Letter to House Financial Services Chairman Michael Oxley Regarding Regulatory Relief
February 5, 2003
Honorable Mike Oxley, Chairman
Committee on Financial Services
U.S. House of Representatives
2129 Rayburn House Office Building
Washington, D.C. 20515
Dear Mr. Chairman:
On behalf of the Credit Union National Association (CUNA) and the nation's 83 million credit union members, I congratulate you on your ongoing efforts to relieve America's depository institutions of unneeded and burdensome regulations.
As you know, credit unions remain the most highly regulated and restricted of all insured financial institutions, particularly after the passage of the Credit Union Membership Access Act, which, while it resolved some very important issues, also imposed new, severe restrictions on credit unions in several areas. We are, therefore, extremely grateful that last year's regulatory relief bill included important relief that will help credit unions fulfill their mission and provide greater service to their members.
CUNA remains strongly committed to each of the provisions included in last year's bill, including the right of state chartered privately insured credit unions to join the Federal Home Loan Bank System, the exemption from the cap on member business loans for faith-based loans, the ability of credit unions to provide check cashing and wire transfer services to anyone within their field of membership. I strongly encourage you to ensure that every one of the provisions in last year's bill remains a part of any new legislative initiative in the 108th Congress.
It is our hope that last year's bill was a starting point for providing regulatory relief, and in that spirit we offer you some suggestions for further relief for credit unions and hope you will consider these suggestions for inclusion in this year's bill or a subsequent effort:
Federal Credit Union Act Amendments
1. Adjust the 12.25% member business loan (MBL) cap
CUNA is strongly in favor of eliminating the cap, which was arbitrarily derived at during consideration of the Credit Union Membership Access Act. A recent Treasury study indicated that MBLs are as safe as any other type of credit union loan, and also found that they are generally less risky than commercial loans made by banks and thrifts. If immediate elimination of the cap is not possible at this time, we urge at a minimum that the cap be adjusted to 20 percent, which is the same as that set for thrifts.
2. Allow federal credit unions to be able to build net worth through the use of secondary capital
Unlike banks, credit unions cannot go into capital markets to build net worth. They can only raise their net worth through the retention of earnings, which can be an arduous process for a credit union seeking to rebuild net worth. This amendment would allow credit unions to have some flexibility to be able to reach out to other entities within the credit union system, such as other credit unions, to offer secondary capital instruments that would allow the credit union another resource to rebuild capital.
3. Allow community credit unions to continue adding members from groups that were part of the field of membership (FOM) before the credit union converted to a community charter but are now outside the community
Prior to the adoption of amendments to the Federal Credit Union Act in 1998, community credit unions were able to add new members from groups that they had previously served but are outside of the community area granted under a charter conversion by NCUA. Currently, the credit union may serve members of record but not include additional members from those groups. This amendment would restore that capacity to credit unions.
4. Allow credit unions to serve underserved areas with an ATM
The legislative history to the Credit Union Membership Access Act indicates that federal credit unions should establish a brick and mortar branch or other facility rather than establishing an ATM to serve an underserved area. This directive makes it far less affordable for a number of credit unions to reach out even more to underserved areas. While credit unions serving underserved areas through an ATM should be as committed to the area as a credit union with another type of facility, this amendment will facilitate increased service to underserved areas.
5. Lower the statutory net worth levels for CUs under PCA by 1% in every category
The FCU Act sets far more strenuous net worth levels for credit unions than any other type of financial institution. Yet, according to Treasury studies and other rigorous reviews, which were conducted after the PCA provisions were added to the FCU Act, credit unions pose far less risk to their National Credit Union Share Insurance Fund than banks do to the FDIC. This amendment recognizes that reality and would bring net worth requirements for credit unions into line with those of all other types of financial institutions.
6. Eliminate the 1% limit on FCU investments in credit union service organizations (CUSOs) and eliminate the 1% limit on loans from Federal credit unions to CUSOs and allow NCUA to address these issues through the regulatory process.
