Credit Union Reform Bill Introduced in House Financial Services Committee Just Before Congress Adjourns

WASHINGTON – Congress adjourned Nov. 21 after passing the Fair Credit Reporting Act, but not before two senior members of the House Financial Services Committee introduced credit union reform legislation that gives credit unions increased flexibility on capital and member business lending. At the eleventh hour, before Congress went home for the holiday recess, Rep. Ed Royce (R-Calif.) and Paul Kanjorski (D-Pa.) introduced the Credit Union Regulatory Improvements Act (CURIA) “to ease credit union regulatory burdens, advance credit union efforts to promote economic growth, and modernize credit union capital standards,” the bill reads. Also signing on to the bill were Reps. Steve LaTourette (R-Ohio) and Carolyn Maloney (D-N.Y.). The crafting of H.R. 3579 has been in the works for several months, with CUNA and the California Credit Union League working closely with House Financial Services Committee members. Chris Kerecman, CCUL’s vp of government affairs said the timing of the release of the bill was crucial because “we didn’t want it to conflict with the FCRA and GSE-related bills that the House Financial Services Committee was heavily involved with.” At the same time, he pointed out that if the bill hadn’t been introduced before Congress adjourned, Royce would have had to wait until January to introduce it when Congress returns. Although the effort was initiated by the California League, Kerecman stressed that “this is not a California League bill. It’s a credit union bill.” He also noted that while neither NAFCU nor NASCUS were “heavily” involved with the upfront work on the measure, “they are eager to play a positive role.” CUNA’s John McKechnie, svp government affairs concurred with Kerecman’s description of the bill, and he further clarified that “this is not a CUNA bill.” Emphasizing the uniqueness of the CURIA, CUNA’s Gary Kohn, vice president, legislative affairs and senior legislative counsel said, “This is the first time a proactive credit union will has been introduced that wasn’t in response to a crisis.” Kerecman, who worked closely with the legislators and CUNA on the initiative said, “The bill in essence addresses all of the major issues that credit unions identified needed to be fixed. Member business lending and prompt corrective action were right at the top of the list, and since they were excluded from regulatory relief, that’s why it was important that there be a separate bill that addressed these two provisions specifically.” Among the provisions of CURIA, H.R. 3579, it: * replaces the complicated member business lending formula in H.R. 1151 which results in a cap of 12.25% of assets, with a straight 20% of assets cap; * increases the current base for defining a member business loan from $50,000 to a maximum of $100,000; * it eliminates the prohibition on undercapitalized credit unions offering member business loans. The bill also contains a provision that would require at least 20% of a credit union’s members to vote `yes’ for a federal credit union to convert to a thrift charter. Currently a majority of credit union members voting has to approve the change and credit union members get three chances to vote by proxy on the proposed switch. H.R. 3579 does not include a provision that allows credit unions to raise secondary capital, which has been another issue high on some credit unions’ `wish list,’ but Kerecman said “credit unions should not see this as a loss or a weakness in the bill.” Noting there was “some level of discomfort” about supplemental capital by some legislators, Kerecman said “we didn’t want to have a supplemental capital provision in the bill just to have it.” Kohn further explained that disagreement over alternative capital wasn’t just among legislators but in credit union circles also. He said that during the discussion phase of Reg Relief, “there were a lot of loud voices among credit unions that supplemental capital could change the cooperative nature of credit unions and further expand the bankers’ tax argument. “When we took a closer look at credit unions’ secondary capital interests and broke them down, we realized we could address their concerns by fixing PCA,” said Kohn. He continued to explain that, “It was politically impossible to amend the regulatory relief bill to include member business lending and prompt corrective action. We understood these issues needed to be amended and (Rep. Michael) Oxley (R-Ohio) wanted to have the Reg Relief bill passed, but not if it involved the controversial elements.” Kohn said CUNA is optimistic the MBL and PCA restrictions have a better chance of being amended in a separate credit union bill than as part of a regulatory relief measure because “if they’re not combined with banking provisions, legislators will look at the differences and not try to balance them with banking provisions.” Kerecman said Royce was “deliberately selected” to introduce CURIA, “not only because he’s a well-respected and senior member of the House Financial Services Committee, but he knows and understands credit unions, and in the past he’s introduced two other credit union bills.” Kerecman was referring to Royce’s faith-based member business lending bill he introduced in Congress in January and a bill he introduced in the California state legislature when he was a state senator that helped to repeal part of credit unions’ state franchise tax. “So that makes H.R. 3759 the third credit union bill he’s introduced. Royce was the perfect person to introduce this measure,” he added. On the Democratic side, the California League executive said, “Kanjorski was the perfect sponsor on the because he too is very well respected and understand credit unions.” Kanjorski, along with LaTourette in 1998, were the lead sponsors of H.R. 1151. Rep. Royce told Credit Union Times : “H.R. 3579, the Credit Union Regulatory Improvements Act of 2003, will help to modernize credit union oversight. Over the last 10 plus years, one of the most significant trends in financial services regulatory policy is the advent of risk-based capital standards. We have seen bank, thrift, and GSE regulators successfully implement risk-based standards to better protect insurance funds and taxpayers from financial mismanagement. The current statutory capital requirements for credit unions do not allow the NCUA to regulate institutions in the most effective manner. Granting the NCUA the ability to implement risk-based capital standards is the most important step Congress can take to ensure the long-term health of the entire credit union sector. I look forward to working with my colleague, Rep. Kanjorski of Pennsylvania, to build widespread support for this legislation.” Just how far the CURIA progresses in the next session of Congress when it convenes in January 2004 “depends on how much support credit unions will be able to drum up for it,” said Kohn. Between now and January when Congress returns Kerecman said CUNA and he, as well as credit unions around the country, intend to be busy lobbying legislators “so we’ll be sure to have support for the bill then.” Kohn, for example, said he feels comfortable that House Financial Services Committee members Brad Sherman (D-Calif.) and Robert Ney (R-Ohio) are interested in the CURIA and will eventually support the measure even though neither congressmen put their names on the list of co-sponsors when the bill was first introduced. “There wasn’t enough time for them to look at the language of the bill before it was introduced,” Kohn said. Sherman “wanted to look closer at other options,” and he speculated that Ney, who has been a strong supporter of allowing state-chartered credit unions to join the Federal Home Loan Bank, was probably reacting to the fact that the CURIA doesn’t include a provision that addresses that. Kohn added though that he “doesn’t see either legislator’s action as a sign of their disappointment or opposition to the credit union bill.” As to what opposition credit unions should expect from the bankers’ associations in response to the CURIA, Kohn responded that, “It’s not difficult to guess what their reaction will be, given that this bill goes beyond the regulatory relief bill.” He said CUNA is prepared with a strategy to deal with any bankers’ offensive, but he would not disclose what that plan entails. -