Posts filed under ‘Advocacy’
Yesterday, NCUA unveiled more than a dozen distinct changes to its Field of Membership (FOM) regulations. It will take a few days to figure out the precise impact these changes, some of which are highly technical, will have on credit unions. But, regardless of their ultimate impact, NCUA’s proposal is crucial when viewed in the context of the larger challenges facing the industry.
Let’s face it, credit unions are constrained by a legislative and regulatory framework designed in the early part of the 20th Century. Limiting credit unions to distinct employee groups, distinct communities, and distinct associations made sense in an era where most communities had a manufacturing base and the suburbs had not yet changed the concept of community. Today, the Internet creates world-wide communities and the traditional model of an employee picking up his paycheck on Friday night on his way out of the local mill is obsolete.
Consequently, there is no bigger challenge facing the credit union industry writ large than removing restrictions on who it can serve. Against this backdrop, NCUA deserves credit for taking a fresh look at its existing FOM regulations. But let’s remember that it was only in 2010 that NCUA, under pressure from banker litigation challenging its flexibility when approving community charter expansions, imposed many other restrictions that NCUA is now proposing to tinker with. For example, before 2010, credit unions could provide a “narrative” explaining why a proposed service area constituted a well-defined local community. A 2010 amendment did away with this flexibility, instead mandating that credit unions fit proposed expansions into pre-defined statistical areas.
Yesterday’s proposal doesn’t bring back the narrative option, but by making some of those technical changes I was referring to, it potentially gives credit unions greater flexibility to serve communities, particularly in underserve areas.
Keeping an eye on all of these efforts, of course, is the banking lobby. Its core effort over the last two decades has been to restrain the growth of credit unions by retraining FOM flexibility. The framework that results from this proposal can’t be so flexible as to bear little resemblance to the federal Credit Union Act or result in community charter expansions that can be attacked as arbitrary.
This is why it is so important to view these regulations not as an end in themselves, but as part of a larger effort to educate the public and elected representatives about why charter reform is so important. NCUA deserves credit for this proposal. But the type of changes the industry most needs can only come through legislative action. In the meantime, this is one of those key proposals where substantive feedback, particularly from individual credit unions, is absolutely crucial.
One of my faithful readers emailed yesterday and asked me what I thought of the cyber security legislation that passed the Senate earlier this week. So here goes: Quite simply any action that shows Congress is waking up to the need for federal action aimed at creating a more robust cyber security infrastructure is a step in the right direction, but since the core challenge of making merchants more responsible for how they protect consumer information remains. credit unions will see little direct or immediate benefit if this legislation becomes law.
Senate bill 754, The Cyber Security Information Sharing Act of 2015, passed with strong bipartisan support and takes some important steps designed to make it easier for the government and the private sector to respond to and deter cyber threats. For example Homeland Security, the Director of National Intelligence, the Department Of Defense and the Justice Department would have to promulgate procedures for the “timely sharing” of classified cyber threat indicators. The bill would also setup a framework that would allow companies to voluntarily monitor each other’s information systems. Companies that exercise these powers are shielded from lawsuits, including those alleging violations of antitrust law.
Now all of this might be real important stuff for fortune 500 companies, including the largest banks that are such tempting targets for hackers, but none of it addresses the concerns of credit unions wondering why merchants don’t have to pick of the tab for data breaches caused by merchant negligence.We not only need more information sharing but we also need to make sure that all businesses have to adopt common sense procedures to protect the personal information of consumers.
The bill also makes the civil libertarian in me that much more concerned about how easy we are making it for the government and business to spy on us in the name of national security but that goes beyond the scope of this post or the concerns of credit unions. Stay dry out there.
Here is a link to information about the bill.
John Boehner isn’t going out quietly. Good for him.
Appearing on CBS New’s Face the Nation, he admonished his Republican colleagues not to succumb to the rhetoric of false prophets. It speaks volumes about the wretched state of our political system in general and the so called Republican Party that the Speaker of the House will now be able to get more done in the month he has remaining in office than he has been able to do previously.
For credit unions, this means that the next month is actually one of those rare windows in national politics when legislation is going to move. The problem is that none of the legislation likely to most benefit credit unions will be part of this rush to get things done. It just isn’t realistic to think that we can see Member Business Lending or Secondary Capital Reform. This is by no means a knock against CUNA or NAFCU, but simply a reflection of the reality that a political system paralyzed by ideological rigidity can only be jolted into action by the biggest players (such as the supporters of the Export-Import Bank) or deal with issues of so little consequence that no one bothers to oppose them (further reform of privacy notice requirements could fall into this category).
