Letters to Reps Brown-Waite, Baker, Hooley and Bachus Regarding Hurricane Check Cashing Relief Act of 2005
October 3, 2005
The Honorable Richard Baker
341 Cannon House Office Building
Washington, DC 20515
Dear Representative Baker:
On behalf of the Credit Union National Association (CUNA), which represents nearly 9,000 credit unions and their 87 million credit union members, I would like to commend you for your leadership in your efforts to address the needs of financial institutions in their efforts to help in the recovery for the victims of Hurricane Katrina.
CUNA has serious concerns that the recovery of affected credit unions, as well as assistance from other credit unions, will be significantly limited by restraints imposed on credit unions under prompt corrective action (PCA).
Currently under PCA, credit unions must meet statutory net worth requirements. In order to be well-capitalized a credit union must have 7% net worth, compared to the 5% leverage ratio required for well-capitalized banks and thrifts (Institutions must also meet any applicable risk-based net worth requirements.) If credit unions experience problems affecting their ability to sustain their net worth, they become subject to a number of sanctions imposed by the National Credit Union Administration (NCUA).
In the aftermath of Hurricane Katrina, a number of credit unions may be experiencing PCA concerns, due in part to the relocation of their membership, as well as to the uncertain future of their communities.
As structured under the current statute, NCUA has limited flexibility to work with credit unions that encounter PCA problems, even if those problems are the result of a catastrophe outside of their control. Also, NCUA may be required to impose net worth restoration plans on some credit unions in the affected areas, for which the credit unions would have to divert resources from their operations to rebuild and recover. Such plans also would provide the agency and the credit unions very few options in addressing extraordinary situations that have been spawned by Katrina.
Furthermore, consistent with the true cooperative nature of the credit union movement, many credit unions outside the hurricane's path are willing to help in a variety of ways such as purchasing loans from affected credit unions. However, their ability to help is seriously tempered by PCA, particularly in the era of problematic loans.
In light of this, CUNA has urged Congress to provide NCUA temporary authority to waive certain PCA requirements, consistent with safety and soundness for credit unions in the affected areas, as well as those seeking to provide assistance through the purchase of loans or other means. At the end of the recommended 18-month time frame, we ask that you give serious consideration to permanently extending this authority.
I would like to commend you and the other bill sponsors for listening to and addressing the needs of America's Credit Unions by introducing the Hurricane Katrina Financial Services Relief Act of 2005. Section 6 of this vital measure seeks to provide the NCUA with the forbearance on a case-by-case basis from taking action with respect to undercapitalized institutions, if the reduction in net worth or capital was directly caused by Hurricane Katrina and if the forbearance would facilitate recovery for a period of 18 months.
While we strongly endorse this bill, there a few changes that we recommend as it makes its way through the legislative process. Specifically:
- the bill should define insured depository institutions using the definition in the Federal Reserve Act that includes credit unions. The current wording throughout the bill suggests credit unions are not insured depository institutions;
- the bill does not help credit unions or other insured financial institutions outside the affected area and should be amended to help those that have members or customers there with, for example, loans that go bad or that purchase loans or participations that are bad;
- on page 5,under the net worth standards, the regulators should be able to waive PCA requirements for any affected undercapitalized credit union. On a case-by-case basis they should be able to waive requirements for critically undercapitalized institutions;
- affected institutions should include those with 50% of total deposits or loans from persons who normally reside in the area (this applies on page 5 and on page 7); and
- the bill should grant the regulators the authority to extend their PCA forbearance authority for an additional 18 months after which time it could be extended further by Congress.
Thank you for taking the initiative to make it easier for the affected credit unions to recover while assisting victims of Hurricane Katrina.
Please feel free to call on me or my staff if you have any questions or if we can be of further assistance in this important effort.
Daniel A. Mica
President & CEO
Credit Union National Association