WASHINGTON — Between continuing efforts for regulatory relief, potential for flight to safety, and field of membership legal challenges, 2007 might look like more of the same, but there is more to it than that according to the national credit union trades.

“In a general sense we have, by all outside sources, continued to move the credit union agenda up in the eyes of Congress…and others,” CUNA President/CEO Dan Mica said. He pointed to how CUNA's first-ever step to block banker legislation caused “a jolt around Washington” when CUNA threatened to kill the regulatory relief bill over a provision removing the cap on thrift business lending.

“We made it very clear to members of Congress and staff, we have no intention of losing our White Hat,” CUNA Senior Vice President of Legislative Affairs John Magill said. “We're not going to be the playground bully but we're not going to be the playground patsy.” He added that the final regulatory relief law was limited, but balanced where it had previously been lopsided in the banks' favor.

Mica said that helps set the tone for 2007 because a healthy credit union movement means keeping things that create problems for CUs out. He explained that everyone realizes now, “It has to be fair for credit unions and banks or nothing's going to happen.”

NAFCU Senior Vice President of Governmental Affairs Dan Berger commented, “First and foremost, we did get a little regulatory relief done this year. We talked with everyone about refiling CURIA, including Congressmen Kanjorski and Royce.” He said they are interested in refiling the Credit Union Regulatory Improvements Act. NAFCU and CUNA have both asked to add a provision permitting all federal credit union charter types to adopt underserved areas and it could also be introduced as a stand alone. Additionally, Berger pointed out that Senator-elect Bernie Sanders (I-Vt.) promised at Congressional Caucus to introduce CURIA in the Senate.

CUNA's Magill also said they plan to approach the banking trades about working CURIA and the Communities First Act, providing tax and regulatory relief for community bankers, together. Regarding the format of CURIA, he said, “We'll do whatever works.” Congress will likely start with a flagship bill, but add on or breakout items where it can. CUNA will be adding a couple more lobbyists to its budget in 2007, he said.

The American Bankers Association publicized the substantive results of the Government Accountability Office's report on credit union service to those of modest means, which found with the limited data available that banks were serving more low-income households. The group also said that the limited data out there cries out for Community Reinvestment Act-like requirements for credit unions to demonstrate their service to those of low and moderate incomes.

But, even with the Democrats taking control of Congress, Berger–a former lobbyist for America's Community Bankers–does not see the CRA for credit unions getting much traction. “[Financial Services Committee] Chairman [Barney] Frank [(D-Mass.)] is not only extremely smart, he's also very pragmatic,” he commented, alluding to the narrow margin of control the Democrats hold.

“Credit unions aren't trying to impose their regulatory burden on banks. Why are banks trying to impose on credit unions their regulatory burden?” NAFCU President/CEO Fred Becker asked rhetorically. He said if the banks want parity let them deal with the field of membership and capital restrictions imposed upon credit unions.

CUNA will be responding to GAO at length and plans to work “very closely” with NCUA's task force on its own recommendations, CUNA General Counsel Eric Richard said. “You can see how quickly the bankers have shifted from tax issues to CRA,” he observed.

NAFCU Senior Counsel and Director of Regulatory Affairs Carrie Hunt noted that the NCUA staff report to the board, which included a recommendation to continue collecting member service information, is just a recommendation at this point. “It remains to be seen if the board is going to take any action on that,” she said.

CUNA and NAFCU ran a joint ad campaign immediately following the release of the reports to get a broader group of eyes from Capitol Hill on NCUA's numbers. The advertisements ran in several Hill newspapers.

CUNA also did a mainstream media tour in New York City. “We did have a media outreach campaign over several months leading up to the release of the NCUA and GAO reports this year,” CUNA Senior Vice President of Communications Mark Wolff said, to help “bring all the facts to the attention of the reporters.” CUNA garnered coverage in USA Today and by the Associated Press from it. “A lot of this is about building relationships with reporters in the national media…We want to show how credit unions are helping everyday people,” Wolff stated.