And the news gets worse. The People who advocated for John Boehner’s ouster are lousy at articulating what they are for, but instead listen to the false prophets who fill their heads with the ignorant notion that in America, policies can be advanced without compromise and that anyone who disagrees with their positions is somehow acting contrary to the Constitution. I went to bed last night listening to the angry voices of talk radio, and as far as I could tell, these pundits of hatred want a Speaker who is willing to cripple the nation’s, and in fact the world’s, finances by threatening not to raise the national debt every time they don’t get their way. The want a leader who is somehow able to balance the budget and reduce the national debt without raising taxes or cutting government programs that middle class Americans like such as social security and Medicare. And, most disturbingly, they want an America led by Republicans who not only disagree with their opponents but despise them.
If you think I am exaggerating, then how do you explain the cheers that went up with the news that John Boehner had had enough of trying to deal with this confederacy of dunces for whom Eric Cantor wasn’t conservative enough and Chris Christie committed the unpardonable sin of putting him arm around the President of the United States when he pledged to help New Jersey recover from a massive hurricane?
What really bugs me is that these so called conservatives drape their radicalism in patriotism. How patriotic is it not to pay the nation’s bills or to refuse to compromise to get anything done? If these people were around when the nation was being founded, we would not have our present Constitution or our banking system.
An unusually busy Thursday, so here are some quick notes to keep in mind as you start your credit union day. I’ve also been gracious enough to intersperse these notes with my football predictions, which, as many of you may know, are certified as capital for RBC purposes by the NCUA.
Taxi Medallions Under Scrutiny
The plight of New York’s Taxi Medallion credit unions, which specialize in making loans for the purchase of taxi medallions, is getting more and more attention lately. Yesterday, NCUA led its press release summarizing the quarterly performance of credit unions by noting that medallion loan growth in federally insured credit unions rose 4% in the year ending June 30, 2015. On a less sanguine note, the CU Times is reporting this morning that a New York judge has refused to rule that consumers summoning a ride using an App based ride sharing service such as Uber is engaged in street hailing. The medallion industry argued that since only medallion taxis were authorized to pick up riders from the street, ride sharing services were violating the law. The decision is going to be appealed, according to the article.
Fearless Football Prediction No. 1
Overwhelmed by guilt, Tom Brady admits his complicity in deflating footballs and makes amends by quitting football so he can go around the country making balloon animals for children’s birthday parties.
Senate MBL Bill Introduced
Yesterday evening our good friends at CUNA sent word that Republican Senator and Presidential hopeful Rand Paul and Democratic Senator Sheldon Whitehouse have introduced legislation that would authorize NCUA to raise the MBL cap for well-capitalized credit unions on a case-by-case basis from 12.25% of total assets to 27.5% of total assets. Bill language provided by CUNA indicates that the legislation would apply to credit unions that have been within 20% of the current cap for at least two years and can demonstrate, among other things, that they are well-capitalized and have five years of MBL underwriting and servicing experience.
Fearless Football Prediction No. 2
NFL Commissioner Roger Goodell resigns to begin his own labor arbitration firm. He is replaced by former Secretary of State and National Security Advisor Condoleezza Rice. The NFL explains that anyone used to dealing with the mess in Iraq is surely qualified to deal with the mess Goodell has left behind.
NY AG Settles Buffalo Redlining Case
In a case I’ve talked about in a previous blog, New York’s Attorney General Eric Schneiderman announced yesterday the settlement of a lawsuit in which Evans Bank was accused of intentionally refusing to make mortgage loans available to Buffalo residents who lived in the City’s predominantly African-American Eastside neighborhoods. The allegations against Evans were both serious and disturbing. According to the press release, Evans has agreed to amend its lending area to include the disenfranchised neighborhoods. It has also agreed to establish an $825,000 Settlement Fund to help establish affordable housing in Buffalo.
Fearless Football Prediction No. 3
As much as it pains me to say this, the Dallas Cowboys beat the Pittsburgh Steelers 35-24 to win the Superbowl.
This past week I introduced my oldest daughter to the great American tradition of voluntary homelessness called camping. I’m not quite ready to take her canoeing in the Adirondacks as my father did with me so instead, armed with the barest of essentials-fully charged IPhones and a six-pack for dad-I settled for a beautiful spot called Thompson’s lake. The weather was beautiful and we had a great time hiking and kayaking but I couldn’t escape the feeling that I was willingly helping to populate a Shanty Town, albeit one with Priuses, Pilots and pickup trucks waiting to take their owners back to civilization.
Having spent time immersed in this tableau of Americana I am now more prepared than ever to respond to the latest knee jerk banker attacks on MBL lending. According to this morning’s American Banker “Irate Bankers” have Flooded NCUA with letters opposing NCUA’s MBL plan. According to NCUA the large majority of comment letters express opposition to the proposal.
