Six of one, a half-dozen of the other

In my 18 years in the credit union movement I have served in three credit unions, two federal CUs and Wescom, which is state chartered. Having been through both NCUA and state examinations I can say without reservation that the quality of oversight and examination done by our state CU regulator (the California Department of Financial Institutions) is every bit as rigorous as that in my past dealings and experiences with the federal agency. As a state-chartered, federally-insured CU, Wescom is routinely examined by both federal and state examiners. My opinion is that the oversight may be enhanced by an additional set of eyes looking at our operation. That’s why, five months later, I’m still troubled by the remarks made by Rep. Paul Kanjorski (D-Penn.) at the CUNA Governmental Affairs Conference back in February. I know we collectively owe the Honorable Mr. Kanjorski a debt of gratitude for sponsoring the Credit Union Membership Access Act, and I do appreciate his steadfast support of the credit union movement, but I take exception to his remarks suggesting the need to rein in the powers of state chartered CUs. Does it make any sense at all to break this unbroken system? The relative advantages/disadvantages of selecting a state versus a federal charter is rightly left to individual credit unions, isn’t it? Shouldn’t that freedom of choice continue? If part of the federal system needs to be fixed, the answer certainly isn’t to bend or break the state system. Let me offer a few examples of how the differences between state and federal charters have helped Wescom Credit Union do things that benefit our members and makes a case for maintaining the balance between the two. Three years ago, Wescom became aware of a Los Angeles minority-owned community bank with a mission to provide affordable financial services to an area that had largely been abandoned by the big banks. With $100 million in assets, this institution was one of the largest minority-owned banks in the country, yet it lacked the infrastructure to expand its service offerings. We became involved in an effort to see how Wescom might help it continue its mission. We found part of the solution by becoming a stockholder. By doing so, we helped build the bank’s capital base so that it could continue to grow and prosper, and through the services it provides, help the community to prosper as well. One year ago, the bank merged with another African American institution. So this institution is now offering more services to more people and it’s a success story any way you look at it. Had we been a federal CU, Wescom would not have been able to make that investment. Of course, Wescom could have sought to serve this community directly, bypassing the bank, but that would have been contrary to our purpose of supporting existing community organizations. Even if we did so, how many branches would we have had to build or support, and at that cost, in order to offer services? (The bank already had six branches.) And, frankly, isn’t it unconscionable boasting to aver that only a credit union could or would serve this community best? The California Credit Union Division was able to listen to our case in support of making this investment, and concluded that it was both good for the community and a sound investment for the credit union. Such an investment would not have been permitted under NCUA rules and regulations. Wescom Credit Union has also been a major real estate lender in the Southern California market and through the years has asked the state regulator for variances that have permitted us to offer non-conforming mortgages. As a result, we make mortgages with downpayments as low as 3%, which is very important when you consider the cost of housing in California. The California DFI has the ability to take the local marketplace into consideration when evaluating any of our requests. This has permitted us to say “Yes” to our members when we might not have otherwise been able to do so. In the case of our low-downpayment mortgage loans, we have placed many of our members in their first homes. For us, it also means that we strengthen the relationship with those members. The goodwill we generate promotes the credit union philosophy far beyond the power of simply approving a business transaction. What I perceive from operating in both the federal and state environment is that relations between credit unions and regulators can be positive and productive in both. But one advantage states have is that their regulators are physically closer to them; ours is here in Los Angeles. That closeness leads to an interaction that adds to openness and receptivity to new ideas. The NCUA has faced its challenges, too, and I have witnessed a reshaping of ideas and strategic initiatives there as well. It’s not that they aren’t receptive to credit unions seeking to serve their members but given the constraints of federal law, there is just so much they can do, and change at the federal level is never speedy. They also have some 6,000 credit unions to regulate, versus the California DFI being concerned with some 700. If the essence of the dual chartering system is that whatever environment may best serve a credit union’s members should be that CU’s choice of charter, then what we have is functioning very well as it is. In fact, that view changes as a CU’s membership itself may change, get older, suffer shifts in regional employment levels, etc. Credit unions must adapt to those sometimes-sudden reality checks and make decisions on what is best for their members. If either the federal or state system nullifies the advantages of one charter over the other in a legislative game of cat and mouse then we are headed for trouble. There should rightly be differences and choices, and there are. Here in California, for example, one trade off is that state charters do not enjoy tax parity with federals. Then, there is the matter of dual regulators, which does afford increased oversight, but also carries an added cost. So it’s surely not a good idea to sell the notion that one system needs to be curtailed in order to stem the growth of the other. This is the message that California credit unions brought to our congressional delegation during the recent “Hike the Hill” in Washington, D.C.: that the state system of CU supervision and regulation is every bit as rigorous as NCUA’s. Now, this knowledge of equal safety and soundness standards in both state and federal systems must be reinforced in our home districts. Without clear and definite proof that something has upset the natural balance, let’s not add a thumb to either side of the scale.