Berger said NAFCU would continue its efforts to work with the banking groups where they find common ground like data security. “No one dislikes credit unions. No one dislikes community banks,” he said.

Along the same vein, Mica sent his 10th annual letter to the largest banks in the country asking them to work with credit unions. Each year he said he gets a couple more in agreement with him, but would not disclose the number because Mica agreed not to publicize it. “I've been saying since the election,” he reiterated, “there will be gridlock unless traditional foes come together.”

Another issue where there is agreement between the banks and credit unions is the kid gloves that must be used in implementing the Department of Defense's new rules prohibiting interest rates over 36% to military personnel. “We have a lot of members that try to break that payday lending cycle of debt,” NAFCU Director of Legislative Affairs Brad Thaler highlighted. However, they might charge $6 for financial counseling under credit rebuilder programs and do not want that fee included in the interest rate cap, he outlined.

“They're kind of being asked to recreate the entire financial services framework for military personnel in miniature,” CUNA's Richard observed. Each noted that DoD must consult the financial regulators, though at this point, they have no authority; enforcement could be delegated. Public comment is being sought.

Credit unions and banks could also take similar stances on the Internet gambling legislation, which charges the credit card companies with blocking the use of credit cards at online gambling sites, Hunt said. She explained that NAFCU is watching to see whether that is expanded to checks as well. “The credit card companies have more information. A check may not be linked back to an illegal act,” she emphasized.

Other issues to consider: the Fed's Reg Z open-end credit proposal and minimum payment warnings and federal preemption that the Dems might take a different view of than the Republicans.

Despite commonalities and admissions of co-advocacy, there is no love lost between the banking and credit union groups either. CUNA has said it is looking into bringing litigation against bankers while both credit union organizations are preparing for legal attacks from the bankers.

First things first: credit unions are still awaiting the outcome of the ABA lawsuit challenging NCUA's approval of a six-county community charter for Member's 1st Federal Credit Union in Pennsylvania. “The judge asked for briefs about her role in the case,” Richard explained. Typically, he said that is accompanied by a request for draft motions, but she did not ask for that. There is no time limit for the judge to respond, but she also does not have a reputation for sitting on cases.

“In part, from the outcome of that case, the agency may consider rule changes,” Hunt offered. It is possible there would be new guidance issued on how “community” is defined.

Richard also pointed out a number of legal challenges going on at the state level in Pennsylvania, Missouri, and Kentucky. Though they are in the states, the decisions could have federal implications since much of state law is based on federal law. He noted that the bankers apparently have no trouble spending a lot of resources on litigation, adding that the ABA took the AT&T case all the way to the Supreme Court. However, Richard said their litigious nature does seem to be subsiding some from a decade ago when there were 20 cases pending in 14 states.

“I think they perhaps realize over-aggressive litigation can backfire,” he said. A recent misstep, Richard believes, has been the lawsuit in Utah to stop non-multiple common bond credit unions from adopting underserved areas. He concluded, “They suffer in the long-run by working to keep people out of credit unions.”

Credit union groups have also acknowledged that NCUA's recent final rule on credit union conversions to mutual savings banks could draw more litigation as threats mount.

But CUNA is weighing its options for mounting an offensive in the courts. “We've had a number of options,” Mica said. “Some didn't legally have the strength we would have liked.”

The credit union groups have been growing their political action committees and expanding lobbying efforts on the Hill, looking to get the upper-hand with lawmakers over the bankers. “We've really been humping it and wearing out the shoe leather there,” NAFCU's Berger said, explaining their lobbyists are on the Hill virtually everyday Congress is in session and even now as swearing-in ceremonies and receptions are being planned.

CUNA has been rallying the troops through its popular Hike the Hills, which are “paying huge dividends,” Senior Vice President of Political Affairs Richard Gose said. According to CUNA Director of Grassroots and Political Involvement Gretchen Drobnyk, 22 have already been slated for 2007. “We have some plans for 2007, which include a Project Zip Code month,” Gose announced and promised more to come. Additionally, CUNA will be starting to put together its campaign schools even earlier in the 2007-2008 election cycle; 14 were held last election cycle.

