ALEXANDRIA, Va. and WASHINGTON - The number most often cited by those plugging the increasingly leaky dike of the CU dual chartering system is that of 146 federal credit unions converting to state charters in the last three years-with an FCU asset flight actually growing even as the FCU defection numbers appear to plateau. Alarming as these numbers may be to NAFCU and CUNA (some say, with 6,566 FCUs in the system, they're insignificant), NCUA's 1999 annual report actually shows that there have been a total-through mergers, liquidations, and all conversions-of 576 federal charters cancelled in the last three years. This is a number that captures an aspect of the FCU erosion issue that is unredeemed by any collateral benefit to the overall CU system. And although the number of FCU charters cancelled in 1999, according to the report-265-is actually far below the CU system's all-time high of 736 during the recessionary days of 1983, it is the highest in the last five years and represents the first time since 1992 that the FCU charter cancellation number has increased over the previous year. Furthermore, the report also indicates that 1999 asset growth for the 6,566-member FCU system was about $7 billion, while that of the 4,062-member federally insured state CU (FISCU) system was over $15 billion. And it reports that year-end 1999 net income for FCUs actually decreased by $7 million over 1998 while it increased for FISCUs by $114 million. In addition, year-to-May 31 data from NCUA also shows that there have been a total of 22 losses to the federal charter in 2000 through conversions (seven) and mergers (15) alone, with more reportedly in the pipeline. All of which means that the major CU trade associations-and especially the FCU-specific trade association, NAFCU-are increasingly sounding general quarters over the developments; and as with any naval vessel at battle stations, there is a multiplicity of emergency functions that coalesce to fight the ship. "When Congress passed the Credit Union Membership Access Act (CUMAA), PL 105-219," NAFCU President Fred Becker Jr. recently wrote Rep. Ed Royce (R-Ca.), plying one of those functions, "Congress restricted the authority of federally insured credit unions to meet the legitimate needs of their members through member business loans....Also included in CUMAA was a study that was to be conducted by Treasury. The study was to be completed 12 months after the date of enactment, or August 7, 1999. Yet almost 24 months have passed and no such study has been submitted to Congress. In light of the hardship this is creating for some credit unions, NAFCU feels Congress should repeal the numerical limitations on credit union member business loans and only revisit this issue after the Treasury Department completes its long-awaited study." NAFCU's appeal to Royce to extend his Faith Based Lending Protection Act (CU Times, June 28) to all federally insured credit unions (FICUs) would not necessarily help the FCU-to-FISCU conversion problem (though it could help with other conversions), but it did serve to set the stage for a general appeal for legislative help specific to FCUs. "As you may be aware," Becker segued, "the negative impact on the ability of credit unions to offer member business loans is only one of several unintended consequences resulting from the passing of CUMAA," Becker wrote. "The most visible of the consequences has been the flight of credit unions from the federal charter to the state charter." Here Becker cited the 146 conversion losses since 1997 and noted-as did Rep. Paul Kanjorski (D-Pa.) in his June 6 letter to NCUA on the erosion issue-that, although the number of FCUs converting seems to have plateaued in 1999 (with 32), median asset flight for the period actually increased from $29.5 million in 1997 to $93.7 million in 1999. Becker, however, had linked federal charter flight to NCUA's "rigid application" of FOM policies as well as to enticing charter "imbalances" between the federal system and a sometimes more permissive state system; Kanjorski had only cited the state chartering problem. "NAFCU is now in the process of preparing a package of legislative amendments to address this imbalance," Becker concluded. "I will be contacting your office shortly to request an appointment with you so we can discuss these items personally." Announced last month (CU Times, June 21), NAFCU's "package of legislative initiatives"-which now includes a revocation of the "local community" standard in federal community chartering and FOM concessions in the event of municipal incorporations-was the first comprehensive CU effort to revisit emerging shortcomings in H.R. 1151 and a brash (some