Washington's Fickle Focus Turns to CUs

Washington is still finding time for credit unions despite all the turmoil in the financial markets and the economy. This is a blessing and a curse.On the day this paper comes out, a hearing is scheduled in the House Financial Institutions Subcommittee to consider the NCUA’s corporate stabilization efforts. Subjects to be covered will include NCUA’s conservatorship of WesCorp and U.S. Central, the temporary stabilization fund working through the legislative process and the agency’s guarantee of deposits in corporate credit unions.The hearing is not expected to be contentious and will likely be brief. No doubt, however, the bankers will be busy planting questions and filing written testimony for the record-for once they have not been permitted to testify in a credit union hearing. Their plate should be full with their own bad investments. Still, a question or two in the how-could-you-let-this-happen realm could pop up; truly, Congress should be asking substantive questions to avoid the perception of rubber stamping. If the members of Congress actually do care about credit unions, they will ask those questions.The hearing should help grease the wheels for H.R. 2351, the Credit Union Share Insurance Stabilization Act, which Congressman Paul Kanjorski (D-Pa.) and other regular credit union supporters introduced last week. The bill is a back up to S. 896, which includes provisions to extend the corporate credit unions stabilization recapitalization expense over seven years and permanently increase federal deposit insurance coverage to $250,000, in case it gets waylaid in its legislative journey.NAFCU made an interesting suggestion, stating, “the risks posed by the corporates and natural person credit unions are so different that it is no long advisable for NCUA to insure them under one share insurance structure without implementing additional measures to protect natural person credit unions.” The idea has some merit, but administering two different funds is incongruous with today’s streamlining society.The risk at corporates is different and should be measured accordingly. Now is the time for a risk-based capital structure for corporates if they are to continue into the future; a risk-based capital structure might not have solved all the problems in the current market if it had been approved by the NCUA a few years back, but it could have made for a clearer picture.And on a related note, as I stated in last week’s column that despite the vastly different purposes, structures, and number and size of accounts, the corporate credit unions still only pay 1% of the $250,000 insured, just like natural person credit unions. This makes no sense if the government is going to step in and guarantee all those uninsured deposits as well.Credit unions are also battling new requirements for credit card issuers to ensure that credit unions aren’t unjustly swept up in other’s wrongdoings. Here, credit union and bank trade associations storm the Hill, hand-in-hand, to do battle with the powerful National Retail Federation.The lenders were hoping to quash an amendment that the NRF was pushing to permit retailers to offer discounts for customer paying in cash or with debit cards; credit cards carry higher interchange rates for retailers. The interchange fees were initially established in part to help cover fraud costs, which have escalated lately thanks to Heartland, TJX, and others, leaving credit unions and others in greater need of these funds. However, credit unions got used to interchange as fee income rather than a de facto insurance policy.A letter from the coalition of lenders threatened that the legislation would “likely” cause credit unions and banks to get out of the credit card issuing business entirely. Oh, really? In years of covering Washington, I’ve heard some questionable arguments, but this one sounds downright silly. Not only is there too much other money to be made on credit cards, such as $30 late fees and a little thing called compound interest, but the clever financial services industry will surely come up with a legal way to worm around it.While offering discounts for cash or debit payments may pull some consumers away from credit, the fact is, people still need credit for things they can’t yet pay for. Without credit cards, the consumer would be in a bind-unless of course the retailer would be kind enough to extend them a line of credit.CUNA also objected to a requirement to review a cardholder’s interest rate every six months after raising it. CUNA said this would be a great burden for credit unions and suggested extending it to a year or 18 months. However, credit unions should be taking their member cardholders into consideration. Relatively speaking, is it a bigger issue for the credit union to review the accounts of members who had become past due, or for that member to be paying compounding interest at the higher rate for an extra six to 12 months? The credit union trades should bend for the good of their members in this case, particularly now. Along the same vein, CUNA and NAFCU are worried over the burden of sending a notice to cardholders 45 days before their rate increases. Members would likely be better prepared to pay the extra money if they knew of it a little in advance.The credit union trades are also up against President Obama, who wants to pass a bill by Memorial Day.