[Congressional Record Volume 154, Number 71 (Thursday, May 1, 2008)]
[Senate]
[Pages S3708-S3710]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

  By Mr. LIEBERMAN:
  S. 2957. A bill to modernize credit union net worth standards, 
advance credit union efforts to promote economic growth, and modify 
credit union regularity standards and reduce burdens, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. LIEBERMAN. Mr. President today more than ever, credit unions are 
a critical component of our nation's financial landscape. At a time 
when most financial institutions are retreating from the credit 
markets, credit unions are among the few lenders in the financial 
industry demonstrating resiliency and strength. For example, while many 
mortgage lenders are struggling to stay afloat, the delinquency rate on 
mortgages issued by credit unions is less than one percent, and credit 
unions are still lending. Nonetheless, certain outdated regulatory 
rules impede the ability of credit unions to effectively carry out 
their role as savings and lending institutions for local communities 
and small businesses. Because I believe that credit unions are a 
stabilizing force in the domestic economy and play an important role in 
providing financial services to local community and underserved groups, 
I am introducing the Credit Union Regulatory Improvements Act of 2008, 
CURIA.
  The health of credit unions in today's turbulent economy is 
attributable to a business model that differs significantly from that 
of other financial institutions. Similar to banks and thrifts, credit 
unions act as intermediaries in the market for consumer finance. Credit 
unions, however, are governed by certain rules that take into account 
their position as cooperative lenders. Notably, credit unions operate 
as tax-exempt, nonprofit institutions. All credit union earnings are 
retained as capital or returned to members in the form of higher 
interest rates on savings accounts, lower interest rates on loans, and 
other financial benefits. Second, credit unions are member-owned with 
each member entitled to one vote in selecting board members and other 
decisions. Third, credit unions do not issue capital stock. Rather, 
credit unions create capital by retaining earnings. Fourth, credit 
unions rely on volunteer, generally unpaid boards of directors elected 
from the membership. Lastly, credit unions are limited to accepting 
members identified in a credit union's articulated field of 
membership--usually reflecting occupational, associational, or 
geographical links or affinity.
  In short, through a cooperative ownership structure, credit unions 
offer access to financial services to millions of Americans. As a 
result of strong ties to their communities, credit unions help meet 
local needs, and in the process, encourage economic growth, job 
creation, savings, and opportunities for small business owners. At the 
end of 2007, over 88 million individuals were members of state or 
federally charted credit unions in the United States, including close 
to a million individuals in the State of Connecticut.
  The legislation I am introducing will help modernize the Federal 
Credit Union Act, bringing antiquated rules into the era of twenty-
first century consumer finance. CURIA would remove several instances of 
statutory

[[Page S3709]]

micromanagement that place unreasonable constraints on the ability of 
credit unions and their boards to function efficiently and in the best 
interests of their members. The first title would update current 
capital requirements by implementing recommendations from the National 
Credit Union Administration, NCUA, the Federal regulatory body that 
oversees credit unions. For purposes of setting capital requirements, 
CURIA would implement a rigorous, two-part net worth test that would 
more closely track an institution's actual asset risk. The second title 
would promote community development and local economic growth by 
providing for modest expansion in credit union business lending. The 
title also includes provisions that would permit credit unions to 
extend services to areas with high unemployment and low incomes. The 
third title would provide credit unions with relief from outdated 
regulatory burdens by authorizing the NCUA to increase maximum loan 
terms and raise interest rate ceilings in response to sustained 
increases in prevailing market interest rate levels. The title would 
further allow greater credit union investment in credit union service 
organizations, allow limited investments in securities, and update 
credit union governance rules.
  Vigorous competition among financial service providers, new 
technology, and globalization have resulted in a financial marketplace 
where the products and actors are evolving at a much more rapid rate 
than the statutes and regulations that govern them. While recent events 
demonstrate that we must be prudent in our approach to financial 
regulation, we must not allow our rules to unjustifiably constrain 
those actors, such as credit unions, that contribute to financial 
stability, community development, and long-term growth. The Credit 
Union Regulatory Improvements Act is an important step toward 
modernizing and calibrating our financial regulatory rules, I encourage 
my colleagues to support it.
  Mr. President, I ask unanimous consent a section-by-section analysis 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record as follows:

          The Credit Union Regulatory Improvements Act of 2008


                      Section-by-Section Analysis

     Section 1. Short title
       Section 1 would establish the short title of the bill as 
     the Credit Union Regulatory Improvements Act of 2008.


