ALBANY, N.Y.-At the same time last week credit unions were keeping an eye on a bill in the House to bring relief from NCUA's billion-dollar corporate rescue plan, state leagues and their members were calling on NCUA to adjust its bailout plan to lighten the CU burden.
Leagues said NCUA's initial proposal not only hinders growth, but also impairs credit unions' ability to help Americans through the recession.
Bill Mellin, president of the Credit Union Association of New York, said the league and hundreds of this state's credit unions agree that NCUA's plan could not have come at a worse time. "This type of special assessment would not allow us to be part of a solution for an economic recovery," he told Credit Union Journal.
The plan is not "palatable," insisted Mellin, who said that Empire State credit unions are clamoring about the assessment forcing them to cancel expansion plans and member services that would limit their ability to serve more Americans.
Mellin and other league officials contacted by Credit Union Journal agreed that NCUA had to act quickly to stabilize the corporate system. "But we need to sit down and look at other options," Mellin said. "Is there opportunity to go right into a credit union's capital instead of running this special assessment through the income statement? Credit unions tell me that they've built their capital over the years for rainy days. So let's use that capital for this rainy day."
The New York league also lobbied support for the House legislation. By the time the House endorsed the bill to help credit unions stretch out payment of the $5-billion assessment, Mellin had already contacted every New York representative on the House Financial Services Committee.
Arizona CU League president Scott Earl is another who believes what would be an enormous assessment under the current NCUA plan could slow the country's economic recovery. "At a time when credit unions should be reaching out to help their members, this makes it a lot tighter. Credit unions now have to look at even more cost-cutting measures to try to make sure they don't eat too far into capital."
With CU operating expenses already under severe scrutiny, Earl would not dismiss the possibility of credit union job cuts. "I've not heard anyone say that. I hope it won't come to that. But I would assume that credit unions have not ruled that out."
The ACUL is directing member credit unions to support corporates. "We're asking credit unions to step up and put money into the corporates so they don't have to cash in some of their devalued investments for liquidity," explained Earl. "That is our best solution right now for diminishing the potential premium that lies ahead."
California CU League President Bill Cheney said the "good news is that NCUA appears to be open to suggestions and alternatives. I think we have some time to work with NCUA to look at all kinds of approaches that can reduce the cost to natural-person credit unions. We are working on pulling together ideas from our members that we will share with CUNA."
It wasn't difficult for the Pennsylvania CU Association to put the 62-basis-point ROA hit into perspective. "More than half of our credit unions don't have ROAs that exceed 62," shared Mike Wishnow, PCUA SVP of communications and marketing. "The immediate reaction from most of the credit unions I talked to is this is an awful big hit to take at once. Most are in favor of a system-wide solution that does not involve taxpayer dollars, but they'd like payments spread out somehow."
If relief does not materialize and NCUA's plan goes through in its current form, Wishnow agreed that mergers could increase. "We haven't gotten into those kinds of discussions and I have not heard that first hand, but I think it's fair to say that's a possibility. There is going to be more pressure on credit unions that are struggling with their ROAs to say this may be the time to throw in the towel and merge."