What has the Bankers so hopping mad is NCUA’s proposal to amend its MBL regulations to replace the existing overly prescriptive MBL regime with one in which credit unions would have greater flexibility to create MBL programs that reflect the unique needs of their membership. Lest there be any confusion, credit unions aren’t allowed to do what they want. They would have to create a detailed set of policies that address all of the areas covered by existing regulations and supervisory guidance would be used by examiners to judge the effectiveness of these programs. Plus an MBL cap would still be in place.
I’m a little confused by the Bankers’ lines of argument.
I thought banks were being strangled by excessive regulations? They should be supportive of NCUA’s efforts and point out to their own regulators that regulations shouldn’t be judged by how detailed they are but by how effectively they further safety and efficiency.
Instead, according to the American Bankers Association’s comment letter, the amendments set forth in this proposal will lead to safety and soundness concerns as business lending regulations become increasingly lax and increased commercial lending becomes more appealing to the credit union industry.
Really? Never mind the fact that examiners may very well end up having more not less power to regulate individual credit unions. By replacing prescriptive rules with guidance credit unions won’t be able to evade potentially legitimate supervisory concerns by complying with the specific requirements of a given regulation. In fact, it’s possible that some credit unions might find this new MBL approach overly restrictive. Also every major issue covered currently in regulation will have to be addressed in policy.
The Bankers are concerned that the amendments use a “loophole” to expand credit union lending authority. Existing regulations cap MBL loans at 12.25 percent of a credit union’s total assets. If by a loophole the bankers mean that NCUA has the audacity to adopt the plain language of federal law than they have a point. Federal law says nothing about limiting credit union MBL loans to 12.25 percent. Instead it limits the aggregate amount of MBLs that a credit union may make to the lesser of 1.75 times the actual net worth of the credit union or 1.75 times the minimum net worth required under the FCU Act for a credit union to be well capitalized. Nothing NCUA is proposing goes beyond this Congressional mandate.
The backing industry loves to hide behind community and independent banks when it fits their purposes. Its real concern, of course, has precious little to do with safety and soundness but maintaining as many lending roadblocks as they can.
The problem is that small businesses need loans and the economy has plenty pf room to grow and many small businesses have complained that they aren’t getting access to loans. The ultimate goal of banking regulations should be to make life easier for Americans, not perpetuate banker monopolies. It’s sad that the banks have nothing better to do with their time than keep credit unions from helping consumers.
If you are one of those hopeless idealists who actually think that facts, as opposed to the exercise of pure political power, make a difference in credit union efforts to raise the cap on Member Business Loans, then a recent report issued by Filene is a must read. Its most important finding is that “increasing the percentage of total assets that credit unions may lend to businesses should be beneficial to local communities,” particularly where there are already larger bank and savings institutions.
David A. Walker is a long-serving business professor at Georgetown University, who previously served as the director of research for the Office of the Comptroller of the Currency as well as a senior financial economist for the FDIC. In order to gauge the impact that raising the MBL cap would have on business lending activities, he analyzed 120 federally insured credit unions nationwide that were up against the cap in 2012. Specifically, 84 had business loans between 9.5% and 12.25% of their assets; 15 had a percentage below 9.48 and 21 had a percentage above 12.25. The report has special resonance in New York since 12 of the credit unions are based in this state. If you have a Filene password you can access the full report at https://filene.org/research/report/room-to-grow-credit-union-business-lending
One of the big policy debates in recent years has been the extent to which a decline in bank lending to small businesses has been the inevitable result of a down turn in economic activity resulting in fewer businesses needing loans, as the banks argue; or the result of tougher bank lending standards. Based on Walker’s research, a strong argument can be made that small businesses have been squeezed by banks and would benefit from greater access to credit union loans. Most importantly, he points out that in the profiled credit unions, credit unions actually lend out a greater share of their assets in Member Business Loans in counties where banks and savings institutions are larger.
Banks love to argue that behemoth credit unions are gobbling up Member Business Lending at the expense of smaller community banks. Walker’s research strongly suggests that this is more fiction than fact. He notes that “it is not the largest credit unions that lend the largest percentage of their assets to businesses.” The 120 credit unions studied had a median asset size of $170.8 million. In contrast, the 10 largest credit unions had a median size of $8.8 billion in 2012.
This next part is my own extrapolation. The data also suggests that small business lending is particularly beneficial during an economic downturn. The profiled credit unions shifted a larger percentage of their loan volume from consumer to business loans. Between 2010 and 2012, their business lending portfolios increased faster than their credit card loans, real estate loans and auto loans. This is further proof for the proposition that since credit unions are generally much more dependent on local community lending than are regional and national banks, they are more willing to offer business loans during economic downturns than are their commercial banking counterparts.
