[Congressional Record Volume 148, Number 134 (Friday, October 11, 2002)]
[Extensions of Remarks]
[Pages E1841-E1842]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        THE FEDERAL CREDIT UNION SERVICES EXPANSION ACT OF 2002

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                       Thursday, October 10, 2002

  Mr. LaFALCE. Mr. Speaker, I am today introducing legislation to 
enhance the membership, services and investment options available for 
credit unions under the Federal Credit Union Act. The bill also seeks 
to enhance Federal oversight and member protections in connection with 
certain credit union charter conversions.
  I am offering the ``Federal Credit Union Services Expansion Act of 
2002'' as a discussion document to highlight those areas of federal 
policy that I believe merit consideration by Congress. It is my hope 
that the proposals in this legislation will provide a template for new 
legislation in the next Congress.
  Congress enacted landmark legislation in 1998 with the adoption of 
the Credit Union Membership Access Act. The credit union industry was 
confronted with a series of adverse Federal court rulings, culminating 
in a Supreme Court ruling early in 1998, that threatened to stall all 
future credit union growth and deny credit union services to millions 
of American families. We were able to forge consensus legislation, 
overcome the strong opposition of the banking industry, win near 
unanimous votes in both Houses and put a bill on the President's desk 
within a matter of months. This was a significant accomplishment, as 
well as a testament to the strong and growing support credit unions 
enjoy among American consumers.
  I consider passage of the credit union legislation one of the 
important achievements of my years in Congress. This is in part because 
I consider credit unions as playing so important a role in the lives of 
so many American families and in so many of the communities that I 
represent. I believe even more strongly today that credit unions serve 
a unique and special role in our economy and society. The distinctive 
quality of credit unions is clearly a philosophy and attitude that 
reflects not only their structure as member organizations, but a 
mission that stresses service to members as their primary motivation.
  As the author of many of the provisions of the 1998 legislation, I 
did not consider it a final answer to the issues raised by the bank 
litigation nor to the broader question of credit union growth. On the 
contrary, it was a critical first step in what I anticipated would be a 
gradual process of expanding credit union services to greater numbers 
of consumers. A number of compromises had to be made to achieve 
agreement on the legislation, some of which now appear unnecessary and 
should be revisited. And new advances in technology that continue to 
change the way we receive financial services also need to be 
accommodated in the law.
  But other developments also require a review of the role credit 
unions play in our financial marketplace. We have witnessed the gradual 
withdrawal of traditional financial institutions from many of our 
nation's inner cities and rural communities. Entire communities have 
been devastated by a lack of financial investment, and large segments 
of our population have been left to the mercy of check cashiers, payday 
lenders, pawn shops and other fringe lenders to obtain basic financial 
services. Many traditional institutions are charging punitive fees and 
many other are engaging in predatory lending and other abusive 
practices. Even our college students have been bombarded with 
irresponsible offers of high-cost credit and buried by unpayable credit 
card debt.
  Clearly, credit unions have not been part of this problem. But I am 
convinced they can be an important part of the solution. The key 
question for Congress is how to fashion our laws so that credit unions 
can remain faithful to their mission and their values and still become 
a solution to the financial needs of greater numbers of consumers? We 
want credit unions to become a financial services option for more 
Americans, but we do not want to render the core concept of credit 
union membership--a common bond--less meaningful.
  I have struggled for several years to find an appropriate response to 
these questions. This effort has been complicated by a growing trend 
among larger credit unions to consider conversion to State credit union 
charters in response to State enticements of new powers, expanded 
membership options and reduced regulation. Equally serious has been the 
growing debate over conversion to private deposit insurance to avoid 
stronger safety and soundness regulation in federal law. While I remain 
a supporter of dual chartering for all financial institutions, I 
believe credit unions present