say rash) call-to-arms over the FCU erosion issue. But CUNA has also decided to examine H.R. 1151's surfacing warts, and recently established a 24-member Renaissance Commission (CU Times, May 3) to systematically study the entire CU predicament before, possibly, rolling out its own legislative "package." Few in either trade association, however, expect any "son of H.R. 1151" campaign to make much headway in Congress during a presidential election year; and NAFCU-which to date has actually approached a score of lawmakers on the subject-admits that theirs is an "incremental" game plan that so far has met with mixed results. "At this point it's unlikely that on an issue like that there'd be any action taken by the committee without a public hearing...," House Banking Committee spokesperson Dave Runkel said about the gathering legislative initiative. "And a public hearing is not currently scheduled, and I don't think it's likely." Runkel did acknowledge, however, that there has indeed been "some noise" generated on the Hill over the federal charter issue, but added that "this is a very controversial part of H.R. 1151, and they will have opposition to this from other parties." And though House Banking Committee Chairman Jim Leach (R-Iowa) has heard about the campaign, Runkel conceded, he hasn't yet formed an opinion in the matter "one way or the other." Senate Banking Committee Chairman Phil Gramm (R-Texas), on the other hand, has formed a definite opinion in the matter-at least insofar as perceived NCUA over-regulation of CU community is concerned. "I am very concerned about the dramatic growth of regulation (of CUs) and regulators," Gramm told Credit Union Times July 11, "specifically, the NCUA appears to still have the staff that it brought onboard for the Y2K problem. And while we see no dramatic increase in enforcement action, we see more enforcers." Gramm concluded by confirming that he was still considering the possibility of holding hearings this term into broad-based regulatory relief for credit unions. But with an issue as hydra-headed as federal charter flight there are many ways to "cap" a perceived threat-including preemptive lobbying of NCUA on unpopular regulatory issues such as the community action plan (CAP), possible agency predatory lending initiatives, budget increases, and prompt corrective action (PCA)-and NAFCU and CUNA are doing just that. Then there is the promotional lobbying of such popular NCUA initiatives as NCUA Board member Dennis Dollar's "Reg-Flex" proposal and the regulatory relief portions of IRPS 00-1 (CU Times, June 14)-which the trade associations are also pursuing as part of their statutory/regulatory (or, as some have it, FOM/non-FOM-related) FCU rescue effort. "Our concern is that this is the proverbial `camel's nose in the tent,'" CUNA General Counsel Eric Richard said of NCUA's recent proposal to require federal community charter CUs to be graded on their implementation of low-income community action plans (CAP), "which is the beginning of a further area of regulatory initiative by NCUA in this field. And (we think that) for NCUA to get into mission regulation of this kind is very, very troublesome-very burdensome for those credit unions." "Right now it looks like there are two votes on the (NCUA) board for it-" Richard continued, "the chairman (NCUA Board Chairman Norman D'Amours) and Mrs. Wheat (NCUA board member Yolanda Wheat), who is proposing this. So we're going to do what ever we can to (solicit) expressions of opposition by leagues and credit unions." So far, such expressions of opposition to CAP from CU commenters reportedly are plenty and unanimous, and have joined denunciatory letters not only from Senate Banking Committee Chairman Phil Gramm (R-Texas) but also from Republican Representatives Marge Roukema (N.J.), Spencer Bachus (Ala.), Peter King (N.Y.), Richard Baker (La.), Robert Aderholt (Ala.), Bob Riley (Ala.), and Terry Everett (Ala.). One Democratic representative has also joined the chorus of criticism: Bud Cramer, also from Alabama. "We've not received one single positive letter from anybody supporting this," said CUNA Senior Vice President Regulatory Advocacy Mary Dunn, who also stated that CUNA was equally opposed to a prospective predatory lending initiatives by NCUA. It is a position certain to find a receptive hearing with the government minimalist Gramm, but surely any Senate Banking Committee hearings into the matter would be out of the question for 2000? "Never say never until the last gavel sounds" was the response of Gramm spokesperson Christi Harlan when Credit Union Times asked her that question. -
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