There’s an old saying, “never look a gift horse in the mouth.” To which I would add, unless sitting astride that horse is a powerful United States Congressman who apparently feels he knows what’s best for credit unions. John LaFalce, ranking member of the House Financial Services Committee, recently announced that he will be retiring at the end of the current session of Congress. Almost like a last hurrah, at about the same time he also introduced a credit union bill entitled, “The Federal Credit Union Services Expansion Act of 2002 (H.R. 5621). LaFalce explains the bill as potential legislation to enhance membership, services, and investment options for credit unions. Sounds pretty good, right? Don’t let the title fool you. Tucked away in the proposal is language which if ever enacted would among other things severely impact state-chartered CUs and the credit union dual chartering system. There are some good things in LaFalce’s initiative, but they were probably included to divert attention from its true purpose. For example, it would raise the cap on member business loans from 12.5% to 17%. It would enable credit unions to offer a full range of services. It would make it easier for FCUs to participate in loan programs through the SBA (Small Business Administration). More importantly, the proposal includes language that not only wouldn’t help credit unions but actually cause major problems for those credit unions that do not fall under the federal credit union act. For example, within a provision entitled “membership and activities of insured (federal assumed) state-chartered credit unions,” it basically tells state-charters that they can’t do anything not permitted for FCUs. Whoa! What’s going on here? The federal government thinks it is going to preempt regulations promulgated and enforced by state regulators for state-chartered credit unions? I don’t think so! Prohibiting state-chartered and thus state regulated credit unions from accepting into membership any persons or groups not allowed for federal-charters is a direct slap at states rights. Further, the proposal precludes state-charters from engaging in any activity of any kind that is not permissible for FCUs. What a joke! What LaFalce’s proposal really represents is a thinly disguised attempt to rein in what some on the federal side feel are out-of-control state-chartered credit unions. It is also a full-court press effort to protect, strengthen, and enhance the federal charter at the expense of state-charters. And to make converting to private insurance and thrift charters more difficult. LaFalce is obviously included among those who are painfully aware of the growing number of FCUs, representing a significant amount of assets and number of members that have already converted to state-charters. Perhaps a more accurate title for the LaFalce bill would be: “The Promote and Protect Federal CU Charters and NCUSIF While Holding Back State Charters and Private Insurance Act?” Not to worry. No matter what it is titled, the bill as presently crafted has absolutely no chance of passage. Not surprisingly, NAFCU, which represents only FCUs, has been relatively quiet. They can’t say so publicly, but it is a pretty sure bet NAFCU won’t oppose anything that will help federal credit unions. CUNA on the other hand is spinning away with carefully worded comments like this: “Any legislation aimed at enhancing credit union powers and authorities is certainly positive.” What they would like to say is: “The bad in this proposal far outweighs any good that could come out of it and we’ll find a way to help defeat it if necessary.” When LaFalce departs the bill will die. He won’t be around to steer it through the labyrinth of political land mines that such far-ranging proposals always encounter as they try and navigate through the convoluted system in place for making new laws. None of his colleagues will be foolish enough to take up his cause when he’s gone. Besides, as presently drafted, you can count on the National Association of State Credit Union Supervisors (NASCUS) and all of its state regulator members pulling out all stops to derail this proposal before it ever leaves the station. There is no way state-charters can support a bill that essentially allows the federal government to call the shots for all CUs except those with private insurance. The hammer LaFalce is using is a familiar one, “all CUs that are federally insured.” However, this time it would really backfire on fed supporters and have precisely the opposite effect intended. To escape the heavy hand of the federal government completely, state-chartered credit unions in those states where it is allowed would line up to convert from NCUSIF to private insurance like $2.9 billion Patelco Credit Union just did in California. Those states where private insurance is currently not permitted would have a big incentive to get the law changed to allow it. Guess what all this would do to the number of federal-charters, NCUA’s budget, and NAFCU membership totals? If all of this is not enough to illustrate why LaFalce’s bill is destined for the scrap heap, don’t forget about the bankers. There is no way banking industry lobbyists are going to sit on their hands while an attempt is being made to give credit unions more powers and authority as the bill’s title clearly implies it is intended to do. The American Bankers Association (ABA) could care less about any threats to the credit union dual chartering system. But they would care a whole lot if there is even a hint that credit unions might get more liberal membership policies, improved services, and expanded investment authority. John LaFalce may see himself as the shining knight charging into credit union land on a white horse to help credit unions as the sun sets on his political career, but credit unions don’t see it that way. Thanks but no thanks congressman. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman


Credit Union Times

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