Let Credit Unions Continue to Serve Americans | Commentary
Banking industry lobbyists have become increasingly vocal in their attacks on credit unions. Banks have been demanding a repeal of the credit unions tax status, railing against credit unions for filling a void in the market for member business lending, and opposing regulatory reform measures that would grant qualified credit unions access to supplemental capital and improve the safety and soundness of the credit union system.
Credit unions need to set the record straight.
The banking industry is unhappy because consumers and small businesses are increasingly choosing credit unions as a source of affordable credit and affordable retail banking services.
Today, more than 90 million Americans look to credit unions as their preferred source of consumer financial services and private sector lending. As a testament to the value credit unions provide, hundreds of thousands of consumers have transferred their bank accounts to credit unions over the past several years.
Credit unions have earned the trust and confidence of their members by prioritizing service and value in good times and bad. When consumers, homebuyers and small businesses were having trouble accessing credit during the recent recession, many looked to credit unions to meet their needs — and credit unions answered. Credit unions increased first-time mortgage lending in 2009, up by more than 35 percent to $95 billion. At the same time, other lenders posted the largest declines in more than 70 years.
What’s the key to credit unions’ success? The same as it ever was.
As not-for-profit financial cooperatives, credit unions exist to serve their members. This means higher rates of return on checking and savings accounts, low interest rates on loans, fewer fees and a fundamental commitment to member service. Credit unions are financial institutions run for and by their members. Because of their cooperative status, credit unions can concentrate on returning value to their members, rather than shareholders.
Credit unions play a key role in supporting the economic recovery and facilitating job growth in their communities, but they could be doing even more. Congress must remove the red tape under current law that makes it more difficult for credit unions to help.
For example, current credit union capital requirements limit the ability of credit unions to act as a safe harbor for deposits and to serve as an important source of private capital for lending. Current law restricts the ability of credit unions to build capital. Credit unions are the only financial institutions in the U.S. that do not have access to capital beyond retained earnings.
HR 719, the Capital Access for Small Businesses and Jobs Act, is simple, much-needed relief legislation that would address this issue by allowing well-managed credit unions to accept supplemental capital. This bipartisan bill was introduced by Reps. Peter T. King and Brad Sherman, from our home states of New York and California, respectively.
Access to supplemental capital would allow credit unions to meet their members’ needs, to increase services, provide more attractive rates and increase private credit in the market at a time when it’s needed most.
Supplemental capital is a tool that would help credit unions, large and small, continue to provide their members with access to affordable financial services. Importantly, the legislation ensures that credit unions could only access supplemental capital that preserves their unique status as not-for-profit financial cooperatives.
Access to supplemental capital would help credit unions increase the flow of lending to families and small businesses. If credit unions had access to supplemental capital during the financial crisis, they could have provided $37 billion more in loans from 2008 to 2010, the height of the downturn.
As a policy matter, more capital is important for all financial institutions. That is why both the National Credit Union Administration and the National Association of State Credit Union Supervisors support supplemental capital for credit unions.
HR 719 is a regulatory reform measure. From a safety and soundness perspective, access to supplemental capital would strengthen the credit union system and provide an additional buffer for claims against the National Credit Union Share Insurance Fund.
HR 719 is a common-sense, bipartisan solution that would provide credit unions with needed relief and allow them to further help to grow the economy and create jobs. Congress should enact supplemental capital now.
Credit unions have a great story to tell. We need to make sure it gets heard so that Congress understands the value credit unions provide and the important role credit unions can play in the economic recovery.
William J. Mellin is president and CEO of the Credit Union Association of New York, and Diana Dykstra is the president and CEO of the California and Nevada Credit Union Leagues.