WASHINGTON—Call it the signature that changed credit unions.
June 26 marks the 80th anniversary of President Franklin Delano Roosevelt signing the Federal Credit Union Act, a pen stroke that sparked credit union growth in the U.S. in the decades that would follow, weaving CUs into the fabric of this country's financial services system.
Today, interpretation and enforcement of the FCU Act is overseen by the National Credit Union Administration, which began as the Bureau of Federal Credit Unions, which was part of the Farm Credit Administration.
NCUA Chairman Debbie Matz spoke with Credit Union Journal about the upcoming anniversary, what the Act has meant to credit unions, and offered her thoughts on how CUs have evolved in relation to the original purpose of the FCU Act-and on what's ahead.
Credit Union Journal: Talk about what led to the need for the Federal Credit Union Act.
Debbie Matz: The country was shaken by the Great Depression; there was staggering unemployment of about 25%, runs on banks, lack of federal deposit insurance These were very desperate times.
There was a desperate need for affordable credit to support American workers and farmers. So the Federal Credit Union Act was introduced to foster credit union growth and provide credit to these groups not being served by banks.
CUJ: Any interesting facts related to the passing of the Act?
Matz: While it is hard to imagine this happening today, the Federal Credit Union Act was passed in the House and Senate, by unanimous consent, in the span of one hour.
CUJ: The Federal Credit Union Act does call for service to "people of modest means." Do you have any concerns that credit unions have moved away from service to such people and such communities?
Matz: Credit unions are still unique in their service to people of modest means-maybe even more so now, because they are not restricted to employer groups or associational common bonds.
Community charters let credit unions reach people of all income levels and so many credit unions have taken in underserved areas. More than 2,000 credit unions have a low-income designation and serve over 20 million members.
CUJ: The most significant addition to the FCU Act in its 80-year history was the Credit Union Membership Access Act-the 1998 change to the definition of who credit unions can serve, in this case multiple groups and communities. Where are credit unions now if that change isn't made?
Matz: There would be far fewer credit unions and certainly far fewer federal CUs because many would have been encouraged to seek state charters or to convert to a bank.
CUJ: When it comes to the history of credit unions, the position of NCUA chairman is one that plays a significant role in determining how that history plays out. How seriously do you take that role?
Matz: My role is to protect the safety and soundness of the credit union system, and I take that role very seriously. Having said that, I am aware of the fact we want to protect the system in a way that does not inhibit credit unions from doing business or is overly burdensome.
CUJ: Do you think the chairman's role has gotten tougher in the last four years?
Matz: Yes, it's been very tough, especially when coming in as I did at the peak of the economic downturn, and we faced the corporate crisis . . .
But having gotten through that, looking forward it's still very tough to be a regulator because the institutions are so much more complex today, are using tools so sophisticated and consumers have such high expectations. They want more products, better products and faster, 24/7, access.
It is more difficult to regulate in that environment. We also face cyber security threats, which are daunting, ever present and changing. I think this role will continue to be difficult and challenging in the years ahead.
CUJ: Within NCUA, who is most responsible for interpreting the FCU Act's language, and how much wiggle room, if any, is there?
Matz: Interpreting the Federal Credit Union Act's language is left up to our office of general counsel, which is responsible for all legal interpretations. The wiggle room varies with the section (of the Federal Credit Union Act).
Some sections are more prescriptive than others. For instance, lending issues. There probably is some wiggle room there.
CUJ: The tax exemption is probably the most critical piece of the FCU Act? Is it in danger? Will it ever be?
Matz: As long as there continues to be banks and credit unions there will always be discussion about whether the tax exemption should remain intact.
This is not (a discussion) I like to get involved in. But as a regulator I feel that without the tax exemption the future of the credit union system could not be guaranteed. The tax exemption is part of the fabric of what makes credit unions unique and allows them to do business the way they do.
If a member of Congress asks me about the tax exemption, I usually answer by saying I don't have a position on it per se. But if they are interested in keeping [financial services] competition in a certain marketplace they need to keep the tax exemption because otherwise they won't have credit unions in that marketplace.
CUJ: Is there a risk that the original purpose of the FCU Act will be forgotten? What can be done to ensure it is not?
Matz: When [President Roosevelt] signed the Federal Credit Union Act, he probably did not envision the credit union movement someday serving about 100 million people with over a trillion dollars in assets. I think he would be astounded and very pleased about where the movement is today.
But I think as long as credit unions continue to reach out to provide affordable services to everyone in their field of membership they will continue to fulfill the original purpose of the Federal Credit Union Act-and I have no reason to think that will ever change.
CUJ: Many people believe that 10 years from now many small CUs will be gone-the small model market may vanish. What is NCUA's vision for small credit unions and what is being done to preserve this segment of the movement?
Matz: Small credit unions have been merging-we lose about 250 to 300 a year and often because the manager retires and a replacement can't be found, or because the credit union is not providing the services that members want in this day and age.
We have our Office of Small Credit Union Initiatives that works hard to assist small credit unions that have a solid business plan.
Just because a credit union is small does not mean the credit union will continue into the future or that it really should. Credit unions are there to serve members, and if they are not properly serving their members, the members could be better served by a different, or certainly larger credit union.
Many small credit unions, particularly those located in low-income neighborhoods with no other insured financial institutions serve extremely important purposes-and we try to work with those credit unions.
And I say particularly because NCUA has limited resources and we have to prioritize how we allocate them. Therefore we work with small credit unions that have the best business plans and are more likely to use our assistance in a way that will allow them to survive into the future.
I don't think the goal should be to maintain small credit unions just because they are small credit unions.
CUJ: Looking back over the last six years, some of the toughest in this country's economic history, how do you think credit unions will characterize this time?
Matz: They will see it as a period of survival, in that they got through the economic downturn-that was a big achievement. They will also see it as a period of significant growth-members, assets, loans, they are all growing.
It's also been a period of innovation. I can't imagine a ten-year period of greater innovation in the financial services industry.
Ten years ago who would have thought you could make deposits over a phone.
CUJ: What is NCUA doing to mark the Act's anniversary?
Matz: The [first of three summer] Listening Sessions, to be held in Los Angeles, is on the day of the 80th anniversary of the signing of the Federal Credit Union Act, and that is not unintentional.
We thought it appropriate to have a Listening Session on that day, where the regulator and credit union officials can talk about current issues.
We will put out a press release on the 26th acknowledging the signing of the Federal Credit Union Act, reminding people it's the 80th anniversary.
Our website will have a video and a timeline on the history of credit unions, which includes the signing of the Federal Credit Union Act.
On MyCreditUnion.gov there will be an 80th anniversary commemorative page featuring some great historical images and a downloadable commemorative brochure.
We will also do a week-long social media campaign on our consumer Twitter feed on MyCreditUnion.gov using hashtag "FCU80." Throughout the week we will share historical facts about the Federal Credit Union Act and credit union system.