After Iowa fracas, bankers try again in Nebraska
Nebraska credit unions are holding their breath and hoping for the best following a hearing this week on a controversial banking bill.
The state’s Banking, Commerce and Insurance Committee this week considered a bill that would require Nebraska regulators to notify banks every time a credit union applies to expand its field of membership and allow them the chance to contest the issue. Expansion efforts are already public, but the bill would make it easier for banks to find out and fight back when credit unions attempt to expand. The Nebraska Credit Union League and member credit unions provided testimony opposing the measure.
“We are cautiously optimistic this bill will remain in committee,” said Scott Sullivan, president and CEO of the Nebraska Credit Union League, noting that if the legislation doesn’t have the votes to make it out of committee it stands little chance of becoming law. The bill was widely criticized by the credit union industry prior to the hearing.
Regardless of what happens, the bill’s mere existence could be alarming to many in the movement. This effort comes just one year after efforts by bankers in Iowa to tax credit unions. While the Iowa credit union tax was stopped short of passage, two CUs there were forced to change their names following a move by a member of the state board of regents who had ties to an Iowa bank.
The moves in Nebraska and Iowa come as credit unions nationally await a federal judge’s ruling in an appeal to a suit that struck down two of the four provisions in the National Credit Union Administration’s revised field of membership rule. Oral arguments in that case are expected on April 16.
“The league got on top of [this issue] early and they have been very smart in defending state charters,” asserted John McKechnie, a credit union consultant and former staffer at NCUA and the Credit Union National Association. “But there is a concern that banks will be aggressive in state legislatures across the country this year. This should be a wake-up call for every league to be extra vigilant.”
Geoff Bacino, a former NCUA board member and a partner in the Alexandria, Va.-based consultancy Bacino & Associates, suggested – with tongue firmly planted in cheek – a companion bill that would require banks to notify credit unions every time they overcharge someone for a fee.
“My first feeling is, this bill is just another example of the banks trying to stick their nose under the tent and seeing what is going on,” Bacino said. “I would like to see who proposed the law, because in Iowa it was people who had close ties to banks. If there is, it will only further exacerbate the situation. In Iowa, once it was determined the people proposing these bills had ties to the banks, it shined a whole different light.”
Credit unions need to “stay on top” of any such efforts to impose restrictions on their dealings, Bacino added. “Don’t let stuff like this start rolling downhill. Once it starts, it is like a virus.”
The Credit Union National Association was heavily involved in the Iowa fight but has not yet publicly weighed in on the Nebraska issue. One key difference, however, was that the Iowa matter progressed further than just the committee level. CUNA President and CEO Jim Nussle is an Iowa native and represented the state in Congress, but representatives from the trade group previously said its stance would be the same if the issue arose in other states.
State regulators impacted too
Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors, pointed out the bill, if passed, would affect not just credit unions but also state regulators.
“For credit unions it would mean a huge increase in their regulatory burden, which is at odds with what banks and credit unions are trying to accomplish in reducing their regulatory burden,” Ito began.
From the perspective of state regulators, Ito said the issue of FOM expansion does not constitute a safety and soundness question, “So why would the state regulator have to notify banks?” she asked.
“Would the state banking regulator have to notify all credit unions if they want to open another branch?” Ito countered, adding “State agencies have very restrictive budgets, so this would take away from their needed focus on safety and soundness.”
Mark Quandahl, director of the Nebraska Department of Banking and Finance, told Credit Union Journal he offered “neutral” testimony at Tuesday’s hearing regarding the type of impact the bill would have, if it were to be passed into law.
“We already publish notices [of FOM expansion requests] in newspapers. The bill would include us sending a certified letter any time a credit union applies to expand its field of membership, so there would be the preparation and mailing of the additional notice,” Quandahl said. “Nebraska only has 12 state-chartered credit unions, so there has not been a flurry of requests to expand their fields of membership.”
Banks using legislatures against CUs?
Asked if she sees the bankers’ moves in Iowa and Nebraska to be part of a trend of banks using state legislatures to attack credit unions, Ito replied, “I have heard rumors that is the case. I do not know it directly, but I have heard state bank associations are going to use that tactic.”
Credit unions, along with state regulators, “Need to make sure the state charter has parity with the federal charter,” Ito said. “There is a question of choice for consumers. In Nebraska or any other state, if you want to maximize the choices consumers have, this bill would seem to go against that. It seems to be anti-consumer. If a credit union wants to increase its field of membership, that is increasing choice.”
According to Nebraska’s Department of Banking and Finance, 48 CUs in the state hold a federal charter versus just 12 with a state charter. Ito said one possible reason for this disparity is Nebraska state-chartered credit unions pay the Financial Institutions Tax and must file a tax return. The rate is $0.47 per $1,000 of average deposits and is applicable to all financial institutions, except federally chartered credit unions.
Given the existing incentive to switch to a federal charter, Ito said the FOM notice bill creates a third public policy issue: “If this makes more state-chartered credit unions in Nebraska convert to a federal charter, that is not good for the state,” she said.
For now, things are still up in the air.
“We will not know for sure until the committee takes action, which [could be before the end of this week], but the way the hearing went we feel pretty good that this is not going to move,” league CEO Sullivan assessed. “We do not know for sure, but we feel pretty good about it.”