CUNA 2007 LEGISLATIVE BRIEFING PAPER

CREDIT UNION REGULATORY IMPROVEMENTS ACT (CURIA)

CUNA worked closely with our Congressional allies to reintroduce CURIA this year as H.R. 1537, the Credit Union Regulatory Improvements Act of 2007. 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 of 1998 (CUMAA), which imposed new, arbitrary, and severe restrictions on credit unions in several areas. Though four technical regulatory relief provisions were enacted in the last session of Congress as part of the Financial Services Regulatory Relief Act of 2006, there are several key issues that would help eliminate some of the worst examples of statutory micromanagement that have placed unreasonable constraints on the ability of credit unions and their boards to function efficiently and in the best interests of their members. Highlights of the legislation:

Capital Modernization
CURIA would update current capital requirements for credit unions, incorporating the net worth and Prompt Corrective Action (PCA) reform proposals of the National Credit Union Administration (NCUA), the federal regulator responsible for the safety and soundness of the credit union system. In an April 2005 report, NCUA determined that the PCA system created by Congress in the 1998 Credit Union Membership Access Act was too inflexible and that a more fully risk-based system would both foster healthy capitalization levels and encourage more effective capital management.

Economic Growth
CURIA would also help credit unions promote local economic growth by providing for modest expansion in credit union business lending. The bill would increase the 12.25% of assets limit on credit union business lending put in place by Congress in 1998. A 2001 Treasury study found that credit union business loans are “generally smaller and fully collateralized” and tend to more closely resemble consumer loans rather than traditional business loans. The study concluded that business lending “is a niche market” for credit unions that presents no threat “to the viability or profitability on business lending by other insured depository institutions.” In response, CURIA would replace the arbitrary 12.25% business lending cap with a higher 20% of total assets limit, which is comparable to the current limit on non-real estate commercial lending for thrift institutions. CURIA also includes three provisions to permit credit unions to extend services to areas with high unemployment and below median incomes that are generally underserved by other depository institutions. As a result of a lawsuit filed by the American Bankers Association (based on a misinterpretation of CUMAA) the NCUA was forced, in July 2006, to issue a regulation that prohibits these credit unions from adding underserved. The ability for all credit unions to serve underserved areas is part of the core mission of credit unions. CUNA urges Congress to provide the technical fix that is necessary to allow all credit unions to continue to serve underserved areas, and strongly urges the banking industry to put an end to their hypocrisy.

Regulatory Modernization
CURIA would provide credit unions with limited relief from certain specific outdated regulatory burdens and make other necessary changes to the credit union regulatory system. Among other things, CURIA would provide NCUA with increased flexibility in setting maximum loan terms and interest rates, increase credit union investments in credit union service organizations, allow limited investments in securities, improve credit union governance, and increase credit union conversion voting requirements.

FEDERAL FEE STUDY / BUSINESS CHECKING BILL

Rep. Nydia Velazquez (D-NY) introduced legislation, H.R. 41, the Business Checking Fairness Act, on the opening day of the 110th Congress that would renew, on a permanent basis, the requirement that the Federal Reserve Board conduct an annual survey of retail financial services fees, and include credit unions as a part of the study. Including credit unions in the Fed’s annual retail bank fee survey will document the differences in costs between banks, thrifts and credit unions in a way that helps consumers and enhances competition in the marketplace. CUNA urges swift action on this important provision.

DATA SECURITY

CUNA supports legislation that would prohibit the retention of sensitive, identifying information by merchants and certain non-financial companies from plastic card magnetic strips that could be obtained in connection with financial transactions, including the imposition of fines for failure to comply. CUNA also supports the requirement that the breaching party (i.e., the merchant) reimburse the consumer or financial institution for any losses incurred, as well as a uniform national standard. CUNA supports a safe harbor for financial institutions already in compliance with section 501 (b) of Title V of the Gramm-Leach-Bliley Act (GLBA). Any data security legislation should apply to parties that are essentially unregulated (merchants, retailers, data broker, etc.) without creating duplicative requirements on credit unions. CUNA urges Congress to incorporate credit union backed provisions in any data security legislation that moves forward this year.

CREDIT UNION TAX EXEMPTION

The credit union federal tax-exemption is bound by the not-for-profit, cooperative nature of credit unions, not by the size of the credit union, those it serves, or the products and services that are offered. This rationale for the tax-exempt status has been ratified several times by Congress, the most recent in 1998 as part of CUMAA. Although the bank lobby claims credit unions are “growing beyond their means” and should therefore pay taxes, the credit union share of total assets has remained virtually unchanged. From 1992 to 2006, credit unions’ market share has remained at a constant 6% of total assets in America's financial depository institutions. Most importantly, credit unions exist to serve their members, providing financial literacy counseling, short-term loans and other unique services when members are in need. CUNA opposes all attempts to subject credit unions to taxation, as well as efforts to use the tax debate to prevent credit unions from gaining regulatory relief.

FINANCIAL SERVICES APPROPRIATIONS

The House and Senate each created a new appropriations subcommittee this year - the Financial Services Subcommittee, which has jurisdiction over CUNA supported programs such as the Community Development Financial Institutions Fund (CDFIF), the Community Development Revolving Loan Fund (CDRLF), the Central Liquidity Facility (CLF), and several Small Business Administration (SBA) programs. The CDRLF makes low-interest loans and technical assistance grants to low-income credit unions. The CLF provides a source of seasonal and emergency liquidity for credit unions. The appropriations process sets the borrowing limit for the CLF. On June 28, 2007, the House of Representatives passed H.R. 2829, the Financial Services and General Government Appropriations Act for fiscal year 2008. The bill makes $80 million available to subsidize SBA's 7(a) loan guarantee program, with its total loan volume capped at $17.5 billion. The Sec. 504 Certified Development Company guarantee program is capped at $7.5 billion. The House funded the CDFIF at $100 million, a $46 million increase over fiscal year 2007. CDFIs such as Community Development Credit Unions (CDCUs) are charged with supplying low-income, distressed communities with traditional banking services such as savings accounts and personal loans, and offering individuals the tools needed to become self- sufficient stakeholders in their own future. In addition, the CLF’s new direct loan limit to member credit unions was capped at $1.5 million, the same as the enacted fiscal year 2007 level. The CDRLF received a $1 million appropriation in the bill, an increase of $59,000.

INTERNATIONAL ISSUES

The World Council of Credit Unions (WOCCU) is the international trade association and development agency for credit unions, representing the interests of 46,377 credit unions in 97 countries. WOCCU is primarily funded by the US Agency for International Development (USAID) through microenterprise funding, and also receives contributions from U.S. credit unions through CUNA, CUNA Mutual, and the National Credit Union Foundation (NCUF). Additionally, WOCCU is one of eight cooperative groups that receive funds from the Cooperative Development Program (CDP) at USAID. WOCCU uses CDP funds to expand low-cost transaction services for members (including remittances), create enabling regulatory environments, train credit union managers and directors, and extend credit union operations to difficult operating environments.

GOVERNMENT SPONSORED ENTERPRISES (GSE) REFORM

On May 22, 2007, the House of Representatives passed H.R. 1427, the Federal Housing Finance Reform Act of 2007, to create a new and independent regulatory structure for housing government sponsored enterprises (GSE), namely Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The bill also creates an affordable housing fund, funded by 1.2% of the GSE’s total loan portfolio.

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