WASHINGTON - The House Banking Committee's top Democrat said Tuesday that he is laying the groundwork to liberalize the commercial lending, merger, and some membership restrictions on federally chartered credit unions to keep them competitive.

"Questions of a weakened federal charter and imbalance between federal and state regulation are important issues that deserve detailed congressional examination," Rep. John J. LaFalce said in a speech at the National Association of Federal Credit Unions' congressional caucus.

Rep. LaFalce, who would almost certainly become committee chairman if Democrats recaptured the House in November, vowed to introduce the legislation this month. Though no action is likely this year, he called for hearings next year.

"I can assure you that if Democrats do gain a majority [in the House] and I am selected … to chair the Banking Committee, I will make these issues a priority and will initiate the process of placing credit union needs, and broader consumer needs, at the forefront of the committee's agenda," the New York lawmaker said.

The cornerstone of Rep. LaFalce's proposal, which is still being drafted, would be the lifting of the commercial lending limit imposed by the Credit Union Membership Access Act of 1998. The limit is currently set at 1.75 times a credit union's net worth, or 12.25% of its assets, whichever is smaller.

"The member business loan limit was arbitrarily imposed," Rep. LaFalce said. "It has little relevance to market reality, and it needs to be repealed."

The restriction on business lending is a primary reason many federal credit unions have cited for switching to state charters recently, he said.

Banking industry officials, who fought for the limits, reacted negatively to Rep. LaFalce's comments.

The idea of lifting the business lending limit "should be a concern of regulators, because of credit unions' lack of expertise in this area," said Ronald K. Ence, an Independent Community Bankers of America lobbyist.

"It also raises the old question of tax exemptions for credit unions, which gives them a big leg up," he said.

Rep. LaFalce's planned legislation also would make it easier for healthy credit unions to merge if regulators predict trouble for one of them; let occupation-based credit unions that convert to community charters continue serving members in remote geographic areas; and let more credit unions expand into low-income communities.

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