Credit unions side with banks on many of the larger political issues this election cycle and there are some key issue where they differ significantly. The slew of hot legislative topics for the cooperative industry recently include the member business lending cap, supplemental capital measures and credit unions’ place as tax-exempt institutions.
But credit unions also join the broader financial services industry in supporting measures to ease burdensome ATM requirements. Like banks, credit unions are on guard this year for what new disclosure requirements may come from the Consumer Financial Protection Bureau and are looking for politicians that also will vocally oppose more burdensome rules.
“We’re encouraging credit unions to get active, to support the candidate of their choice, and to support the campaign,” says Trey Hawkins, vice president of political affairs for Credit Union National Association. “We want credit unions to get the word out that in half the states, voting has already started – either absentee or early voting.”
Member Business Lending
Member business lending is among the more contentious issues that pro-credit union voters are examining in a politician’s stance. For years, credit unions have been trying to push through MBL legislation, called the Credit Union Small Business Jobs Bill, which would lift a cap on the amount of loans credit unions can make to business from 12.25% to 27.5% of assets. It’s a top priority for the CUNA this year in its work to help credit unions determine which candidates to endorse, says Trey Hawkins, CUNA’s vice president of legislative affairs.
Several credit unions say SB 2231 or HR 1418, also called the Small Business Lending Enhancement Act, would help them generate 140,000 new jobs up to by lifting the 14-year-old cap and allowing $13 billion more in small business loans.
“One of the easiest things our legislature should be doing is raising the cap for business lending,” says John Cullum, a former primary candidate for the U.S. House of Representatives in California who serves on the board of directors for NuVision Federal Credit Union ($1.2B, Huntington Beach, CA). “For years, we have fought for that one. It hasn’t materialized. We have several things on Capitol Hill that we cannot seem to get through that make sense – not just for credit unions but for the American people. The question I have is: What aren’t we doing to influence our legislatures?”
While some credit unions may place support for MBL as their most important credential in candidates this year, other credit unions are more concerned about improving their auto, credit card or mortgage lending. Those credit unions may be far from reaching the member business lending cap, and may not be as enthusiastic about member business lending as others. Credit unions can weigh for themselves how large a role MBL legislation should play in their decision to support a political candidate.
Credit unions executives know they must maintain a 7% net worth ratio (net worth to assets) to be considered “well capitalized,” but in this post-recession economy, many credit unions have found their ratio has slipped as they’ve welcomed an influx of new shares. The intent of the regulation was to protect credit unions from the risk of an unexpected event or to hedge against risky lending practices, but many credit unions would rather use their capital to be more competitive.They say the rule can actually punish healthy credit unions for drawing in more members.
"Supplemental capital is something that we definitely need for credit unions," says Rick Pillow, president of the VIrginia Credit Union League, which ensured the candidates it backed suported the initiative.
The Capital Access for Small Businesses and Jobs Act, or HR 3993, proposed in February by Rep. Brad Sherman (D-Calif.) and Rep. Peter King (R-NY), would expand the definition of “net worth” to allow credit unions to accept supplemental capital instead of relying on retained earnings. With that change, credit unions that are struggling with their net worth ratio could preserve their “well capitalized” designation while more freely manage their traditional capital. Credit unions could use the capital they would have had to lock down to, for example, issue dividends or invest in technology to improve member service.
“Due to current capital limitations, we find ourselves spending more and more time determining how we can limit growth and identifying which members we want to serve within these constraints,” says Joan Opp, president and CEO of Stanford Federal Credit Union, in a statement. Stanford FCU ($1.4B, Palo Alto, CA) is part of The Coalition for Credit Union Access, a recenlty formed group of credit unions supporting the bill.
Tax Exempt Status
Banks have often challenged credit unions’ status as federal tax-exempt institutions. Credit unions were granted this status because of their not-for-profit, cooperative business model, in which members benefit from growth through savings like lower loan rates and fees, higher savings rates or even through issuing dividends.
Politicians elected now will likely at some point face the question of whether credit unions should retain their tax exemption or what benefits a credit union does or does not deserve because of the exemption.
Credit unions say they are stepping up lending and financial services as banks are cutting back, reaching members who otherwise wouldn’t receive financial health. For the sake of their community-driven mission, credit unions will want to make sure the candidates they back view the privilege as already well deserved. They’ll want candidates with a track record of refusing to consider credit unions’ tax exemption as a bargaining chip.
Other Key Issues
But credit unions are siding with banks on many other issues. This year, with the newly created Consumer Financial Protection Bureau’s proposed regulations, financial institutions are particularly wary of the details in disclosure rules. While the CFPB doesn’t have direct scrutiny over credit unions with less than $10 billion in assets, which includes all but four credit unions, it’s rules will certainly be taken up by the NCUA’s examiners.
Credit unions should be aware of whether their politicians want to ensure the credit card and mortgage disclosure rules CFPB puts in place in the next year or so will be crafted through a collaborative process that includes credit union voices.
Credit unions are also onboard with banks objections to ATM disclosure rules, which now required both on screen and physical notice of fees. The physical notice requirement leaves financial institutions vulnerable to fraud in which vandals can remove the sign, then sue the credit union or bank for failure to comply. In scrutinizing candidates, credit unions can look for those who are more active in supporting amending The Electronic Funds Transfer Act, known as Regulation E.
“We’ve come a long way in the industry with our advocacy politically. You have the various leagues and CUNA doing a good job,” Cullum says. “But there’s a lot of opportunity for credit unions to step up.”