Under the FCU Act, federal credit unions face outdated limits on their ability to loan to or invest in a credit union service organization. CUSOs pose no safety and soundness concerns and must be engaged in activities that are primarily related to the credit union system. This amendment would provide flexibility to NCUA to determine what is the appropriate level of CUSO investment and lending appropriate for federal credit unions.
7. Remove investment limits from the FCU Act and let the NCUA write the appropriate rules
The investment provisions in the FCU Act are outdated and hamper the ability of federal credit unions to take advantage of investment opportunities that are safe and are afforded to other financial institutions. This amendment would facilitate safety and soundness by requiring NCUA to write rules to authorize FCU investments.
8. Remove the FOM select group size numbers (3,000) and remove the language that directs the Board to encourage the formation of a separate CU before considering a select employee group (SEG)
The Federal Credit Union Act contains a number of specific directives regarding the steps a credit union and NCUA must take before it can add a new group within its field of membership. These provisions are not needed for safety and soundness and operate to make the membership addition process needlessly cumbersome.
9. Delete the federal credit union board governance provisions in the FCU Act
The FCU Act contains a number of specific, regulatory provisions directing the governance of Federal Credit Union board activities. Some of these provisions have not been reviewed in over ten years, if ever. This amendment would remove those provisions and allow NCUA to address such issues more appropriately in the regulatory process.
10. Eliminate the requirement that only one NCUA Board member can have credit union experience
Currently, only one member of the NCUA Board made have credit union experience. Such a limit does not apply to any of the other federal regulatory agencies. This amendment would restore flexibility to the President of the United States to choose the right individual for the position, regardless of credit union experience.
11. Remove statutory provisions regarding consumer and mortgage lending and let NCUA write rules in this area
The FCU Act contains a number of specific, regulatory provisions that circumscribe consumer lending, many of which have not been reviewed for decades. This amendment would remove those provisions and allow NCUA to address whatever limits are required for safety and soundness purposes.
12. Eliminate the usury ceiling
Federal credit unions are the only financial institutions that operate under a federal statutory usury ceiling. The ceiling is anachronistic and can actually prejudice consumers if credit unions are curtailed in their ability to make loans in a rising interest rate market. The usury ceiling also makes it difficult for credit unions to serve the underserved, especially those that use payday lenders.
13. Allow the NCUA to determine "underserved areas"
Under the FCU Act, "underserved areas" must meet specific criteria in order for a credit union to serve it as such an area. This amendment would allow NCUA flexibility to modify those criteria to help credit unions do even more to help areas that might be underserved but just not meet the statutory definition.
14. Allow credit unions to make MBLs unless they are significantly undercapitalized at 4% or less
Under prompt corrective action, credit unions are not allowed to continue making member business loans if they are undercapitalized, that is have net worth of less than 6%. When this provision was included in the FCU Act, the Treasury had not yet conducted its study of MBLs for credit unions. That study concluded that MBLs within the credit union system are subject to more safeguards and are less risky than such lending at banks. The small business community is in great need of these kinds of business loans, generally for amounts of less than $100,000, which banks are often not willing to make. This change would facilitate the continuation of MBL lending while a credit union works to bring its net worth back to the adequate level of 6%.
15. Change the definition of "new credit union" under prompt corrective action statutory provisions from one that has been in operation for less than 10 years and has not more than $10 million in total assets to one that has been in operation for less than 10 years or has less than $20 million in assets
Credit unions have made a tremendous effort to comply with prompt corrective action provisions since they were enacted in 1998. However, credit unions have the most strenuous statutory net worth requirements, even though Treasury studies have shown that credit unions pose far less risk than other financial institutions. This amendment provides flexibility for smaller and new credit unions to meet PCA requirements over an appropriate transition period.
As previously suggested, I fully understand that you will not be able to incorporate all of these suggestions in the current legislation (some are already in the bill in a more limited form). It is my hope that this bill will be the first installment in a continuing effort to eliminate unnecessary and burdensome rules and regulations for credit unions and others.
Daniel A. Mica
President & CEO