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WASHINGTON-In terms of possibilities in the relatively near-term, the credit union-to-mutual savings bank conversion issue has the greatest potential for progress, according to America’s Community Bankers President and CEO Diane Casey-Landry. “I think the biggest issue right now is conversions,” she said. Casey-Landry continued, “I don’t see anybody taking up the issue of credit union taxation this year. I would say though that what transpired in the recent weeks and months, that the debate has shifted, and I think that there’s a valid question in terms of credit unions whose management and officials and members who opt to make a decision to change the charter if they have the right to do that.” Not one to mince words, she also said that there has been a lot of misinformation coming from the credit union industry. “Credit unions keep suggesting as though mutual savings banks are a fly by night operation; they’ve got almost 100 years on credit unions,” Casey-Landry said. “They’ve served their communities, they’ve served them well.” Many also have foundations, pay higher rates on deposit instruments, and lower loan rates like credit unions. So what is the difference? Aside from paying taxes and compliance with the Community Reinvestment Act, there are some lending differences, the ability to form mutual holding companies, and access to capital markets, she acknowledged. “Today,” Casey-Landry said, “credit unions, particularly those that are growing and are getting larger, are limited to capital raising through retained earnings and that can slow your growth. If you’re in a rapid growth market, that’s why they’ve become capital constrained. We would say, if you’re going to grow and you’re in a rapid growth market, you ought to look at changing your charter so you can raise capital in the market.” What Casey-Landry cannot fathom is why the credit union community would turn on their own, when they want to convert to a mutual savings bank. “We don’t jump up and down and say, `Mutuals that are converting to commercial banks! Oh my goodness, we should take them out and shoot them!’” she said. “From our perspective, if that’s going to best serve your customers and your community, we assume that you know you’re business better than somebody sitting in Washington telling you how you should run it and how you should serve your community.” She added, “And now you’ve made an enemy instead of someone who’s been a supporter of the movement.” According to Casey-Landry, Congress took away some of NCUA’s authority concerning the mutual savings bank conversion because legislators felt the agency was overstepping its bounds. “They write the rules and then they don’t even like the rules they write. And they say, well, you folded the paper this way and you should have done it that way,” she said, demonstrating. “Oh, give me a break.” Casey-Landry said, “We’ll stand behind the OTS and the FDIC as solid, competent good agencies who know what they’re doing.” She emphasized that they do deny bank charters, which she can attest to having formerly been a private consultant. “I think the NCUA has to take a real hard look at themselves and what their responsibility is,” the trade association CEO said. “Their job is not to be a cheerleader for the credit union industry; their job is to be the regulator. They need to establish regulations that are meaningful, understandable, and can be readily implemented. “When we come down to a situation where institutions-that were well-rated by the NCUA for many years-are suddenly being accused of folding a piece of paper wrong to get their conversion, you have to question the judgment of the agency and the fact that maybe they were being more of a cheerleader for the movement than being the regulator that they were supposed to be. “It looked like their strings were being pulled by [CUNA and NAFCU]. I just really think that the NCUA did themselves a lot of disservice in this.” Particularly, Casey-Landry pointed out, when other regulators sided against them and the House Financial Services Committee’s ranking member, and long-time credit union supporter, is questioning the agency’s decision-making. Because, in the deal NCUA worked out, the magistrate judge’s scathing ruling was vacated, it is as if it never existed legally. “It may not be official record, but nobody’s going to forget,” Casey-Landry offered. “We have what he wrote.and I think it delivered a very strong message to the NCUA. So, gone, but not forgotten.” No matter, she said, credit union conversion to mutual savings banks are still going to occur. “The NCUA could have required, and maybe they’ll go back and require a different sheet of paper. They could make it be even larger typeface than it already is. I’m just not so sure that’s going to change the outcome.” However, Casey-Landry added, “There is a place for credit unions in this economy and our financial system. We firmly believe that.” The option to convert to a mutual savings bank charters works against items like the Credit Union Regulatory Improvements Act, (H.R. 2317), which is basically a “tax-exempt bank,” she stated. “We would argue, change your charter. You have that option. You have that right. Change the charter, become a bank. We’ll welcome you in.” As proof, she indicated that four credit unions, including Community and OmniAmerica, are ACB members; any credit union that has declared its intention to convert is eligible for membership. “The reason we’ve been on the charter choice is that it resonated with my members better than anything else that we’ve done because it reflects one of our fundamental principles.” she said. “They said this is not anti-credit union. This is basically what we believe in for everybody.” Therefore, Casey-Landry said, “We would argue that if you passed the McHenry bill, you certainly don’t need CURIA.” She said ACB has found that members of Congress are open to conversation on both sides of aisle. A Tangled Web “I think from our perspective the issue of taxation is always one that’s out there and it’s not gone away,” Casey-Landry continued. “I think there’s some attention maybe being focused if Chairman (Bill) Thomas (R-Calif.) continues with his hearings and investigations to the tax exemptions for not-for-profits generally, which would include credit unions, we could point out that there are not-for-profits such as mutual savings banks that are cooperatives. However, she also highlighted that “CUNA is a not-for-profit. So is NAFCU. So is ACB. So when you start investigating not-for-profits then you open up the discussion that you have lots of entities that are not-for-profit.” Alas, while taxation is a perennial favorite of the banking lobby-it should be noted that the American Bankers Association and the Independent Community Bankers of America turned down interviews for this story-Casey-Landry does not foresee much progress in the near-term. “I would tell you, and Dan Mica and I fundamentally disagree on this, no one right now on Capitol Hill talks about taxation,” she said. “On the trade association side, obviously that will remain a concern,” CRA in Exchange for L.A.? “CRA is about serving all aspects of your community,” ACB’s chief outlined. “I firmly believe, if you are a large credit union, and particularly if you are a community chartered credit union where you open up your doors and you will have as a member anybody within a certain geography-let’s just say L.A. County-given the composition of L.A., if you’re going to serve L.A. County, then I think you should be subject to CRA. Because if you’re going to provide to yourself the opportunity to chose from among 10 million people.then you should be subject to the Community Reinvestment Act. “The reality is that with the ability to serve the entire population of L.A. County.and if the credit unions are in fact serving their community, then adding a community reinvestment obligation should be no problem for them.” Besides, CRA makes good business sense many banks would agree today, Casey-Landry said. “I will tell you that most banks today.have found it to be very good business to have a reach-out product.” She questioned credit unions’ branding of sports stadiums, which Congressman Barney Frank (D-Mass.) has also done she pointed out. Casey-Landry said he always talks about how those funds could have gone toward affordable housing or some other worthy cause. ACB has help from all sides on this issue. When organizations like the National Community Reinvestment Coalition and the groups they represent are saying credit unions are not serving their communities, she stressed, “that’s more damaging than anything the banking industry could do.” Come Together On the flip side, where credit unions and banks can work together is some directed temporary regulatory relief in the Katrina affected areas, on issues such as Bank Secrecy Act requirements, forbearance on interest for mortgages, and restructuring of loans. “When we’re looking at relief, this is where the banking industry and the credit union industry will be looking at together how we serve the customers and the communities that have been so devastated there.” Casey-Landry said. There are cash challenges in the near term as special program are being initiated, like CD withdrawals without penalty, that impact both sectors of the financial services industry. The same goes for car loans and unsecured loans. “This is not credit union versus bank, bank versus credit union.” [email protected]

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