Drobnyk also revealed that CUNA would begin offering a Web-based training module on political involvement in conjunction with CUNA's Center for Professional Development, which will include how to do grassroots and member communications, as well as advocacy training.

And if a show of grassroots support is No. 1 in political advocacy, financing is not far behind. Both CUNA and NAFCU's PACs had record election cycles for 2005-2006. The Credit Union Legislative Action Council of CUNA upped its $3.48 million raised in 2003-2004 to more than $3.6 million as the 2005-2006 cycle drew to a close. “The goal next year is just to better that. We're not putting a number on that,” Gose said.

CULAC also increased contributions from $2.4 million in the 2003-2004 election cycle to just under $2.9 million as of early December plus an additional $300,000 in independent expenditures, an area in which CULAC is looking to get more involved, CUNA Political Director Trey Hawkins said. CULAC is consistently ranked among the top 10 PACs by contributions made and in a virtual tie with the ABA's PAC.

Gose explained that the group understands it will reach saturation at some point, but continues to work all levels of the credit union movement.

NAFCU has placed greater emphasis on NAFCU/PAC in the last few years, achieving a record more than $380,000 in the 2005-06 cycle, Becker said, placing it in the top 16% of PACs. NAFCU/PAC also has more member solicitation approvals than ever before.

As part of CUNA's mainstream media efforts, Wolff explained, the group has held Chief Economist Bill Hampel out as an expert in consumer finance and economic trends. “Our story and we're sticking to it, though we haven't seen it, is just naturally because non-financial markets events, lending will be slowing next year and savings will begin to pick up,” Hampel said for 2007. But this is not as rosy an outlook as it sounds, he cautioned, because consumer debt, at best, will stabilize. He said he expects 2006 to end with 3% credit union savings growth and 8% loan growth, but in 2007, credit unions can expect to see 7% savings growth and 5% loan growth.

However, Hampel added, “Credit unions will still have to work hard to get savings.” While mutual funds have done well with inverted yield curve, other depositories will be the competitors in the future.

NAFCU Chief Economist Tun Wai provided a quite different forecast. He predicted for now that credit union loan growth would continue to outpace savings, saying double-digit loan growth was possible and savings would hover around 4%.

Becker said that NAFCU would continue to try to stay one step ahead of member needs into 2007. “In 2002 in The Federal Credit Union magazine we noted the importance of credit unions being able to show how they serve their members and how that's different from other financial institutions.” That has come true, he said.

Also in 2002, NAFCU initiated its alliance with Fannie Mae to position members as interest rates rose, which has also come true. Now NAFCU Services Corp. is signing a number of new Preferred Partners early in the New Year.

To help deal with multifactor authentication compliance challenges, NSC has just signed a deal with BioPassword, which employs a keystroke biometric to verify online member access. NSC President David Frankil explained the for-profit arm of NAFCU has been taking a more “solutions-oriented mind-set than we've had in the past. It's resonated well with our members and with our partners.” NSC is also looking to Cyveillance to help monitor chat rooms for fraud; Hudson & Keyse for charge offs; Alliance Financial for front-end card program consultation; and Xpresscredit.net to help speed lending decisions.

Regarding member service, Becker admitted, “There's a perception that NAFCU doesn't serve its smaller members and that's absolutely false.” He said NAFCU is working to overcome that. The trade group is also offering free six-month trial memberships. “Most of those in the trial membership end up staying with us,” Becker said.

NAFCU is looking to fill some spots in its staff as well, most recently with the exit of Executive Vice President Diane Swenson. “We're building here a terrific group of people…More importantly you've got to step back and look at the results and I would challenge anybody to come up with something we've missed,” he challenged. –scooke@cutimes.com

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What Will 2007 Bring? CURIA Could Return, More Legal Challenges Loom

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