matrix.

Sen. Michael Crapo (R-ID), who is drafting the regulatory relief bill in the Senate, agreed with Sarbanes, telling the regulators they need to listen to the consumer groups when making their recommendations.

NCUA Chairman JoAnn Johnson suggested to Sarbanes that the credit union regulator's list of recommendations was drafted with more participation from credit union members/consumers. She noted NCUA's Capital Summit last year where public comments were solicited for the agency's draft of a risk-based capital proposal, and credit union annual meetings around the country, which NCUA board members regularly attend.

Johnson noted to The Credit Union Journal several recommendations aimed at expanding consumer access to credit unions, such as the proposal to allow credit unions to provide check cashing and wire transfers to non-members within their fields of membership. That proposal is supported by The Consumer Federation of America, of which CUNA and NAFCU are influential members, a representative of which testified in its favor at last week's hearing.

Still, it was clear at last week's hearing that the credit union recommendations were also drafted with minimal input from credit union members. Representatives from both CUNA and NAFCU, conceded that there was no effort to gather direct recommendations from members and there has been none during the four years of preparing a regulatory relief proposal.

Crapo, who served as acting chairman of the banking committee during the hearing because Chairman Richard Shelby of Alabama was absent, told the banking regulators he wants to see some evidence of additional consumer input before introducing the regulatory relief bill.

The credit union representatives testifying before the committee last week: NCUA's Johnson; NAFCU Chairman Michael Vadala, president of The Summit FCU, Rochester, N.Y., and Chris Loseth, president of Potlach CU, Lewiston, Idaho, appearing on behalf of CUNA, all reiterated their support for enactment of a risk-based capital system for credit unions they said would ease current limitations under NCUA's minimal capital standards known as prompt correct action, or PCA.

The Recommendations

Their recommendations were identical to those presented last month to the House Financial Services Committee, which is drafting its own regulatory relief bill.

They include:

* Changing the definition of net worth for credit unions to allow them to continue to 'pool,' or combine their net worth after merging, in contravention of a new accounting rule barring pooling of net worth.

* Allowing federally chartered credit unions to retain their select groups after converting to community charters.

* Allowing federally chartered credit unions the same powers afforded state charters now in eight states to provide check cashing and wire transfers services to non-members within their fields of membership.

* Raising the limit on member business loans from the 12.25% enacted in HR 1151, the 1998 CU Membership Access Act.

* Allowing NCUA, instead of Congress, to decide permissible investments and loan maturity limits for credit unions, and how much a credit union may invest in a CUSO.

CUNA, but not NAFCU, also recommended:

* Requiring that at least 20% of members vote in a ballot to convert to a mutual savings bank.

* Allowing privately insured credit unions to join the Federal Home Loan Bank System.

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