                        Title I: Capital Reform

     Section 101. Amendments to net worth categories
       The Federal Credit Union Act presently specifies the amount 
     of capital credit unions must hold in order to protect their 
     safety and soundness and the solvency of the National Credit 
     Union Share Insurance Fund (``Insurance Fund''). Many 
     experts, however, have noted that this capital allocation 
     system is inefficient and does not appropriately account for 
     risk. Section 101 incorporates recent recommendations of the 
     National Credit Union Administration, NCUA, to provide a two-
     tier capital and Prompt Corrective Action, PCA, system for 
     federally insured credit unions involving complementary 
     leverage and risk-based minimum capital requirements. Under 
     the proposed system, a well capitalized credit union must 
     maintain a leverage net worth ratio of 5.25% and a minimum 
     risk-based ratio of 10%. When a credit union's capital 
     deposit to the Insurance Fund (equal to 1% of insured 
     deposits) is added, a credit union's total net worth would 
     equal or exceed the capital requirements for FDIC-insured 
     banks and thrifts.
     Section 102. Amendments relating to risk-based net worth 
         categories
       Currently, only federally insured credit unions that are 
     considered ``complex'' must meet a risk-based net worth 
     requirement under the Federal Credit Union Act. Section 102 
     would instead require all federally insured credit unions to 
     meet a risk-based net worth requirement, and it directs the 
     Board to take into account comparable risk standards for 
     FDIC-insured institutions when designing the risk-based 
     requirements appropriate to credit unions.
     Section 103. Treatment based on other criteria
       Section 103 would permit the NCUA Board to delegate to 
     regional directors the authority to lower by one level a 
     credit union's net worth category for reasons related to 
     interest-rate risk not captured in the risk-based ratios, 
     with any regional action subject to Board review.
     Section 104. Definitions relating to net worth
       Net worth, for purposes of prompt corrective action, is 
     currently defined as a credit union's retained earnings 
     balance under generally accepted accounting principles. 
     Section 104 would make three important revisions to this 
     definition. First, it clarifies that credit union net worth 
     ratios must be calculated without a credit union's capital 
     deposit with the Insurance Fund. Second, it provides a new 
     definition for ``risk-based net worth ratio'' as the ratio of 
     the net worth of the credit union to the risk assets of the 
     credit union. Third, it would permit the NCUA to impose 
     additional limitations on the secondary capital accounts used 
     to determine net worth for low-income community credit unions 
     where necessary to address safety and soundness concerns.

    Section 105. Amendments relating to net worth restoration Plans

       Section 105 would provide the NCUA Board with authority to 
     waive temporarily the requirement to implement a net worth 
     restoration plan for a credit union that becomes 
     undercapitalized due to disruption of its operations by a 
     natural disaster or a terrorist act. It would further permit 
     the Board to require any credit union that is no longer well 
     capitalized to implement a net worth restoration plan if it 
     determines the loss of capital is due to safety and soundness 
     concerns and those concerns remain unresolved by the credit 
     union.
       This section would also modify the required actions of the 
     Board in the case of critically undercapitalized credit 
     unions in several ways. First, it would authorize the Board 
     to issue an order to a critically undercapitalized credit 
     union. Second, the timing of the period before appointment of 
     a liquidating agent could be shortened. Third, the section 
     would clarify the coordination requirement with state 
     officials in the case of state-chartered credit unions.


