Bankers, credit unions square off

Washington’s top financial trade associations are firing off briefs in one Texas credit union’s lawsuit against its government regulator, hoping to influence the politically charged congressional debate over whether credit unions should be converting to savings banks.

Much of the Texas delegation already had waded into the fight between Community Credit Union of Plano and the National Credit Union Association (NCUA) before Community took the NCUA to court, alleging that the agency deliberately refused to certify its members’ vote in favor of converting to a bank charter. The members of Congress were overwhelmingly supportive of Community.

But now that a second Texas credit union, OmniAmerican, has joined the suit to prevent the NCUA from blocking its own conversion, lawmakers and lobbyists alike are treating the Texas standoff as a test case for major potential changes to credit-union regulation this year. Banking lobbyists determined to remove obstacles to conversion are in one corner, with credit-union lobbyists in the other.

Credit-union lobbyists argue that vigorous NCUA oversight provides voting members with crucial information about the negative consequences of conversion.

“We’re all professional enough to work together when it’s in our interests to do so,” said Steve Verdier, a lobbyist for the Independent Community Bankers of America (ICBA), referring to bankers’ relationship with credit unions. “When we’ve got to fight with them, boy, we’ll fight like crazy.”

Along with America’s Community Bankers (ACB), the ICBA is readying a friend-of-the-court brief it plans to file on behalf of Texas credit unions. The American Bankers Association (ABA) is writing its own brief, and a pro-credit-union-conversion bill sponsored by Rep. Patrick McHenry (R-N.C.) serves as a congressional companion to that brief.

The McHenry bill establishes strict content standards for mailings on credit-union conversions, barring the inclusion of speculative or potentially distorted statements as well as any voting advice attributable to the credit union’s boards of directors. The bill would bar the NCUA from invalidating a pro-conversion vote on the basis of improperly folded mailings to credit-union members, which the agency cited as its rationale for denying Community and OmniAmerican a bank charter.

A proposal to limit the breadth of information that can be shared with credit-union members considering a conversion is “ill timed” during the Texas court fights, said John McKechnie, senior vice president of government affairs for the Credit Union National Association (CUNA). “Rather than Congress saying consumers need to know less than they do now, you would think Congress would say, ‘We want to make sure all the i’s are dotted and t’s are crossed.’”

Despite vehement opposition from credit-union trade associations, Rep. Spencer Bachus (R-Ala.), chairman of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, has agreed to hold a hearing on the bill in September. Last month, NCUA officials told Bachus that any curb on the agency’s enforcement would create opportunities for directors to manipulate credit-union members during conversion votes.

Credit-union lobbyists privately question the two Texas institutions’ business-lending levels and net worth held as capital, key properties of credit unions that are capped to prevent the unions from growing beyond their mission to serve small customer bases. Community and OmniAmerican are among the few U.S. credit unions holding more than $1 billion in assets, but neither has bumped up against the government-set growth caps, suggesting to some that conversion to a bank charter is more of a benefit to their boards of directors than a necessary shift to accommodate new business.

Fred Becker, president of the National Association of Federal Credit Unions (NAFCU), said that credit-union members enjoy traditionally lower fees than savings banks, “so therefore, if someone was going to suggest a conversion to me, they’d have a lot of convincing to do as to why I’m going to be at a better benefit than where I am today.”

NAFCU is preparing a brief on the regulator’s behalf in the Texas case, co-written by CUNA, the industry’s other premier lobbying group. But NAFCU’s director of regulatory affairs, Gwen Baker, declined to say how strongly the trade associations would stand behind the agency in the end. “We haven’t really taken a position regarding the specific situation,” Baker said.

Credit unions continue to push a bill by Reps. Paul Kanjorski (D-Pa.) and Ed Royce (R-Calif.) that nearly doubles credit unions’ business-lending cap, from 12.25 percent to 20 percent of assets, and decreases the sliding floor on how much of the unions’ net worth must be held as capital from its current low of 5 percent.

Banking lobbyists such as Floyd Stoner, the ABA’s executive director of government relations, said credit unions push their proscribed business boundaries so often that “they want to be banks without paying taxes.” The question facing Congress, Stoner said, is not how to monitor conversion but “when should credit unions have to convert to mutual savings banks?”

In addition to its work in the Texas case, the ABA is repeating its successful letter-writing campaign against the Kanjorski bill. Last year, its members sent 70,000 letters of opposition to Congress, and this year the figure is already approaching 40,000.

The courts are giving Community and OmniAmerican’s suit an expedited hearing, so a decision could be reached before Bachus’s subcommittee examines the McHenry bill. Several lobbyists also pointed to Congress’s long-awaited banking regulatory-relief bills — a pending Senate version, as well as a House version introduced last month by Rep. Jeb Hensarling (R-Texas), an NCUA critic — as possible catalysts for credit-union reform.