Credit unions are a vital source for consumer financial services and private-sector lending.
Serving more than 90 million Americans, credit unions play a key role in supporting our economic recovery by extending much-needed credit in communities across the country. Best of all, unlike other financial institutions, no credit union ever accepted a taxpayer bailout or Troubled Asset Relief Program money, and today we are eager to put more of their capital to work to help sustain the recovery.
That is why I introduced the Capital Access for Small Businesses and Jobs Act, H.R. 3993. This bipartisan legislation simply gets the government out of the way, allowing credit unions to expand consumer access to their affordable financial services while improving the overall safety and soundness of the credit union system. The bill makes a simple fix to current law to boost economic growth without spending a dime of taxpayer dollars or adding to the deficit.
Many consumers, homebuyers and small businesses running into trouble accessing credit during these tough times have looked to their local credit union, as a not-for-profit financial cooperative, to meet their needs. As a matter of sound public policy, we should encourage consumer choice and access to affordable financial services. Yet the law today unfairly punishes healthy credit unions for growing to meet the needs of their members and their communities. This makes no sense.
Current law imposes inflexible regulatory capital requirements on credit unions. As a result, credit unions of all sizes are forced to consider turning away deposits and scaling back on lending to limit their growth. These capital-based standards were never intended to discourage manageable asset growth by well-managed, financially healthy credit unions, yet that is exactly what is happening in every part of the country. As consumers and small-business owners will tell you, this is a real problem that harms everyone looking for reasonably priced financial services.
My bill would fix the law discouraging manageable asset growth by healthy and productive credit unions. It would expand access to credit unions as a source of affordable financial services and allow credit unions to keep private credit flowing at affordable rates — in good times and in bad. And to ensure adequate safeguards, it gives the federal credit union regulator the flexibility to adjust capital requirements in response to changes in economic conditions — flexibility that Congress has already provided to every other financial regulator.
The bill achieves these goals by allowing credit unions access to supplemental forms of capital. Specifically, the bill empowers the National Credit Union Administration, the federal credit union regulator, to authorize qualified credit unions to accept additional forms of capital to supplement their retained earnings. The bill makes clear that supplemental capital could not be used as a lifeline for troubled credit unions; it would be available only to well-managed, sufficiently capitalized credit unions.
Credit union access to supplemental capital does not cost the taxpayer a dime and would not disturb the cooperative and mutual structure fundamental to the credit union model, and it has no bearing on the federal tax status of credit unions. By definition, our bill excludes any form of supplemental capital that would alter the cooperative nature of the credit union.
Low-income credit unions currently have access to supplemental capital and are operating as nonprofit financial cooperatives. The Capital Access for Small Business and Jobs Act is a regulatory reform bill that poses no direct threat to any other segment of the financial services industry.
Expanded capital authority will enhance credit unions’ ability to serve their members, promote safety and soundness of the credit union system and benefit the broader economic recovery by facilitating job growth.
I am committed to finding solutions to stimulate an economic recovery, create jobs and help grow the American economy.
Passage of the Capital Access for Small Business and Jobs Act is a simple action that can be taken immediately.
Allowing supplemental capital makes sense because, again, it doesn’t cost the federal government a single dollar, yet it helps credit unions make credit available to consumers and small business.
In order for credit unions to do their part to get our economy growing again, they need access to alternative sources of capital beyond their retained earnings. That’s why this bill enjoys bipartisan support in Congress and from credit union regulators.
Rep. Brad Sherman (D-Calif.) is a member of the Financial Services Committee.