                       Title II: Economic Growth

     Section 201. Limits on member business loans
       Section 201 would increase the current arbitrary asset 
     limit on credit union member business loans from the lesser 
     of 1.75 times actual net worth or 1.75 percent times net 
     worth for a well-capitalized credit union (12.25% of total 
     assets) to a flat limit of 20% of the total assets of a 
     credit union. This update would facilitate added member 
     business lending without jeopardizing safety and soundness at 
     participating credit unions, as the 20% cap would still be 
     equal to or stricter than business lending caps imposed on 
     other depository institutions.
     Section 202. Definition of member business loans
       Section 202 would give NCUA the authority to exclude loans 
     of $100,000 or less as de minimis, rather than the current 
     $50,000 exclusion, from calculation of the 20% cap on member 
     business loans. This change would thus facilitate the ability 
     of credit unions to make additional loans and encourage them 
     to make very small business loans. It also builds upon the 
     findings in a 2001 study by the Treasury Department that 
     found that ``. . . credit union member business loans share 
     many characteristics of consumer loans'' and that ``. . . 
     these loans are generally smaller and fully collateralized, 
     and borrower risk profiles are more easily determined.''
     Section 203. Restrictions on member business loans
       Section 203 would modify language in the Federal Credit 
     Union Act that currently prohibits a credit union from making 
     any new member business loans if its net worth falls below 6 
     percent. This change would permit the NCUA to determine if 
     such a policy is appropriate and to oversee all member 
     business loans granted by an undercapitalized institution.
     Section 204. Member business loan exclusion for loans to non-
         profit religious organizations
       To facilitate the ability of credit unions to support the 
     community development activities of non-profit religious 
     institutions, Section 204 would exclude loans or loan 
     participations by credit unions to non-profit religious 
     organizations from the member business loan limits contained 
     in the Federal Credit Union Act.
     Section 205. Credit unions authorized to lease space in 
         buildings in underserved areas
       In order to enhance the ability of federal credit unions to 
     assist underserved communities with their economic 
     revitalization efforts, Section 205 would allow a credit 
     union to lease space in a building or on property on which it 
     maintains a physical presence in an underserved area to other 
     parties on a more permanent basis. It would also permit a 
     federal credit union to acquire, construct, or refurbish a 
     building in an underserved community, then lease out excess 
     space in that building.
     Section 206. Amendments relating to credit union service to 
         underserved areas
       Section 206 would revise a provision of the 1998 Credit 
     Union Membership Access Act that has been incorrectly 
     interpreted as permitting only federal credit unions with 
     multiple common bond charters to expand services to 
     individuals and groups living or working in areas of high 
     unemployment and below median incomes that typically are 
     underserved by other depository institutions. The change 
     would reestablish prior NCUA policy of permitting all federal 
     credit unions, regardless of charter type, to expand services 
     to eligible communities that the Treasury Department 
     determines meet income, unemployment and other distress 
     criteria.
     Section 207. Underserved areas defined
       Section 207 would expand the criteria for determining 
     whether a community or rural area qualifies as an underserved 
     area. The

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     definition of a qualified underserved area includes not only 
     areas currently eligible as ``investment areas'' under the 
     Treasury Department's Community Development Financial 
     Institutions (CDFI) program, but also census tracts 
     qualifying as ``low income areas'' under the New Markets Tax 
     Credit targeting formula adopted by Congress in 2000.


