ROBERT KIMMETT
Bill offers flexibility
There is nothing like a piece of legislation to get credit unions and banks arguing once again. H.R. 3579, the Credit Union Regulatory Improvements Act, is causing credit unions to cheer, while banking trade groups vehemently oppose the bill.
The legislation, drafted in 2003, would provide greater regulatory flexibility for credit unions, make changes in federal law with respect to credit union member business lending and modernize credit union capital requirements by including risk assets in net-worth ratios.
According to U.S. Rep. John W. Olver, D-Mass., the bill also would amend the Federal Credit Union Act to allow real estate lease extensions at a minimal charge to credit unions that finance the construction of credit union facilities on federal land. In addition, H.R. 3579 would give credit unions the ability to make investments in securities for their own accounts.
Those in the credit union industry are pleased with the legislation.
“The credit union industry, in general, both at the federal and state level, is so regulated and so restricted in terms of what it can do and what it can’t do,” said Frederick D. Healey, president and chief executive officer of Workers’ Credit Union in Fitchburg.
Healey said the time has come to modernize the requirements for credit unions and as credit union members expect more from the institution, it becomes more difficult to fulfill such requests under current restrictions.
“Credit unions have not had a modernization bill of any kind since the Credit Union Membership Access Act was passed [in 1999],” said Healey.
Healey said the current legislation calls for higher limits for member business loans, which he deems significant. Credit unions are currently limited to lending no more than 12.25 percent of total assets in member business lending. The new legislation calls for an increase to 20 percent of the credit unions’s total assets.
For an institution like Workers’ Credit Union, which has $475 million in total assets, the current law states the credit union can lend $58 million. If the new bill is passed allowing credit unions to lend 20 percent of their total assets, Workers’ Credit Union could then provide $95 million in member business loans.
Rob Kimmett, senior vice president of marketing and public relations at the Massachusetts Credit Union League, said the business lending aspect is important. The bill, he said, is part of a process to assure that credit unions can function like modern financial institutions.
The legislation also would allow federal credit unions to cash checks for people in the field of membership, but who are not actual members. Kimmett said that gives the “unbanked” community an introduction to a financial institution.
Additionally, the bill would add the ability to include risk assets in the net-worth ratio. Currently, Healey said a credit union’s net worth cannot fall below 6 percent without “prompt and corrective action.”
Kimmett said the credit union industry is not looking to be unrestricted; instead, it is seeking more flexibility.
“Credit unions need to have the ability to respond to the changes in the marketplace,” said Kimmett. “We just think it’s a good bill … it will help [credit unions] meet the needs of their members.”
‘Two’ Industries
The national and local banking communities, however, have expressed discontent about the bill, which was recently scheduled for a hearing before the House Financial Services Institutions and Consumer Credit Subcommittee in Washington, D.C.
National groups such as the Independent Community Bankers of America and American Bankers Association provide letter templates opposing H.R. 3579 on their Web sites addressed to Congress.
According to a notice released by the Massachusetts Bankers Association, the group strongly opposes the bill because it would “fuel more growth within an ever-increasing segment of the credit union industry comprised of large credit unions, which are already virtually indistinguishable from community banks.”
Daniel J. Forte, president and chief executive officer of the Massachusetts Bankers Association, said there are a few problems with the legislation.
“It doubles [credit unions’] capacity to make commercial loans and it reduces their capital levels,” said Forte. “This legislation really may become the poster child that eventually defines in Congress that there are two credit union industries.”
Forte explained that there are large, billion-dollar credit unions and there are smaller, traditional credit unions.
Forte said the banking industry is not opposed to the credit union industry gaining a level playing field. But it is unfair, he added, for large credit unions to get new powers and still not pay taxes.
The legislation, if enacted, would jeopardize business for smaller credit unions and community banks, Forte said.
Forte questioned why credit unions need expanded member business lending if the original goal of credit unions was to serve the underserved and poor. Forte said large credit unions that do not pay taxes should be making even more loans to the poor and underserved. He added that they are taking away business from banks that do put money back into the communities they serve.
But Kimmett disagreed, saying credit unions exist for the sole purpose of giving back to towns and cities.
“A credit union is all about giving back to the community,” said Kimmett.
As banking groups try to convince Congress to oppose the bill, one Massachusetts congressman already has pledged his support. Olver said he will back the bill when it is considered by the House of Representatives.
While the bill has been discussed mainly in 2004, Forte said he hopes it will not resurface in 2005.
Below the surface of H.R. 3579 exists the ongoing argument between credit unions and banks. Healey conceded that he recognizes the issue that banks have with credit unions’ tax-exempt status, but said the structures of the two types of financial institutions are different. Banks are in business to make a profit and many are owned by shareholders, while credit unions are volunteer-driven, he said.
Forte said the legislation is emblematic of the extreme lengths large credit unions will go to expand. When credit unions argue banks should convert into credit unions to enjoy the tax-free status, Forte notes that current law prohibits such action.
Jennifer Jope can be reached at jjope@thewarrengroup.com.
