Credit Unions Making A Lot of Headway Reducing Regulatory Burdens, but Much Work to be Done

As I write this, Senator Mike Crapo (R-Idaho) is putting together a regulatory relief package that he hopes to introduce prior to Congress recessing for its summer break. Senator Crapo has been tasked by Senate Banking Committee Chairman Richard Shelby (R-Ala.) to produce a bill similar to the House-passed reg relief measure, H.R. 1375. As part of that process, the Senate Banking Committee conducted a hearing in June where regulators and those in the financial services industry suggested ways to reduce the regulatory burden on America’s financial institutions. Among those testifying was NAFCU Board Member Bill Cheney, president and CEO of Xerox FCU. In NAFCU’s meetings with Senator Crapo and in his comments during the hearing, he has clearly indicated his – and the committee’s intention – to move expeditiously in a bipartisan fashion to relieve credit unions and other financial institutions from “outdated, ineffective or unduly burdensome regulations that are not justified by either the need to ensure safety and soundness or to provide consumer protection.” Senator Crapo has correctly noted that “when regulatory burdens are excessive and fail to add net value, they take a toll on the competitiveness of our financial system and squander scarce resources that could otherwise be devoted to productive activities, such as making loans and extending credit to small businesses and potential homeowners.” In this regard, it is clearly apparent that Senator Crapo’s and the committee’s goal is not to disadvantage one type of financial institution over another (which seems to be the preoccupation of the bankers these days) but to enable all financial institutions to better serve the American consumer. To its credit, Congress is rightfully ignoring the bankers’ attempts to use the regulatory relief bill to skewer credit unions. As a matter of fact, the House passed the Financial Services Regulatory Relief Act (H.R. 1375) by an overwhelming margin (392-25) in March. That bill contains many critical provisions that the bankers consistently opposed-despite admonishments from House Financial Institutions Subcommittee Chairman Spencer Baucus (R-Ala.) and other members-and that NAFCU worked very hard to ensure were included in the legislation. In early 2000, NAFCU identified a number of regulatory relief measures that our members felt were necessary to enhance the federal charter. Recognizing that enhancing the federal charter would require effort on two fronts, we worked closely with then NCUA Chairman Dennis Dollar and the other members of the NCUA Board to achieve significant changes to the Chartering and Field of Membership Manual. On the legislative front, many of our ideas became part of the original regulatory relief package introduced by Representative Shelley Moore Capito (R-W.Va.). The bankers, of course, wrote letters to Capitol Hill expressing outrage at the legislative changes we were seeking, yet those changes are now in H.R. 1375, as other ideas (despite similar objections by the bankers) were included in the revisions to the Chartering and Field of Membership Manual. Additional provisions are now contained in the stand-alone Credit Union Regulatory Improvements Act (H.R. 3579) introduced last fall by Representative Ed Royce (R-Calif.) and which we expect will be the subject of a hearing before Congress goes out on its August recess. NAFCU was also the first to approach SBA to insist that it change its rules excluding the majority of credit unions from the 7(a) loan program. We were also noticeably alone, at least initially, among credit union groups in advocating a significant change or elimination of member business loan requirements. Whenever we seek positive legislative changes for the credit union community, the bankers’ howls are never far behind, but NAFCU remains relentless in seeking those changes that will benefit the credit union community-whether in the remainder of this Congress or in the next. All federally insured credit unions operate under substantial regulatory requirements-in fact, they are more heavily regulated than other financial institutions-and they willingly do so where necessary to preserve safety and soundness or as active participants in the war on terrorism. NCUA published its newest complete rules and regulations April 2004, officially codified in Chapter VII, Title 12, of the Code of Federal Regulations, Parts 700 through 795. This new work runs some 360 pages and when you throw in active letters to credit unions and regulations from the other 16-plus federal agencies applicable to credit unions, you are up to a good-sized tome. Although credit unions come under stricter guidance compared to other financial institutions, there is one regulation that credit unions aren’t subject to that always raises the ire of bankers. That is the Community Reinvestment Act (CRA), which came about because of bankers’ redlining activity. There have been no examples of such activity by credit unions, but that does not stop the bankers from seeking to impose CRA on credit unions. At the same time, an interagency task force charged with reducing paperwork, required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996, has heard from the banking community that “CRA is ineffective in an age of Internet banking, national marketing and niche banks.” Additionally, bankers have asked Congress to raise the asset size threshold (currently $250 million) for the small bank CRA test to as much as $1 or $2 billion. Among bank regulators, a notice of proposed rulemaking on CRA was issued February 6, 2004, that would reduce the burden of this regulation, in part, by changing the asset threshold level upward so that more banks would be “eligible for evaluation under the small institution performance standards.” The bankers, of course, are free to seek reductions in the regulatory burden associated with CRA, but they need to remember that CRA was their own doing. If the bankers want to argue that CRA is really not needed or is outdated then it is certainly disingenuous to say that credit unions should come under it as well. As a result of being a direct membership organization, we hear first-hand from our members about the regulatory and legislative burdens that they come under, receiving almost daily suggestions for modification and improvement. Such involvement from our members has been the key to our success, as personal involvement and persistence have been what has won the day for the credit union community. Reducing regulatory burden is no different.