So the next time you talk to your friendly neighborhood Congressman, you can point out that a vote for raising the MBL cap is a vote for helping small businesses grow, keeping the economy strong, and making sure that local money is spent locally. To me, raising the MBL cap is a no-brainer; but then again, I don’t have to worry about running for re-election.
FHFA Benchmarks Raised
As mandated by Congress, the Federal Housing Finance Administration (FHFA) has adopted affordable housing benchmarks for Fannie Mae and Freddie Mac for 2015 through 2017. Specifically, both GSEs are given the goal that 24% of their purchases be of low-income homes. A low-income home is one to borrowers whose income is no greater than 80% of the area’s median income. The benchmark increases the goal by 1% over the 2014-2015 period.
I’m taking tomorrow off, have a great weekend.
One of the first arguments the banks regurgitate in opposition to municipal deposit legislation is that tax dollars shouldn’t go to institutions that don’t pay taxes. First, we all know that credit unions do pay taxes; but, more importantly for this post, banks have never quite explained why their for-profit tax status automatically makes them better protectors of the public Fisc than credit unions.
That question is worth asking the Legislature next year in light of the New York Bankers Association successful efforts to keep New York City from scrutinizing the community investment performance of banks holding the City’s deposits. On Monday, a federal court ruled that a NYC ordinance mandating that banks holding or wishing to hold municipal deposits be subject to a local review of their investment activities was preempted by federal law and could not be enforced. (The New York Bankers Association, Inc., v. The City of New York, 15 Civ. 4001).
The Responsible Banking Act had its roots in the worst days of the Great Recession. NYC council members grew frustrated by the juxtaposition of mounting foreclosures and shoddy banking practices even as billions of dollars of public money was being deposited into banks for safe keeping. The bill established an advisory board that would report on how well banks were doing meeting financial benchmarks. The report would be used in evaluating institutions wishing to hold municipal deposits from the City.
To be fair, the information the advisory board was seeking was much more extensive than what needed to be supplied under the Community Reinvestment Act. For example, the banks were to be evaluated on how they addressed serious material and health and safety deficiencies in the maintenance and condition of their foreclosed property; developed and offered financial services needed by low and moderate income individuals throughout the city, and how much funding they provided for affordable housing.
Mayor Bloomberg hated the bill so much that he vetoed it and refused to appoint members to the advisory board after his veto was overridden. When Mayor DeBlasio was elected, he embraced the idea and the advisory board came to life. It was time to call in the lawyers.
In arguing against the legislation, the Bankers Association argued that both Federal and State law preempted the ordinance. They pointed out that the Community Reinvestment Act was intended to establish the framework for nationally chartered banks to be assessed for their community works. On the state level the Banking Law gave the Department of Financial Services broad powers of regulation to control and police the banking institutions under their supervision.
In response, the City argued that it was not regulating bank activity; but simply carrying out a proprietary function. It should be able to establish its own standards for deciding who gets the city’s money the same way it gets to decide what companies are awarded city contracts. It also argued that the activities undertaken by the Advisory Board were “purely informational.” Its findings were not binding on anybody deciding where the money should be placed.
Southern District Judge Katherine Polk Failla ruled in favor of every major issue raised in opposition to the bill concluding that “the RBA’s very structure secures compliance through public shaming of banks and/or threatening to withdraw deposits from banks that do not provide information to the CIAB. The Court sees no reason why regulation through coercive power, rather than by explicit demand or stricture, should be immune from preemption scrutiny.”
While the lawsuit may have solved the immediate legal problem facing banks it doesn’t change the fact that banks didn’t do enough in return for their public bailout. Nor does it change the fact that there are local leaders who feel that banks still don’t do enough for the communities in which they operate. Giving localities the ability to work with credit unions. which by their very structure invest in the communities in which they operate, would be a perfectly legal way of ending the banker monopoly and perhaps make these banks more responsive to local concerns.
Epilogue A Failure To communicate?
NCUA officials have fallen into the habit lately of making bold statements one day that have to be clarified the next. First, we had Chairman Matz’s clarification of her Congressional testimony that credit union CEOs aren’t representing their members when they advocate for budget hearings. Yesterday NCUA felt the need to clarify to the CU Times its position on how much information the public is entitled to about the Overhead Transfer Rate methodology following the release of a letter from its General Counsel to NASCUS on that very subject(See yesterday’s blog). I think it’s fair to say that NCUA is suffering from some communication problems.
The article quotes Board renegade Mark McWatters, who is emerging as a much needed voice of reason, as saying that “The agency will make the final determination as to the calculation of the OTR and I see no harm in subjecting the agency’s OTR methodology to public comment as a proposed rule under the APA,” Here is a link