The Senate Banking Committee approved legislation Thursday to ease credit union membership rules but impose stricter supervisory and commercial lending requirements on the nonprofit institutions.
Modeled on legislation adopted by a landslide vote in the House last month, the Senate Banking Committee's bill would let an occupation-based credit union serve any unrelated company that employed fewer than 3,000 people.
Both bills would gut a Feb. 25 Supreme Court decision requiring credit union members to share a single, common bond.
But an amendment by committee Chairman Alfonse M. D'Amato and ranking Democrat Paul S. Sarbanes toughened the House measure by imposing a cap on business lending. Credit unions could not lend more than 1.75 times capital-which equals about 12% of assets-for business purposes. However, among other exceptions, loans under $50,000 would not count toward the cap.
During negotiations that delayed the vote by four hours, bankers lost an effort to toughen the commercial lending restrictions further. The only concession won by bankers was an elimination of the National Credit Union Administration's authority to waive lending limits.
The D'Amato/Sarbanes amendment also adopted capital requirements and prompt corrective action measures similar to those imposed on banks. Credit unions that drop below a 7% ratio of capital to total assets would gradually have to replenish their reserves. Those that fell below 6% would be designated "undercapitalized" and forced to restrict asset growth and submit a recovery plan to federal regulators.
"I believe we have succeeded in developing a better bill than passed in the House," Sen. D'Amato said. "Credit unions are not only here to stay, but they will be stronger than ever because of this bill."
Though the Senate Banking measure, adopted on a 16-2 vote, would crack down harder on credit unions, bank lobbyists complained that it remains too weak and vowed to fight again when the bill reaches the full Senate.
"Clearly our chances are better there," said Ronald K. Ence, legislative affairs director for the Independent Bankers Association of America. "We cannot have any worse luck. ... It's another disappointing day for the banking industry."
The American Bankers Association went beyond its traditional criticism that tax-exempt credit unions have an unfair advantage over banks. The industry's largest trade group predicted the legislation would lead to a reprise of the savings and loan crisis.
"The regulatory structure of credit unions, which features a cheerleading regulator with exclusive control over both regulation and a federally guaranteed insurance fund, is precisely what Congress said shouldn't be repeated after such a scheme helped cause the S&L disaster of the 1980s," ABA president William T. McConnell said.
Credit union representatives claimed another victory, despite the added restrictions.
"We would like to see a little easing up, but it may be within the realm of acceptability," said Daniel A. Mica, president of the National Credit Union Administration. The lopsided vote "sends a strong signal to the entire Senate," which Mr. Mica predicted would vote on the bill within two weeks.
The committee also adopted an amendment sponsored by Sen. Richard C. Shelby, R-Ala., that would ease the conversion of credit unions to mutual thrifts. It would permit conversions approved by a majority of voting members instead of all members.
Under pressure from Sens. D'Amato and Sarbanes, Sen. Phil Gramm, R-Tex., withdrew a plan to remove Community Reinvestment Act-like requirements on credit unions.
Supported by Sen. D'Amato, Democrats defeated another amendment proposed by Rep. Shelby that would have exempted from CRA banks with less than $250 million of assets.
Both Sens. Gramm and Shelby vowed to try their amendments again when the legislation is voted on by the full Senate. The two votes against the bill were cast by Sens. Connie Mack, R-Fla., and Chuck Hagel, R-Neb.