March 1, 2006

Dear Congressman:

We, the undersigned banking trade associations, are writing to express our united opposition to H.R. 2317, the Credit Union Regulatory Improvements Act of 2005. Disguised as a regulatory relief bill, H.R. 2317 dramatically increases the powers of credit unions and raises serious safety and soundness concerns. Specifically, this legislation would allow tax-exempt credit unions to expand into full-blown commercial lenders while lowering their minimum capital standards.

This bill would increase credit unions’ business lending authority from the current cap of 12.25 percent to 20 percent of total assets and exclude all business loans of less than $100,000 from the cap, up from the current $50,000 level. The current limits on business lending were specifically put in place by Congress in 1998 to limit excessive risk-taking by tax-exempt credit unions and to help maintain their focus on serving “people of small means” instead of making loans to luxury hotels, as some credit unions are doing.

As the November 2005 House Ways and Means hearing illuminated, large credit unions are failing in their mission to serve the poor. Why would Congress want to grant credit unions even more authority to make business loans, when they are not fulfilling the very mission for which they were established — serving the underserved?

Further, in 1998 Congress imposed capital requirements on credit unions that are comparable to bank standards, but also reflect the unique nature of credit unions. Credit unions, as member-owned cooperatives, can and should only build capital through retained earnings. During periods of economic stress, credit unions may encounter difficulties in building capital at the very moment they need to raise it. This is why credit unions should be subject to higher capital requirements than banks. To weaken these requirements would be to forget the lessons of the 1980s about the importance of a strong capital base for depository institutions.

In conclusion, H.R 2317 would exacerbate the inequities fueling the aggressive expansion of complex credit unions, while putting both smaller credit unions and tax-paying financial institutions at a greater competitive disadvantage. We strongly urge you to oppose H.R. 2317.


Sincerely,


American Bankers Association
America’s Community Bankers
Independent Community Bankers of America