Bank-CU Reg Reform Passes House, But Fate in the Senate Is Uncertain
WASHINGTON -- It happened one night.
No, not the unlikely triumph of Clark Gable's journalistic rascal over Claudette Colbert's heiress, but the House's final passage last Tuesday of a long-awaited measure to provide regulatory relief to credit unions.
While its fate in the Senate is unclear given the short time left for legislative action, the unanimous voice vote passage of the bill, pleases credit unions and doesn't displease their counterparts in the banking community.
The Credit Union Bank and Thrift Regulatory Relief Act (H.R. 6312) grandfathers existing approvals of underserved areas and allows federal credit unions to apply to serve underserved areas outside their field of membership. Loans in those communities and to nonprofit, religious institutions would not count against their Member Business Loan cap. It would also permit credit unions to provide short-term unsecured loans to anyone in their field of membership.
After months of behind-the-scenes wrangling and despite strong initial concerns by banks about giving their credit union competitors additional business opportunities, the final vote was uneventful. It took place around 8:00 p.m., with a handful of members on the floor and no one spoke against it.
Rep. Paul Kanjorski (D-Pa.), one of the measure's key sponsors said during the House debate said that it is "an important step forward in our legislative debates about how best to ensure that credit unions can better serve their members."
He and Rep. Dennis Moore (D-Kan.), the main supporter of the measure for banking regulatory relief that was combined with the credit union measure, had a friendly two-minute exchange. During their discussion, Kanjorski assured Moore that the measure allows the franchise of a successful national company owned exclusively by residents of an underserved area to be eligible for a member business loan that is exempt from the cap.
Rep. Ed Royce (R-Calif.), the bill's leading GOP sponsor, said the bill "allows credit unions, banks and thrifts to devote resources to better serve customers" but also expressed hope that Congress would pass a more comprehensive reform measure--the Credit Union Regulatory Improvements Act. That bill, which has 150 co-sponsors in the House and four in the Senate, would raise the overall business lending cap from 12.5% of a credit union's total assets to 20% and modernizes credit union capital requirements by redefining the net worth ratio to include a risk-based asset approach.
NAFCU and CUNA were both happy with the measure and made statements praising Congress' action. By contrast, neither the American Bankers Association nor the Independent Community Bankers of America issued a release after the vote.
A spokesman for the community bankers declined comment, while an ABA spokesman said that its concerns were assuaged when Congress tightened some of the definitions of what constitutes an underserved area.
Specifically, the definition only refers to census tracts that are a low-income area as defined by Congress. Even census tracts that meet that definition wouldn't qualify if more than half of the resident families have annual incomes of more than $75,000. This will exclude 229 of the 25,000 low-income census tracts.
NCUA Chairman JoAnn Johnson praised the bill as "a positive forward in the overall cause of updating the laws under which credit unions operate."
CUNA President/CEO Dan Mica and NAFCU President Fred Becker both said they hoped the House's action was the first big step in eventual passage of more comprehensive legislation, either later this year or when a new Congress convenes next January.
"The enemy for us is time," Mica told reporters on a conference call. "We need to try to get this passed because it is good public policy and good for our members."
Becker said in an interview with Credit Union Times that the bill "provides a good starting point in the Senate" and the group hopes that the provisions passed by the House--as well as capital modernization and business lending expansions--will move forward sooner rather than later.
The bill makes other changes in rules for credit unions including: increasing the amount they can invest in CUSOs from 1% to 3% of their capital and surplus; allowing the NCUA to increase the 12-year maturity limit on non-real estate secured loans to 15 years; giving the NCUA board more flexibility to raise usury interest ceilings on federal credit union loans; providing federal credit union boards the ability to expel a member who is disruptive to the credit union's operations without the need for a vote by two-thirds vote of the membership. It would also allow federal credit unions to limit the length of service of their boards of directors to ensure broader representation.