Dual chartering for credit unions: Vital for federal and state-chartered credit unions

A viable dual chartering structure has been a cornerstone of our credit union system in this country since its earliest years. By “dual chartering” I mean not only the facts that credit unions have a choice of state or federal regulation, but that state and federal credit unions, as well as their members, benefit because such an option exists. In other words, there is a dynamic created that enhances individual credit unions as well as the credit union system as a whole because there are different – yet comparable from the stand point of safety and soundness – federal and state regulators. This includes the fact that dual chartering encourages both state and federal regulators to operate in a more efficient, cost-effective manner. Thus, dual chartering impacts both state and federal credit unions, and it is an important issue for both categories of credit union charter types. Today, however, with issues such as private insurance, unrelated business income tax, membership in the Federal Home Loan Banks for privately insured credit unions, regulator resources, and other matters in the forefront, some are understandably questioning the continued relevance and strength of dual chartering. There is no question that while concerns circulate, a number of positive developments in the regulatory arena have benefited dual chartering. These initiatives include NCUA’s efforts to improve the regulatory environment for federal credit unions through programs such as its Reg-Flex program and streamlined membership expansion processes. The agency also plans to review field of membership requirements generally later this year. In addition, NCUA announced that it is reviewing its member business loan regulations, an undertaking that could benefit all types of credit unions involved in such loan programs. On the state side, we continue to see beneficial innovations. These include changes in the areas of field of membership and new powers. States play a key role in conceiving such improvements and providing an environment that encourages experimentation and modernization, which ultimately benefits credit unions and their members. CUNA, representing both state and federal credit unions, has a long-standing commitment to dual chartering. In the report of the CUNA Renaissance Commission, the “Vision Statement on Regulation and Insurance” states: “Regulators should focus only on those activities that are materially unsafe and unsound. In addition, regulators must ensure compliance with applicable laws. A regulatory environment must exist that advances the interests of credit unions by empowering them to provide the range of products and services they determine are important to their memberships. There should be a viable dual chartering system. The NCUA and state supervisory authorities should act cooperatively. Actions taken by the NCUA Board on NCUSIF matters should be separate from those taken on NCUA regulatory and supervisory matters, without creating a separate Board or dividing the agency. In addition, a private insurance alternative should be available to all state chartered credit unions.” As one aspect of CUNA’s efforts to support dual chartering, two of our most important internal groups are combining forces to exchange information and ideas about the current status and future viability of dual chartering. CUNA’s State Credit Unions Subcommittee, chaired by Lee Williams, President and CEO of Aviation Associates Credit Union, Wichita, Kansas, and CUNA’s Federal Credit Unions Subcommittee, chaired by Wendell Sebastian, President and CEO of GTE Federal Credit Union, Tampa, Fla., are initiating a project together in which they will examine in detail the current dual regulatory system, assessing strengths as well as perceived inefficiencies. They will also be reviewing changes in the regulation of banks, such as new regulatory provisions under the Gramm-Leach-Bliley banking statute that arguably have strengthened the oversight of banks, and what such modifications portend for credit union supervision at the state and federal level. Finally, they will focus on what issues, if any, need to be addressed to support a viable dual chartering system into the future. A report will be provided to CUNA’s Governmental Affairs Committee from the two groups in February in conjunction with the CUNA Governmental Affairs Conference. In its role as advocate for both state and federal credit unions, CUNA is uniquely positioned to undertake this review, and as the Chairman of the CUNA Governmental Affairs Committee, I look forward to the report. If dual chartering is to continue as more than a phrase evoking pleasant memories of a past regulatory framework, then it is imperative that it be scrutinized rigorously and objectively, as these subcommittees are charged to do. Dual chartering has been a strength of the credit union system and we want to be vigilant so that it retains its vitality and does not become, as William Shakespeare wrote, “full of sound and fury, signifying nothing.”