WASHINGTON -- Congressman Ed Royce (R-Calif.) has been a major backer of credit unions and the key GOP backer of many bills that would provide regulatory relief for credit unions.
He's the No. 6 Republican (out of 32) on the Financial Services Committee. He is also on the International Affairs Committee and the ranking Republican on its Subcommittee on Terrorism.
Royce, 57, has been in Congress since 1993 and prior to that served in the California Senate for 10 years. Before entering politics he served as a tax manager. He represents the 40th District, which encompasses part of Orange County.
He recently sat down in his Capitol Hill office with Credit Union Times to discuss a range of issues relating to credit unions and national politics. The interview took place several weeks before last Tuesday's passage of the Credit Union Bank and Thrift Regulatory Relief Act (H.R. 6318), a compromise measure, of which Royce was a principal sponsor.
CU Times: You've been active on credit union-related issues, how do you assess the prospects for regulatory relief happening this year?
Royce: "I'm one of the co-authors of the comprehensive measure CURIA, and the bill that was pulled was CURRA. The Joint Tax Committee scored the legislation as losing revenue and that violated pay-as-you-go rules and that bothered some members. So we are working right now to get that legislation under the limit so we might be able to bring that up under suspension.
Also, the bank lobby came out very strongly against the bill the weekend before it was scheduled to go to suspension. So it would help us to get an estimate that will be lower. We are working with [Financial Services Committee] Chairman Frank and Subcommittee Chairman Kanjorski and hope to move it by the August recess.
CU Times: Can the concerns expressed by banks be addressed through legislation?
Royce: We have 148 members of the House who are co-sponsors of CURIA so we have made tremendous strides over the years. I am impressed by the tremendous grassroots efforts on behalf of CURIA and CURRA and Senators Lieberman and Sanders have introduced a companion bill. Congressman Kanjorski and I have introduced the Credit Union Regulatory Improvements Act, and we've watched the support build as we've argued that this effort is going to bring the regulatory model overseeing credit unions into the 21st Century.
Today, we're as close to that goal as we've ever been in terms of the number of co-sponsors and the number of members who understand the nature of that challenge. So, we've built to the point where we have the momentum to move CURRA through the House after we work out with Chairman Frank the remaining issue on the cost.
CU Times: Describe the atmosphere on Capitol Hill as it relates to credit unions.
Royce: I think members of Congress need a better understanding of the advantages that credit unions have for their 90 million members nationwide and the advantages that this has for their communities. However, there have been problems that have been raised. For example, there has been a push by some to expand the Community Reinvestment Act requirements to include credit unions. I think it's important to explain to members of Congress what credit unions already do to help their underserved communities, and I think we need to continue the effort to explain the unique aspects of credit unions and explain why these burdensome CRA requirements would have a negative effect. So I think you make a good point. New arguments are being made on issues like CRA, but we are pushing back. But I think that's an area where there needs to be more education on the part of the credit union community so members of the Senate and House understand what credit unions already do in this area. And CURRA addresses this concern by targeting underserved areas. I think we've got a great argument; we've just got to be certain that it's heard by all the members of the Senate and the House.
CU Times: Though credit unions haven't been heavily affected by the subprime crisis, they are interested in the remedies. Where do you think Congress will come down in the final legislation?
Royce: Not sure where we'll wind up, but I do know that we need to move forward with CURIA and the modernization of the current capital requirements for credit unions. As we move into this debate, I would hope we would move into this two-part net worth structure because it would give us the relevant risk-based standards and similar to the ones that the FDIC uses for banks. It's important to pass this so the NCUA has the proper regulatory framework over credit unions to measure asset risk. This would be beneficial to the health of credit unions all over the country.
CU Times: When you talk to people from credit unions, what are their biggest requests in terms of congressional action?
Royce: I think we hear the argument about the need to adjust the business lending cap to 20% and the argument about the modernization of the current capital requirements for credit unions. Religious-based institutions occasionally come up to us because they run up against the caps.
CU Times: What impact will the presidential election have on the fate of credit union legislation on Capitol Hill?
Royce: If the CRA legislation we talked about earlier passes the House and Senate next year the presidential election could dictate whether or not CRA requirements on credit unions become law. Senator McCain is opposed while Senator. Barack Obama is supportive.
I think, on the issue of maintaining lower rates on capital gains and other taxes, we know what the rate would be under Senator McCain, which is the existing rate and we know it would be a higher rate under Senator Barack Obama. Those would be examples of issues that could impact credit unions.
CU Times: What about the question of the tax-exempt status of credit unions?
Royce: I am confident that credit unions will not lose their tax-exempt status any time soon. At the time [former Ways and Means Committee Chairman Bill] Thomas held hearings about the subject [in 2005], I spoke to members of the committee on the Democratic and Republican side and it became clear to me that there was no support for removing the tax-exempt status. I carried the legislation in the California Senate to remove taxation of credit unions, so I feel I've got a very good sense of where my colleagues stand on that issue. And I think the grassroots lobbying effort has been the driving force behind the success that credit unions have seen in recent years and that would stop an effort to revoke tax-exempt status.
CU Times: If there were a Democratic president and a Democratic Congress next year, what additional regulations and laws might credit unions have to face?
Royce: CRA and higher taxes on capital gains. One of issues we are struggling with under CURRA is the question of what becomes an undeserved area. I have a more expansive view of what constitutes an underserved area than some of my colleagues who want to define them in a very constrained way.
CU Times: Have you always been a fan of credit unions? What got you interested in their cause?
Royce: As a result of introducing and passing that legislation [giving credit unions tax-exempt status in California], I became familiar with the manners in which credit unions raise money in local communities. Later when I got to Congress, I served on the Foreign Affairs Committee and did a lot of work in the developing world. I chaired the Africa subcommittee and saw the impact that credit unions were having on capital formation in societies across sub-Sahara Africa as well as South Asia. So I am an enthusiast for this approach because I believe it answers a very real need for communities and answers a need worldwide. And over time I've been able to support efforts by credit unions to survive and better meet the needs of their communities.
CU Times: You're a conservative Republican, how does it feel to be teaming up with liberal Democrats Frank and Kanjorski? Did you envision that happening earlier in your career?
Royce: In the state Senate, although a Republican [in a Democratic chamber], I chaired a committee and frequently had Democrats co-sponsor or assist me with legislation. In this case, I was the author of CURIA and Congressman Kanjorski was the co-author. Now that we have a Democratic majority and Congressman Kanjorski is the subcommittee chair, he's the author and I'm the co-author so we have reversed roles. I have found in my tenure in the California Senate and in Congress, it is wise to get to know other members and understand their perspective and cooperate with them for the mutual good of the country whenever we can.