by: Henry Meier, Associate General Counsel, Credit Union Association of New York
Credit Unions are constrained by 20th century laws and regulations as the 21st century firmly takes hold. Unless we achieve fundamental changes in the laws and regulations that govern the industry, the relative handful of credit unions that will be around to celebrate the 100th Anniversary of Federal Credit Unions will be as quaint sounding and as obsolete as the Baily Savings and Loan.
This is not one of those “the credit union is dead” columns. Well, It kind of is, but it doesn’t have to be. It is actually a cathartic exercise to examine how our current structure has to change if we are going to continue to fulfill our core mission of meeting the credit and savings needs of consumers, especially persons of modest means.
So let’s blow up the following five constraints in the name of progress.
1. Fields of Membership (FOM): FOMs made sense at a time when workers with well-defined responsibilities were gathered together in industrial plants or downtown office buildings and needed to have ready access to a financial institution that would give a loan to a working class employee.
Today, the economy just doesn’t fit neatly into select groups of workers. Today’s assembly line worker is a computer wiz-kid who knows how to program robots and today’s office stretches across the world. This is not as farfetched as it might sound: several states have already increased the charter flexibility of credit unions by allowing them to mix and match community and same based charters.
2. The concept of community. With technology today, credit unions can serve someone who lives, works or worships in Sacramento, California almost as easily as they can someone who lives in Albany, NY. The whole concept of community has to be updated to reflect the fact that technology really does connect us all. We live in a national Amazon.com marketplace where members are going to look across the country for the best deals they can get. I’m not saying that all credit unions need national charters but credit unions do need the flexibility to serve individuals in counties, towns, and municipalities that may not fit into the traditional definition of a single community.
3. Let’s blow up membership capital requirements. If we are going to continue to provide an alternative to traditional for-profit banking, then we must have a model in place to do so cost-effectively. The system is fraying and needs to be updated. We shouldn’t have to turn away interested members because their business will hurt our capital ratios. So long as we design a system in which the secondary capital investor has the same single vote as any other credit union member, secondary capital is a practical means of allowing us to grow and remain true to our mission. If a corporation or not-for-profit organization feels so strongly in what a credit union is trying to achieve that it wants to invest funds to help it achieve its mission then why shouldn’t it be allowed? This right already exists for low income credit unions and those are among the most committed to the industry ethos.
4. Let’s do away with physical branch requirements. NCUA has actually started this trend already by permitting credit unions to serve underserved areas with video terminal ATM’s in lieu of traditional branches. A physical branch location is comforting, but it’s cost prohibitive and keeps all financial institutions, not just credit unions, from providing services to their members.
In fact there are many areas where laws have to be updated to reflect technical capabilities. For example, in the age of the internet a “virtual” annual membership meeting, as opposed to one that has to be held at a specific address would create more interest in a given credit union than would a requirement that an in person meeting be held at a physical location.
5. Let’s blow up the existing legal concept of preemption and start from scratch. This might not seem like a big deal, but do you really want to operate in a system where a single regulator has monopoly control over your credit union’s practices? Arguably, this is what we have with the Consumer Financial Protection Bureau (CFPB) and the result is a bureaucracy that pays virtually no attention to the needs of the businesses it regulates.
If the NCUA is allowed to continue to preempt state regulatory oversight of state charters in the name of protecting the Share Insurance Fund, then there will simply be no benefit to belonging to a State Charter. What we need is a more stringent application of preemption so that NCUA can only take on the responsibilities of state regulators upon a showing that the power they are seeking to exercise (1) has a direct and substantial impact on the SIF; and (2) is in the wake of significant evidence that state regulators cannot and have not adequately performed the task for which NCUA seeks to take responsibility.
Henry Meier, Associate General Counsel, Credit Union Association of New York
As associate general counsel for the Credit Union Association of New York, Henry is actively involved in all legislative, regulatory and legal issues impacting New York credit unions. Whether he’s joining in the Association’s advocacy efforts, lending his legal expertise to the Association and its affiliate companies or arguing before the New York State Appellate Division, his voice is unique and influential. Before joining the Association in 2006, Henry served as a counsel to the New York State Assembly Republican Conference for seven years. Henry is a graduate of American University in Washington, D.C., and Hofstra University’s School of Law in New York. New York’s State of Mind Blog www.cuany.org