Future of LaFalce bill is dim; community credit unions must fulfill their role, Matz tells NACCU attendees

SANTA FE, N.M. – That bill introduced in the Congress late in the session by retiring U.S. Rep. John LaFalce (D-N.Y.) to rein in powers of federally-insured state chartered credit unions represents a personal “cause” of the House Financial Services Committee Democrat but represents legislation without “much of a future,” according to NCUA Board Member Deborah Matz. Speaking here to the annual meeting of the National Association of Community Chartered Credit Unions, Matz downplayed concerns particularly among state CUs that NCUA would be playing any forceful role to curtail state CU expansion. If needed, “we at the Board have ways to strengthen federally chartered” CUs without restricting state CUs, declared Matz in response to questions from the floor at the NACCU conference. The controversial LaFalce bill, which could still get resurrected when Congress returns in January, would limit the powers of federally insured state CUs by barring them from exercising field of membership or asset powers not provided for federal charters. Executives of state CUs have expressed alarm at the prospect of expansion plans tied to federals with the issue of federal-to-state conversions also a factor. LaFalce, a sponsor of H. R. 1151, maintained his motivation in sponsoring the bill is to expand CU services, but Matz told the NACCU audience his ideas would likely get a fuller airing in 2003. But following her speech which lauded the role of community CUs across the country in servicing the public, the NCUA director was quizzed by audience members on the status of various proposed regulations. On that score she did acknowledge that rules on SBA business lending are still awaiting word from the SBA. She said the agency “next month would look at a manual on field of membership,” and she defended her dissenting vote on an investment rule limiting corporates on low grade, long-term securities as one which “would be sending a message out of step” with national concern over corporate governance. The NCUA Board overruled Matz 2-1 to pass the new corporate rules with Chairman Dennis Dollar maintaining corporates would be severely restricted and “would not be in business long” if the rules were not enacted. Matz applauded the expansion programs of community CUs into business lending but stressed there is a “culture” gap that examiners are going through as they take a look at loans which in previous times they would have written up. She urged the NACCU audience to be patient on examiner treatment of such credits though her office should be called if examiners became excessive in their regulation. “This sort of thing takes time,” she stressed in noting the need for examiner training to bring them up to speed on business credits. Of course, safety and soundness remains paramount and CUs getting into the field must “do it correctly” by making sure there are adequate reserves set aside for possible losses. Examiners and CUs simply “have to work through” the process, she stressed adding that she supports risk-based lending provided CUs are adequately prepared. In her formal NACCU speech, the NCUA director cited community CUs, a large number of which are in Texas, which have been at the forefront of innovation in serving the underserved or unbanked in low-income areas as well as pursuing business loan services and financial literacy projects. In Texas, she cited Security Service CU of San Antonio’s use of a mobile branch to go into SEGs, and Community Credit Union of Plano’s move to open branches in supermarkets. “Mattress money is finding its way into the credit union,” she said, and that’s a good thing. Servicing low income “is not charity, it’s good business,” she stressed. On efforts by CUs to challenge payday lenders, she applauded Denver Community Federal Credit Union’s planned opening of a payday office adjacent to a new branch in a low-income area. She said this is an example of a CU meeting the challenge head-on as the Colorado CU tries to bring payday clients into the CU. Community CUs, she said, need to be proactive in serving the entire communities they have been chartered to serve, she said. “When a credit union gets a community charter, it is entering into a contract,” Matz said. “The credit union gets a wide market area in which to seek members, receive deposits and make loans. In return, the credit union agrees to serve the entire community, to reach out to the underserved as well as the wealthy; to extend its services to all regardless of economic status or financial sophistication; to educate, inform and assist everyone in its field of membership.” Specifically, Matz urged the community institutions to work to make sure their boards represented the community the institution serves, put branches in areas which might not otherwise be served by financial institutions because of their perceived poverty, offer products and adopt strategies to help their members build wealth, and partner with other organizations in their fields of membership. [email protected]