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WASHINGTON-Credit union trade association representatives argued the merits of adding particular provisions to the Financial Services Regulatory Relief Act (H.R. 3505) over the staunch objections of the banking industry. Though regulation of industrial loan companies took up a good portion of the Q&A session during the House Financial Institutions and Consumer Credit Subcommittee hearing last Tuesday, the other most talked about issue was relief being sought by credit unions under the Credit Union Regulatory Improvements Act (H.R. 2317). NAFCU Secretary Brad Beal, CEO of Nevada Federal Credit Union, commented, “While we believe H.R. 3505 is a solid bill as introduced, we believe that it could be made much stronger by including much needed additional provisions from the Credit Union Regulatory Improvements Act, also known as CURIA.” The provisions both credit union representatives were looking for primarily were PCA reform and business lending proposals. Concerning the 12.25% of assets cap on member business loans, Superior Federal Credit Union CEO Phil Buell-testifying on behalf of CUNA-said, “There is no safety and soundness reason to impose these limits as the historical record is clear that such loans are even safer than other types of credit union loans.” He admitted that few are currently bumping up against the cap, but he pointed out that Superior began its business services line only this year and already has reached 5% of assets. Buell said Superior projects hitting the 12.25% inside of 24 months. Beal and Buell also urged the addition of risk-based capital provisions from CURIA. “This would result in a new, more appropriate measurement to determine the relative risk of a credit union’s balance sheet and also improve the safety and soundness of credit unions and our share insurance fund,” Beal told the panel of lawmakers. Buell added, “Credit unions have higher statutory capital requirements than banks. The credit unions’ cooperative structure creates a systemic incentive against excessive risk taking, so they may actually require less capital for potential losses than the other depository institutions. And, it’s also their conservative management style that credit unions generally seek to be classified as “well” rather than “adequately” capitalized.” The bankers on the witness panel saw the issue completely differently. “We urge the committee to reject H.R. 2317 and not to incorporate its provisions into a larger regulatory relief package,” American Bankers Association Vice Chair Bradley Rock, chairman, president and CEO of Bank of Smithtown (N.Y.), stated. “H.R. 2317 would greatly expand credit union commercial lending authority, while at the same time, undercut the regulation of capital levels at federally insured credit unions. These changes would fuel even more rapid expansion of the segment of the credit union industry that openly flouts the congressionally mandated mission to serve people of modest means.” But Buell argued that holding too much capital – his own credit union between 11% and 12% – is contrary to credit unions’ mission of providing the best possible service. He added that CUNA had no desire to shield poorly managed credit unions from PCA. Independent Community Bankers of America Chairman David Hayes, president and CEO of Security Bank in Tenn., echoed Rock’s remarks. “In our testimony earlier this year,” he said, “we emphasized that, unlike the Communities First Act, the credit union bill, H.R. 2317, goes far beyond regulatory relief. The credit union bill is a powers enhancement proposal. While the Communities First Act includes no new powers for anyone, ICBA strongly opposes new powers for credit unions, so long as they have unfair tax and regulatory advantages over community banks.” Hayes did say that one area where credit unions need regulatory relief is mutual savings bank conversions and noted ICBA’s support of the legislation by Congressman Patrick McHenry (R-N.C.). While Beal said, “The facts confirm that credit unions are more heavily regulated than other consumer financial services providers,” Rock contradicted his statement, saying that the tax exemption and lighter regulation of “conglomerate credit unions.has created huge competitive inequities in the local marketplace and represent an ever increasing abuse of the credit union tax subsidy.” H.R. 2317 would only serve to exacerbate these competitive inequities and also raises safety and soundness concerns. On the other hand, Buell views CURIA as many a consumer’s savior. “CURIA is our future,” he concluded. “Without CURIA, millions of Americans will be deprived of a credit union able to respond to their needs.” He also declined to respond to what he called “the ABA’s misinformation campaign.” And while many credit union-friendly members of the subcommittee peppered the credit union representatives with the basic questions of why credit unions deserve their tax exemption, Congresswoman Gwen Moore (D-Ohio) asked credit union representatives how they can argue for delineating between commerce and banking while working to blur the lines between banks and credit unions. Moore, who became notorious for having removed her name from the list of CURIA cosponsors, touted credit unions’ work but asked whether there is not a line when a business loan should go to a larger bank. Buell clarified that CUNA did not take an official position on the ILC issue. He went on to explain, “At Superior.we are a member driven organization.” He described how his credit union helps first-time homebuyers and others, including small business owners. He stated, “Sometimes I’m the best deal and sometimes I’m not.” Buell emphasized that he does have a good relationship with a local bank and they sometimes refer business to the bank and vice versa. However, he added, “There is a void out there and we’re trying to fill it.” The House has worked a number of Congresses to pass regulatory relief legislation and H.R. 3505 is similar to legislation overwhelmingly passed in the House last Congress. “Excessive, redundant, and costly regulations can make credit more expensive and less accessible,” Congressman Jeb Hensarling (R-Texas), the bill’s chief sponsor, said. “They can keep Americans from obtaining their first mortgage, purchasing their first car, financing their child’s college education or launching a small business to create new jobs.” House Financial Services Committee Chairman Mike Oxley (R-Ohio) said, “The financial services industry is operating under a heavy regulatory burden. While many of the regulations imposed on the industry are necessary to protect consumers, combat terrorist financing, or serve other worthy public policy objectives, others are clearly outdated or needlessly burdensome.” [email protected]

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