Letter to Senate Banking Committee Regarding Regulatory Relief

Letters to Congress

Letter to Senate Banking Committee Regarding Regulatory Relief

February 8, 2006

The Honorable Richard Shelby
Chairman, Committee on Banking,
Housing and Urban Affairs
United States Senate
110 Hart Senate Office Building
Washington, DC 20510

Dear Chairman Shelby:

On behalf of the Credit Union National Association (CUNA) and the nation's 87 million credit union members, I would like to thank you for soliciting comments from CUNA regarding the burdensome regulations placed on the financial services industry.

As you move forward in drafting legislation, I ask that you keep under consideration the main points made in our testimony before the Senate Banking Committee in June of 2005. Credit unions continue to remain the most highly regulated and restricted of all insured financial institutions, particularly after the passage of the Credit Union Membership Access Act (CUMAA) in 1998. Severe restrictions have been unintentionally imposed on credit unions in several areas, especially small business lending and capital standards

CUNA strongly urges including provisions in regulatory relief legislation to alter credit union member business lending that would:

  • Replace the 12.25 percent of assets cap on credit union member business lending with a more practical level of 20 percent of assets. This change would facilitate member business lending without jeopardizing safety and soundness at participating credit unions. The 2001 Treasury report found that "…the credit risk associated with [credit union] member business loans may be less than that for most bank and thrift commercial loans." The new cap would still be equal to or stricter than business lending caps currently imposed on other depository institutions.
  • Allow the National Credit Union Administration (NCUA) to exclude loans under $100,000, rather than the current $50,000 figure, from the calculation of the business-lending cap.

Additionally, I would like to reinforce CUNA's support for NCUA's recommendation to reform the Prompt Corrective Action (PCA) provisions in Title II of the Federal Credit Union Act to ensure that the standards allow the NCUA to supervise a modern risk-based capital system for credit unions. CUNA supports amendments to create similar standards for credit unions that are applicable to FDIC-insured institutions. Enacting the NCUA capital reform proposal would ultimately result in capital and net worth requirements that more precisely reflect a credit union's actual risk profile, while providing appropriate safeguards for the National Credit Union Share Insurance Fund, the American taxpayer, and the overall credit union system.

Although potential amendments to other laws that affect the operations of financial institutions were not addressed in the House regulatory relief measure, CUNA would be delighted if the Senate Banking Committee would consider whether it might be appropriate to include amendments in regulatory relief legislation to certain laws that impose undue burdens on financial institutions with questionable benefits to consumers. For instance, CUNA suggests the committee consider the merits of the following:

  • Eliminate the annual privacy notice requirement for financial institutions that do not share personal information or have not changed their policy. For instance, a credit union should give new members a privacy notice, provide all members with a revised privacy notice when its privacy policy has changed, and make its privacy policy available upon request. This approach would be more useful to consumers than annually sending out another piece of paper that goes unread.
  • Expand the number of permissible monthly transfers from savings accounts, or perhaps even eliminate the restrictions, in the Monetary Control Act of 1980. It is impossible to logically explain the "Regulation D" restrictions to consumers in this electronic age. Perhaps the committee should inquire of the Federal Reserve Board if the distinction between savings and transaction accounts is even needed in 2006 for carrying out monetary policy.

CUNA and its member credit unions strongly encourage the Senate Banking Committee to review and consider legislation this year to relieve America's credit unions of unneeded and burdensome regulations, and we commend you for taking the lead on drafting legislation. I would be more than happy to discuss these items as well as any other regulatory relief provisions with you at your convenience.

Thank you for your consideration.

Daniel A. Mica
President & CEO

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