[[Page E1842]]

unique issues and problems. As democratic, member-owned entities, 
credit unions need to involve members in any debate over changes in 
charters and insurance, and members need to be fulling informed of the 
purpose and potential risks in such conversions.
  The ``Federal Credit Union Services Expansion Act'' provides a 
blueprint of the initial steps needed to address these questions. 
First, the bill amends several sections of the 1998 Act to remove 
impediments to voluntary mergers among credit unions and conversions to 
community charters. In the later case, the bill would require the 
National Credit Union Administration to establish standards under which 
a credit union, such as a company-based credit union with members in a 
distant production facility, would be able to retain those members as 
part of a conversion to a community charter.
  The bill would create new opportunities for expanding credit union 
membership and services to students to counter the growing abuse of 
college and high school students by credit card companies and other 
providers of high cost banking services. It would exempt student groups 
from the statutory 3,000-member limitation on new group additions to 
permit expansion of existing credit union services to college campuses, 
high schools and entire school districts, with the requirement that the 
credit union must also provide needed financial education and 
counseling services.
  The bill would enable credit unions to respond to the growing need 
for basic services among individuals who lack traditional banking 
relationships and are being targeted by high cost check cashing and 
bill payment services. It would permit a credit union to provide needed 
check cashing and wire transfer services to non-members. This can 
provide an important marketing tool to potential members who may have 
distrusted traditional banking relationships in the past and are 
unaware of the services credit unions offer.
  The bill also responds to the growing interest among credit unions in 
expanding small business lending services to members. Growing numbers 
of credit unions with active business lending programs are being 
restrained by the loan volume cap, equal to 12.25 percent of credit 
union net worth, that the Senate imposed as part of the 1998 
legislation. My bill would permit additional business lending up to 
approximately 17 percent of credit union net worth. In addition, it 
would remove a long-time impediment in Small Business Administration 
regulations that has prevented credit union participation in the SBA's 
guaranteed small business loan program. SBA and other guaranteed loans 
are currently exempted from the statutory business loan limitation. In 
combination, these changes would provide ample room for most credit 
unions to substantially expand business lending services to their 
members.
  The 1998 Act included an important provision originally authored by 
our colleague from Texas, Mr. Frost, that permitted an exception from 
the geographic limitations in the Act on new member group recruitment 
for potential members and groups who reside within areas determined to 
be financially underserved by the Treasury Department under criteria 
established for the Community Development Financial Institutions 
program. Unfortunately, an error in the statute limited this exception 
only to multiple group credit unions, excluding eligibility by single 
group, community and community development credit unions. The bill 
would correct this oversight and expand this important exception to 
greater numbers of credit unions. It would also expand the statute's 
definition of underserved areas to include areas with a significant 
need for affordable credit and banking services as evidenced by a 
documented concentration of payday lenders, money transfer and other 
high-cost fringe lenders. The change would permit credit unions to 
compete directly with fringe lenders who attempt to take advantage of 
vulnerable consumers.
  The bill includes a number of important provisions to address 
potential problems in credit union conversions. It would raise 
substantially the minimum level of member participation in votes to 
convert a credit union to a mutual thrift institution or to transfer a 
credit union's deposits from federal share insurance. These are 
significant changes with serious consequences for members that require 
that members be fully informed and encouraged to participate in any 
conversion process. The bill also includes changes to provide earlier 
notice to NCUA regarding a credit union's intent to convert to a mutual 
thrift or to private insurance. And it proposes new conflict of 
interest protections to assure that a credit union officers and 
directors not attempt to persuade members to approve a conversion in 
which they receive any form of financial benefit.
  Finally, the bill attempts to preserve the integrity and 
attractiveness of the federal credit union charter in response to State 
efforts to encourage conversions with escalating promises of new powers 
and reduced regulation. It would prohibit a state chartered insured 
credit union from including any person or organization within its 
membership that is not a permissible member for a federal credit union, 
or to engage in any activity, or exercise any asset power, that is not 
authorized for a federal credit union. It would authorize NCUA to 
provide exceptions on a case-by-case basis, provided that the exempted 
activity meets federal standards for safe and sound operation and is 
fully consistent with the mission and purpose of Federal credit unions.
  Mr. Speaker, I offer this legislation in the hope that my House and 
Senate colleagues would consider it as a starting point for a broader 
credit union bill next session. Just as the legislation I introduced in 
1997 became the framework for the 1998 Credit Union Membership Access 
Act, I would hope that introducing this bill will encourage action on 
new credit union legislation next year.

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