Patrick McHenry: What He Really Thinks of Credit Unions, MSB Conversions, Democrats

"I think it's a step in the right direction but it doesn't fully deal with the conversion issue as I think it should. NCUA did a number of things that are positive," McHenry stated. He noted that the agency changed the box disclosure form and "opened it up for member involvement and input–very good. And, the regulations are much more in keeping with a modern regulatory environment and they're much less inflammatory in their tone.

"But," he continued, "there are still some concerns that I have with the regulation. In particular, the box disclosure; they made a number of positive changes there. The tone is much better. I think it's much more business-like." However, disclosure No. 3, which the congressman referred to as "the enrichment clause" stating that mutual savings bank conversions often result in subsequently converting to a stock held institution where officers and directors profit in excess of what is available to other members, still troubles him. McHenry noted that during a hearing last year, the Office of Thrift Supervision said the statement was "false and misleading," according to McHenry. He also pointed out that NCUA and OTS have to have similar regulations as required by statute. Disclosure No. 3 "remains speculative in nature," he said, and it covers a conversion that OTS has supervision over.

"I think there's a way–through regulation–that NCUA can change this disclosure and actually give proper disclosure to members and ensure them the ability for a well-informed vote," McHenry added.

Secondly, under NCUA's new regulation, the converting institution has to mail information at a member's request. "That has the potential to junk mail the heck out of credit union members. I don't think it's properly constructed and I think it actually has an unintended consequence, which is that credit union members could perhaps receive hundreds of individual mailings and by the time they receive their ballots to make their voice heard, they've been deluged with dozens or hundreds of pieces of mail about the conversion." McHenry also said that it opens up the potential for outside groups to push a message that "maybe doesn't make sense." Public Disclosure Makes Sense

Finally, Congressman McHenry said that he felt NAFCU's idea from their white paper of holding a member meeting for the board to explain why it feels a conversion is the best option and for board members to listen to the input of the members would be beneficial. "Well, I have to stand in front of my constituents for town hall meetings and I've got to answer for my votes. I think it's pretty reasonable that a board who wishes to convert the institution hear from their members," he said. "That could be good, it could be bad, but it's a matter of democracy being in action…That's probably more effective than members receiving dozens of pieces or hundreds of pieces of direct mail and junk mail."

McHenry said he'd like to see how the process works under NCUA's new regulation and is still reviewing what path to take, but he hopes it can have a regulatory conclusion. "I want to make sure that those regulations are fair and allow for an accurate disclosure to members and that, regardless of whether it's a win or a loss or a draw, if it's fair to the members, then that would be good enough for me," he said. "I'm trying to make sure the regs don't overstep that vote."

He added, "Credit union members by and large are a very informed group of people just as I think the American people are. I don't accept the point of view that people aren't informed. I think they're very informed and they care about where they actually own a part of their institution or the choice they make for the financial products they use. I think by and large you have people who are interested and active."

McHenry said credit unions have one of most active groups he has seen on the Hill and back in his district.

"In North Carolina we have a great, thriving credit union community," he said, pointing out that he had served on the Financial Services Committee in the state House. "It's a matter for me of making sure that the free market system works–that there's great competition–which will better serve my constituents and the American people."

He was aware of credit union/bank clash from those days and the "constant angling of interest groups" for public policy advantage. "My interest is ensuring that there is an advantage for customers and great competition, strong competition between credit unions and banks and all financial service industries because that's actually what brings fees down, lowers the rate for lending and raises the rate for saving," he said. "It's what we're supposed to be fostering in public policy is competition."

McHenry also noted that North Carolina has been active with non-prime lending and payday lending legislation. Now the Financial Services Committee is looking at the same issues on the federal level. "I think that train is moving forward. I think that's going to be an area of great debate…I want to make sure that we have high standards set but we don't push people out of the marketplace for lending."

Also on the consumer protection front, McHenry emphasized how important it is for the committee to be involved in the legislative process regarding data security. "Barney Frank is going to fight in a very intense way to make sure Financial Services has a say in data security," the committee member said. "And I think it's of the interest of the whole financial services community that we have a look at the construct of the data security bill. The committee process is for very specialized knowledge to shape policy in the Congress." He stressed that data security concerns are very far reaching from data brokers to all the back office operations vendors for credit unions and others.

Another item Congress could consider this year is the Government Accountability Office's recommendations to better document credit union service to those of modest means. Congressman McHenry said he looked forward to hearing from credit unions on that matter. "From their inception, credit unions were designed to address the needs of working men and women, including those of modest means. I am confident that credit unions continue this service and I welcome feedback from the credit union industry regarding the GAO recommendations," he said. McHenry also added that he supports the credit union tax-exemption.

He said that he believes he, NCUA, CUNA, and NAFCU will always have their differences, particularly on a minimum voting requirement for credit unions looking to convert to mutual savings banks, but he supports other credit union efforts. McHenry described himself as a strong supporter of risk-based capital and said he "probably would" support the Credit Union Regulatory Improvements Act without a minimum voting requirement on mutual savings bank conversions.

He also said that the GAO's recommendation for increasing the NCUA Board members from three to five should be considered in hearings before the House Financial Services Committee to determine if it would be useful. McHenry reiterated his belief that more than one NCUA Board member with credit union experience should be permitted to serve on the board at a time. "I am aware of the valuable role that someone with intimate knowledge of the credit union industry can play as a member of the NCUA board," he stated. –scooke@cutimes.com