                  Title III: Regulatory Modernization

     Section 301. Investments in securities by federal credit 
         unions
       The Federal Credit Union Act presently limits the 
     investment authority of federal credit unions to loans, 
     government securities, deposits in other financial 
     institutions, and certain other limited investments. Section 
     301 would provide additional investment authority to allow 
     credit unions to purchase for the credit union's own account 
     certain investment grade securities. The total amount of the 
     investment securities of any one obligor or maker could not 
     exceed 10% of the credit union's net worth and total 
     investments could not exceed 10% of total assets.
     Section 302. Authority of NCUA to establish longer maturities 
         for certain credit union loans
       The Federal Credit Union Act was amended in 2006 to allow 
     the NCUA Board to increase the 12-year maturity limit on non-
     real estate secured loans to 15 years. Section 302 would 
     further provide the Board with additional flexibility to 
     issue regulations providing for loan terms exceeding 15 years 
     for specific types of loans.
     Section 303. Increase in 1 percent investment and loan limits 
         in credit union service organizations
       The Federal Credit Union Act authorizes federal credit 
     unions to invest in organizations providing services to 
     credit unions and credit union members. Currently, an 
     individual federal credit union may invest in aggregate no 
     more than one percent of its unimpaired capital and surplus 
     in these organizations, commonly known as credit union 
     service organizations or CUSOs. Credit unions also are 
     limited in the amount they may loan to all CUSOs to one 
     percent of unimpaired capital and surplus. Section 303 would 
     double the amount a credit union may invest in all CUSOs, and 
     the aggregate amount it may lend to CUSOs, to two percent of 
     credit union unimpaired capital and surplus.
     Section 304. Voluntary mergers involving multiple common bond 
         credit unions
       NCUA has identified ambiguous language in the 1998 Credit 
     Union Membership Access Act as creating uncertainty for 
     certain voluntary credit union mergers by requiring that 
     groups of more than 3,000 members be required to start a new 
     credit union rather than be incorporated as a new group 
     within a multiple common-bond credit union. Section 304 would 
     clarify that this numerical limitation would not apply to bar 
     groups of more than 3,000 members that are transferred 
     between two existing credit unions as part of a voluntary 
     merger.
     Section 305. Conversions involving certain credit unions to a 
         community charter
       In cases when a single or multiple common-bond federal 
     credit union converts to a community credit union charter, 
     there may be groups within the credit union's existing 
     membership that are located outside the new community 
     charter's geographic boundaries, but which desire to remain 
     part of the credit union and can be adequately served by the 
     credit union. Section 305 would require NCUA to establish the 
     criteria whereby it may determine that a member group or 
     other portion of a credit union's existing membership, 
     located outside of the community, can be satisfactorily 
     served and remain within the credit union's field of 
     membership.
     Section 306. Credit union governance
       Section 306 would provide federal credit union boards the 
     flexibility to expel a member, based on just cause, who is 
     disruptive to the operations of the credit union, including 
     harassing personnel and creating safety concerns, without the 
     need for a two-thirds vote of the membership present at a 
     special meeting as required by current law. The section would 
     also permit federal credit unions to limit the length of 
     service of their boards of directors to ensure broader 
     representation from the membership.
     Section 307. Providing the National Credit Union 
         Administration with greater flexibility in responding to 
         market conditions
       Currently, the NCUA Board may raise the usury interest rate 
     ceiling on loans by federal credit unions whenever it 
     determines that money market rates have increased over the 
     preceding six-month period and prevailing interest rates 
     threaten the safety and soundness of individual credit 
     unions. Section 307 would give the Board greater flexibility 
     to make such determinations based either on sustained 
     increases in money market interest rates or prevailing market 
     interest rate levels.
     Section 308. Credit union conversion voting requirements
       Section 308 includes several changes to current law 
     pertaining to credit union conversions to mutual thrift 
     institutions. It would increase the minimum member 
     participation requirement in any vote to approve a conversion 
     to 30% of the credit union's membership. It would require the 
     board of directors of a credit union considering conversion 
     to hold a general membership meeting one month prior to 
     sending out any notices about a conversion vote that contain 
     a voting ballot. It would also prohibit use of raffles, 
     contest, or any other promotions to encourage member voting 
     in a conversion vote.
     Section 309. Exemption from pre-merger notification 
         requirement of the Clayton Act
       Section 309 would give all federally insured credit unions 
     the same exemption that banks and thrift institutions already 
     have from pre-merger notification requirements and fees for 
     purposes of antitrust review by the Federal Trade Commission 
     under the Clayton Act.
                                 ______