WASHINGTON -- The possible passage of a credit union regulatory relief bill of some sort prompted deep and thorough discussion of the need for that relief, as of press time, at a March 6 hearing before the House Financial Services Committee.
Credit union witnesses entertained not only softer questions but hardball inquiries as well.
Congressman Barney Frank (D-Mass.), Chairman of the House Financial Services Committee, kicked off the hearing by hoping that the lawmakers would not be merely talking about these needs but legislating to meet them.
Frank praised "sensible" deregulation, pointing out that credit unions' contribution to the current mortgage crisis would be "tiny," and said this proved it is possible to serve the financial needs of lower and moderate income Americans without abuse or financial crises.
He expressed particular hope that legislators could improve the abilities of both credit unions and community banks to serve more of the currently unbanked and bring into the depository banking system. Remaining outside the system forces too many people into high-fee financial services offered by payday lenders, check cashers, and high fee remittance services.
Frank had to leave the hearing but thanked Congressman Paul Kanjorski (D-Pa.), chairman of the Subcommittee on Capital Markets, for his leadership on the issue and left him as the chair.
Kanjorski opened the actual work of the hearing by expressing a degree of frustration with having to draft legislation to address problems, particularly on member business lending and the low quorum of members needed to approve charter conversions, which he said should not have made it into H.R. 1151 ten years ago.
"Prior to the enactment of H.R. 1151, we had no limits on the business lending activities of credit unions," Kanjorski complained. "CURIA would therefore provide minor, but needed, adjustments to the limitations on business lending currently imposed by the law."
He also said he found the low quorum of members necessary to convert a credit union to a bank charter "offensive" and recounted how, on the last night of debate on 1151, he had almost withdrawn his support for the bill over the issue but did not because of the greater good of seeing credit unions survive.
"I would rather see a court dissolve a credit union and redirect the capital into some similar purpose than to see it stripped from members for some small number," Kanjorski said.
NCUA Chairman JoAnn Johnson led the CU witnesses. Her written statement ran 16 pages, but she used the five minutes allotted for spoken testimony to highlight the agency's and credit unions' need for capital reform. Adopting a risk-based approach to credit union capital needs would both allow credit union greater flexibility in how they serve members, particularly in underserved areas, and maintain safety and soundness she said, adding that some credit unions may well see their capital requirements rise under a risk-based approach.
She also strongly endorsed allowing all federally chartered credit unions to adopt and serve underserved areas in their communities.
During the question and answer portion of the hearing, the CU witnesses took some easier and favorable questions from supportive legislators but also some more pointed questions from legislators who were more supportive of banking concerns or who had concerns about some parts of the bill.
Congressman Judy Biggert (R-Ill.) asked a number of member business lending questions that were relatively easily addressed, but also raised a question about the definition of an underserved area, a theme that other witnesses picked up as well.
NCUA uses the same definition of underserved area as the U.S. Treasury Department's Community Development Financial Institutions Fund, a definition that has recognized some urban areas such as Washington, D.C. and Houston, Texas, leading some members of the committee such as Representative Mel Watt (D-N.C.) and Emmanuel Cleaver (D-Mo.) to question how whole urban areas could be recognized as underserved.
Watt particularly pushed on the question and Johnson only point out that the definition was from the CDFI Fund, but Kanjorski stepped in to point out the new legislation being discussed would use a more restrictive definition of underserved area.
The issue came up again when Michael Menzies, Sr., CEO of Easton Bank and Trust Company on behalf of the Independent Community Bankers Association and Bradley Rock, CEO of the Bank of Smithtown on behalf of the American Bankers Association, challenged even the new definition. They asserted that even under the new definition, the wealthier parts of Washington, D.C. would be included as underserved areas.
Kanjorski said he would look into that assertion since it suggested that the Treasury Department had misread the statute for the new markets initiative and, as an author of that legislation, he would look into it.
While none of the legislators addressed the recent credit union failures after making bad real estate loans in other states, both banking witnesses brought up the scandals, suggesting that they indicated that credit unions had strayed from their original purpose and should have their powers further expanded.