Secondary Capital 'Joint Letter' Is Anything But

CUNA and NAFCU finally submitted their “joint letter” to the NCUA Board regarding secondary capital. After weeks of toiling on an issue that’s been studied for years, nay decades, what a snoozer. You’d think all this time and effort would have produced far more than the anti-climactic one-page letter and half-page of legislative language that was delivered to the agency.The letter even states, “There are many issues facing the credit union system today, but none are more important to those credit unions that need help than alternative capital.” This is very likely a true statement, but when you only contribute a page and a half of actionable material on it, is the issue really being represented to the degree of import it should be?“Our goal is to achieve alternative capital authority for federally insured credit unions this year,” the letter added. A lofty goal at any time, but with the ADHD-afflicted Congress we currently have, this is could be more challenging, or less. Maybe CUNA and NAFCU should bring along some Ritalin when they’re lobbying on the Hill.And, judging by the lack of detail in the letter presented to the NCUA, the trades are hardly in agreement. NAFCU has made no secret that it is not changing its stance on the membership issue, and CUNA still believes it should be extended beyond the membership. This is why I put the term joint letter in quotes above-it’s hardly joint, and it’s more of a note than a letter.I really shouldn’t make light of it, though I find the trade association wrangling somewhat amusing. The truth of the matter is these groups are representing you and your credit unions with lawmakers and regulators that possess very real control over how you run your business. The entire reason the trades are attempting to appear to present a united front is because 1) credit unions are demanding it and 2) it is essential to the strategy behind a subject as crucial and controversial as secondary capital.However, this joint effort obviously only goes surface deep, and credit unions deserve and should demand better. The trades will not be able to demonstrate a united front if all they can somewhat agree on is what is in this letter.At the same time, the NCUA is supposed to be able to take this documentation, which offers zero supporting justification for the changes other than some credit unions “need help,” to the Treasury Department and the Congress to fight for expanded authority for credit unions. The trades should be embarrassed; drastic changes need to take place.In other news, the Consumer Financial Protection Agency legislation passed out of the House Financial Services Committee. By now, you all are aware that I think this has to be one of the administration’s worst ideas concerning regulated financial institutions.Now, in addition to the asset-size differentiations in the bill, requiring credit unions over $1.5 billion in assets to be examined by the new regulator along with the NCUA, confusion clouds whether federally chartered credit unions will be exempt from following even stricter state laws and regs or not. At this point, the national banks are not exempt unless they obtain a regulatory exemption, which does not bode well for credit unions. Yet again credit unions were forgotten about, which could play to their favor in this instance, but generally speaking it’s demoralizing.Still CUNA is vowing to work with Barney Frank. This bill on its face is all around bad, not to mention the time and expense of it. Kill it now; it shouldn’t have gotten this far. NAFCU has opposed the bill from the start. Having a seat at the table hasn’t helped credit unions thus far, especially after the bombshell dropped on them Oct. 15 when the belief was that credit unions would be in the clear.Additionally, overdraft protection legislation was introduced on Oct. 19, which could serve to hurt some credit unions significantly. According to CUNA, 52% of credit unions that provide checking accounts offer overdraft protection. Of the nearly 5,900 credit unions that have share drafts, about 3,000 have overdraft programs. Of those approximately 300 provide the service at no charge, while 2,800 charge a fee. The fees range from between $1 and $38, with a median of $25, which is unchanged from last year.First, I’ll say that $38 is unconscionable for any financial institution, much less a credit union.Second, overdraft fees among the largest 10 banks have increased 15% since 2005 and average nearly $35, CUNA said citing a survey conducted by the Consumer Federation of America. Just because credit unions fare better than the top 10 banks doesn’t make it right.Impracticalities of the legislation aside, something does need to be done to rein in abuse in this area without harming credit unions’ ability to offer the product. What should happen is that current overdraft users should be grandfathered in but be offered an easy opt-out by their financial institution. All overdraft protection from a set effective date on should be opt-in, which scares providers because they know human nature leans toward inaction (or the default option). Right now some institutions are automatically adding the service without notification and without opportunity to decline it, which is simply wrong.