Bankers Ask House Chairman to Crack Down on ‘Permissive’ NCUA

Letter to House Financial Services Committee says agency’s field of membership rules distort financial marketplace. CUNA and NAFCU respond.

It was inevitable.

The bankers and the credit unions are fighting like cats and dogs again.

For the record, the bankers started it this time.

This latest fight was provoked by the Independent Community Bankers of America (ICBA) and its state affiliates, who sent a letter to leaders of the House Financial Services Committee on Tuesday. In the letter, the bankers note that Chairman Rep. Patrick McHenry, R-N.C., has pledged a rigorous plan to provide aggressive oversight of the agencies under the committee’s jurisdiction.

“Consistent with your emphasis on oversight, we ask you to consider convening a hearing on the National Credit Union Administration, an agency we believe routinely oversteps statutory authority, circumvents the will of Congress, and fails to hold the industry accountable for its consumer practices and mission to serve low- and moderate-income consumers,” the bankers wrote.

And of course, the letter reminded lawmakers that credit unions are tax-exempt institutions, while banks are not.

Response From Credit Union Groups

For its part, NAFCU quickly fired back on Wednesday. “Do not be distracted by the misstatements and hypocrisy of the community banks,” Greg Mesack, the trade group’s senior vice president of government affairs, stated in a letter to the committee.

CUNA also sent an email to all members of Congress.

“Credit unions were born in a time of financial crisis, and we are a safe harbor during life’s storms,” wrote Jason Stverak, the group’s deputy chief advocacy officer. “The credit union difference means that credit unions act with the best interests of member-owners at heart, and credit unions will continue to meet member needs.”

Banker Grievances

In their letter, the bankers leveled now-familiar charges against credit unions, albeit with a few new wrinkles:

–Unlike the banking agencies, the ICBA states, the NCUA acts as “an industry advocate and promoter, without regard to the broader financial ecosystem in which credit unions operate or the impact on small business borrowers and consumers. The result is a distorted, anti-competitive financial landscape that poorly serves the American people and our economic interests.”

–The NCUA’s field of membership rules distort the marketplace, allowing credit unions to purchase banks, according to the bankers, who applauded McHenry for last year opposing legislation that would have allowed all credit unions to expand their fields of membership to serve underserved areas.

–Permissive NCUA rules benefit larger credit unions that serve higher-income populations, the ICBA and its affiliates charged.

–Since credit unions are not subject to the Community Reinvestment Act, the NCUA should have a “special responsibility” to ensure that institutions under its jurisdiction serve people of modest means, the bankers wrote.

–The NCUA currently is considering increasing the interest rate cap on loans, which now stands at 18%. “The credit union industry has continually sought to obtain bank-like powers without compromising their tax exemption,” the bankers said. “The NCUA should keep this powers expansion in check rather than abet it.”

–The bankers charged that the NCUA’s fair lending enforcement is lax, saying that while every bank is examined for fair lending, only a percentage of credit unions are subject to such examinations each year. NCUA Chairman Todd Harper also has said that he wants to increase the number of credit unions that receive consumer protection exams each year.

–Credit unions are leveraging their tax exemption to outbid banks that are up for sale, according to the associations. They noted that while the NCUA board has approved a proposed rule governing those purchases, the agency has not yet issued a final rule on the subject.

Inside the NAFCU Letter

Responding to the ICBA, Mesack wrote that the bankers’ letter “is a thinly veiled attack on credit unions, filled with inaccuracies and misstatements, dressed up as a request for oversight.”

He noted that studies have shown credit unions consistently have lower fees and rates than banks, and said the bankers’ “baseless attacks” make it clear that they want to limit competition.

He also pointed out that during the Great Recession, more than 300 banks failed—five times the number of credit unions that failed.

Additionally, Mesack wrote that:

–Bankers are abandoning markets “by the hundreds.”

–Credit unions do not need the Community Reinvestment Act because they did not engage in the “inexcusable practices” that led to enactment of the law.

–It is a contradiction for the bankers to oppose allowing credit unions to serve additional underserved areas, while also charging that credit unions are not doing enough to serve their low- and moderate-income members.

–Bankers are voluntarily selling their institutions to credit unions and credit unions may not grow outside their common bond.

–Even if the NCUA allowed credit unions to increase their interest rate cap to 21%, it still would be lower than the average credit card rate at banks, which stands at 24.16%.

CUNA’s Reminder

In his e-mail to members of Congress, Stverak reminded lawmakers that April 1st marked the start of Financial Literacy Month.

“However, America’s credit unions do not need a month marked on the calendar to work with their members to promote financial literacy,” he wrote.