February 16, 2012
An initiative that could allow credit unions to offer more affordable financial services to consumers as well as to grant more jobs-creating loans has made its way to Congress.
Last week, Rep. Peter King, R-N.Y., and Rep. Brad Sherman, D-Calif., introduced legislation in Congress that would allow credit unions to accept supplemental capital and count it toward net worth with approval by the National Credit Union Administration (NCUA).
As introduced, H.R. 3993 , the Capital Access for Small Businesses and Jobs Act, would allow the NCUA board to authorize non-share accounts that count toward a credit union’s net worth that meet the following criteria:
- They do not alter the cooperative nature of the credit union;
- They are uninsured; they are subordinate to all other claims against the credit union, including the claims of creditors, shareholders and the National Credit Union Share Insurance Fund (NCUSIF);
- They are available to be applied to cover operating losses of the credit union in excess of its retained earnings and, to the extent so applied, will not be replenished;
- They are subject to maturity limits as determined by the NCUA board; and
- They are offered by a credit union that is determined by the NCUA board to be sufficiently capitalized and well-managed.
H.R. 3993 enjoys industry-wide support, including that of national trade associations, including the Credit Union National Association (CUNA) and the National Association of State Credit Union Supervisors (NASCUS). NCUA Chair Debbie Matz has gone on record in support of a statutory change and last year sent letters to the top members of the Senate Banking Committee and the House Financial Services Committee encouraging them to correct the existing disincentive she said is impacting even strong, well-capitalized credit unions. To the detriment of consumers, current credit union prompt corrective action (PCA) rules discourage some credit unions from marketing their desirable products and services out of concern that attracting increased share deposits could deflate net worth positions, she said.
“The PCA trap is prohibiting some credit unions from doing what is core to their mission—serving their communities and offering consumers a choice in financial institutions,” said Northwest Credit Union Association (NWCUA) CEO John Annaloro. “There are credit unions in the Northwest, both large and small, that are not able to market their services, that are hesitant to take deposits because of another arbitrary statutory change that was put in place during negotiations around field of membership. H.R. 3993 will remove current capital barriers and allow credit unions to continue to thrive.”
Credit union leaders from around the country will have the opportunity to educate legislators on the issue in person during the CUNA Governmental Affairs Conference in March, with more than 100 scheduled to attend from the Northwest.
“We are excited by the introduction of this bill, as it represents another significant step forward for credit unions,” NWCUA President Troy Stang said. “It also fits well into our legislative agenda and is timely given that we’ll be on Capitol Hill next month.”
The supplemental capital push has been given lift by the efforts of the Credit Union Coalition for Supplemental Capital. BECU has been a supporter for several years and a driving force behind the issue’s advancement, as has Bethpage Federal Credit Union in Bethpage, N.Y. The NWCUA was also an early supporter.
“Throughout the economic downturn, credit unions have responded to consumers, serving as safe harbors for their deposits and making sound lending decisions,” said BECU General Counsel Parker Cann. “This legislation will provide another avenue for credit unions to strengthen their net worth, enhancing their ability to offer affordable credit to members and thereby stimulating the economy.”
The NWCUA has made the issue of supplemental capital a legislative priority, and the Association is encouraging credit union leaders to familiarize themselves with the details of the issue in anticipation of questions about supplemental capital from both members and the press.
“While keeping member business lending legislation a priority, we will continue to educate our congressional delegation about this issue and how it affects credit unions today and in the future,” NWCUA Director of Legislative Advocacy Jennifer Wagner said. “We will also provide more resources to get credit union leaders informed and comfortable with the issue so they are prepared for questions from their legislators.”
Questions? Contact a member of the Association’s Legislative Affairs team: