Page 1       TOP OF DOC


U.S. House of Representatives,
Subcommittee on Financial Institutions and Consumer Credit,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to notice, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.

    Present: Chairwoman Roukema; Representatives McCollum, Bereuter, Castle, Kelly, Cook, Riley, Hill, LaTourette, Vento, Sherman, Meeks, Gutierrez, Mascara, Inslee, Moore, and Gonzalez.

    Also present: Representatives LaFalce and Kanjorski.

    Chairwoman ROUKEMA. If the hearing will come to order, please.

    I don't know what is delaying the House going into session. I delayed the hearing for a few minutes, waiting to see if we would have to recess if there were the unlikely event of a journal vote or something on the floor. They seem to be late getting started. The light is still on.
 Page 2       PREV PAGE       TOP OF DOC

    In any case, we will get down to our business, and I appreciate the fact that Members are here and that our panelists are ready to begin. It is rather important to get started, because we have some time constraints today. We have three panels and eleven witnesses which, in terms of the topics to be discussed, is certainly not too much. But we hope that we are going to have adequate time to go over all of the relevant testimony and questioning. I must alert everyone that we do have some time constraints. In the first place, we would like to conclude close to noontime, but in any event, there is a full committee markup hearing scheduled for early this afternoon, so we must finish in time for that. I am not going to tell you that 2:00 o'clock is the limit at the outset, because I would like to think that between 12:00 and 1:00 is the target for ending the hearing. In any case, we do want to do a thorough job, and we appreciate those of you who are here today ready to give your testimony on this very important subject.

    I certainly see Mr. LaFalce, our Ranking Member of the full committee, is here. We do appreciate his being here. And, as a Ranking Member, he is ex-officio Member of all subcommittees. But the other person that I was looking for is Mr. Kanjorski. I had been informed that Mr. Kanjorski would be here today. Perhaps he has been delayed. He is a Member of the full committee, although not a Member of the subcommittee. He was deeply involved in the credit union legislation of last year. And, so, if Mr. Kanjorski does arrive, of course, he will be recognized.

    I am also informed then, and will take only a few minutes for this, but I am informed that we have two new Democratic Members of the subcommittee, and Mr. Vento, our Ranking Member, would like to introduce them.

    Mr. VENTO. Thank you, Madam Chairwoman.
 Page 3       PREV PAGE       TOP OF DOC

    There are a lot of new faces up here, but they represent a lot of experience and expertise from the last session. Brad Sherman and Greg Meeks are here, who are vitally interested in this topic. But, more important, the new Members that are new on this subcommittee, Frank Mascara from Pennsylvania who is sitting right in front of me. Frank has been in Congress for awhile, and we are very pleased to have his help and participation on this subcommittee and on the full committee.

    And Jay Inslee, who we refer to as—well, I won't refer to it, but he is an experienced Member, and we are pleased to see that he won election and re-election, in essence, in Washington State. He is going to be a significant contributor.

    And finally, Dennis Moore from the great State of Kansas. Dennis, we welcome you to the subcommittee and look forward to your participation.

    And, Madam Chairwoman, we are going to have a good subcommittee this year, and a lot of topics, and we are getting started on a very important one.

    Thank you.

    Chairwoman ROUKEMA. I thank Mr. Vento.

    I think it is quite in order, in the introductory remarks, to go into some of the background as to what has led up to this important oversight hearing today. Our hearing is certainly a consequence or a follow-through on the Credit Union Membership Access Act of 1998, which was signed into law in August of last year.
 Page 4       PREV PAGE       TOP OF DOC

    CUMAA, as the act is known, was enacted in response to the Supreme Court decision in February of 1998. That decision invalidated the NCUA's 1982 policy with reference to Federal credit unions serving multiple groups which do not have the same common bond. That decision, potentially, would have affected 3,500 Federal credit unions. The effect of the decision could have resulted in 20 million Americans being thrown out of the financial institutions of their choice. The credit union industry came to Congress for help in solving an impending crisis.

    I am certainly proud of the fact—so often we are accused of not being able to get our act together, so to speak, but I am proud of the fact that Congress did respond quickly and decisively at that time. Less than six months after the Supreme Court decision, the CUMAA was signed into law. I felt we had adequately addressed the multiple, common-bond issue head-on by specifically authorizing the formation of multiple common-bond credit unions. And we specifically grandfathered the 20 million Americans who were at risk.

    We also set up the statutory framework—I am just going into a general background on this—a statutory framework to permit credit unions to grow through the additions of new groups. The ability to grow is limited however, both numerically and geographically. I won't go into all the details of that, but I think that it was a proud time in terms of the last Congress and certainly this subcommittee's action.

    Before we get into a discussion and the focus of the hearing, which is the chartering and field of membership rule, I think that we might point out that there are some continuing controversial issues. That is why we are here today.

 Page 5       PREV PAGE       TOP OF DOC
    I should point out that I first worked for and supported the compromise that became CUMAA because I thought that it was a fair compromise. I guess that fairness is always in the eyes of the beholder. Neither the credit union industry nor the banking industry got everything that they wanted, but I believe that we arrived at a fair compromise.

    Now, of course, we are facing the second problem, and that is litigation. I am certainly disappointed by this turn of events. One of the major goals in enacting CUMAA was to be clear enough so that major litigation could be avoided. But we have major litigation today, as I warned in my letter of December 9 to the NCUA. I felt and alerted NCUA to the feelings of many in the Congress that they were risking litigation if the chartering and field of membership rule was not changed to more accurately reflect what, in my opinion, was congressional intent.

    No changes were made, unfortunately. The advice was not heeded, and the inevitable lawsuit was filed in January. I truly believe that the NCUA has exceeded congressional intent in several respects. While I am not speaking for Mr. LaFalce, I believe that there are others in agreement with me on that.

    So, this is the reason for our hearing today. And, hopefully, we should have credit unions that are permitted to grow, but consistent with the intent of Congress.

    As the subcommittee knows, the National Credit Union Administration has been quite busy promulgating rules. Rules relating to: one, member business loans; two, credit union charter conversions; three, prompt corrective action, and, four, the chartering and field of membership manual. It is the last one, the chartering and field of membership rule, which was approved by the NCUA in mid-December. That is the issue that is of most concern to us today.
 Page 6       PREV PAGE       TOP OF DOC

    I won't go into the details of the chartering and field of membership rule now. I think that I will leave that up to the panelists to explain their points of view. It has become, as has been stated, a reason for litigation.

    Again, I would simply observe that there are large questions raised about whether Congress favored the formation of new credit unions, regardless of size, whenever consistent with safety and soundness. I think that the safety and soundness question is an issue that we're going to focus on, among others. I think that there are large questions about that.

    Also, the question about the 3,000 member limit and forming new credit unions. The NCUA took the statutory figure and made it a floor for forming new credit unions. There are many who believe that was a wrong interpretation and that it is not a floor, but a ceiling.

    We need to discuss, also, the credit union growth base on safety and soundness arguments that we heard when CUMAA was being crafted. And, again, I think that that is the focus of what we are doing here. Growth was supposed to help small credit unions. As most of us know, over 5,100 credit unions, or 45 percent of the industry today, has less than $5 million in assets. And the NCUA and credit union industry argued persuasively, in my opinion, that small credit unions need to be able to grow. Of course, the small credit unions are amply represented—I hope amply represented—here today on the panels. But they need to diversify their membership by adding new member groups, so they won't be subject to failure due to the group disbanding or an employer closing. Congress accepted, in my opinion, the safety and soundness argument. The NCUA final rule unfortunately favors the addition of groups to large, not small, credit unions.
 Page 7       PREV PAGE       TOP OF DOC

    In CUMAA, we created a local preference for the placement of groups seeking the credit union services. This is what is commonly referred to as the reasonable-proximity test. The test is supposed to favor the placement of groups which can't form their own credit unions with a credit union within a reasonable, geographic proximity after taking into account the impact on the other local credit unions.

    It was not intended to promote the expansion, in my opinion, of large, multiple, common-bond credit unions at the expense of their smaller credit union brethren. That is why the NCUA is specifically directed to consider the harm to other local credit unions when considering such applications. But then, it would seem to me, that that is a provision that has been, from a legal point of view, stretched by the NCUA rule. That will be a focus of much of our attention today. Where did the safety and soundness concerns for small credit unions go?

    It is hard to see how the NCUA final rule promotes the safety and soundness of smaller credit unions; adding new groups to smaller credit unions is central to their survival, or so we were told. But, as we will hear later, many large credit unions have staff assigned to do marketing and group outreach. I don't want to go into that now in my introduction, but I think that there are a lot of facts that have to be drawn out, and I hope that those on the panel will address most specifically that argument. It is a great question that arises between the large and small credit unions and the statutory requirements, in everyone's mind. I see people nodding their heads in agreement.

    I won't go into any further discussion of that. We are really looking forward to, hopefully, in the questioning follow-up to having a genuine focus on the distinctions we see between the statutory requirements, the safety and soundness issues, and whether or not we have—not trying to solve the litigation problem, but, nevertheless, looking at our oversight responsibility here to see whether or not the legislative intent is being complied with.
 Page 8       PREV PAGE       TOP OF DOC

    And with that, I will turn it over to my good colleague and Ranking Member of this subcommittee, Mr. Vento.

    Mr. VENTO. Thank you, Madam Chairwoman.

    I appreciate the opportunity to explore some of the facets of the regulations that the NCUA has been writing and implementing. It is one of the more important pieces of legislation that we passed in the last Congress. Seldom have I noticed such intensity associated with the rules process as is evidenced in this instance.

    The Credit Union Membership Access Act truly represents the financial services modernization act for the credit union industry. It was divisive, to some degree, when we wrote it, but in the end we all came together for the good of millions of credit union members and potential members across the country. And substantial new authority was bestowed upon the NCUA to implement these far-reaching changes.

    Last Congress, we were responding to a Supreme Court decision interpreting a 1930's law. The essence of those decisions, of course, hinged on the very topics that are on the table today in terms of the merger and the continued membership criteria which provided for the field of membership and association with credit unions. And while one of my hopes was that the passage of the membership access act would help immunize the NCUA and other credit unions from further lawsuits, it is clear to date that we were not totally successful in that goal. It may be that was inevitable, given the amount of authority and the discretion of the NCUA was to newly exercise along with the inherent, competitive conflicts that these issues present, that the rules would be legally challenged.
 Page 9       PREV PAGE       TOP OF DOC

    Now, I have given these regulations some study and certainly know that this hearing today will give me and others the opportunity to delve further into the issues surrounding them. It is apparent, however, that the controversy depends a great deal on one's perspective. It is like a Rorschach illustration. Is this a beautiful lady, or is it the opposite? One eye sees one thing, and the other sees something else, depending upon your point of view. Yet, it is the same drawing, the same regulations, but different perspectives.

    Well, I guess, when all else fails, as the adage states, ''Read the law. Read the law, and read the purpose.'' The reason that we were visiting this law was, in fact, to expand and to modernize the rules dealing with the old membership. I think that it was our intent upon modernization that we would avoid the pitfalls of the 1930 act.

    Further, we intended to push the regulator. We empowered the NCUA to take a more aggressive role in addressing the lack of clarity regarding many of the rules being contested today. Members didn't want to immediately throw this back into the courts. We expected the NCUA to rule and to regulate prudently. I have some concern, Madam Chairwoman, that we have imposed upon a regulator a task that has been proven to be very divisive. But we also accorded the NCUA great discretion to move these key issues forward to workable conclusions. Surely, some of the definitions were not easily within our grasp, and perhaps not best established or set forth in statutory language. There is a certain amount of deference that we ourselves, not just the courts, have given to this regulator, the NCUA.

    I do have concerns for the impact of small credit unions, but as one of the questions we raised pointed out, since 1982 there have been just a little over 100 small credit unions, with less than 3,000 members, that have been formed. The issue of merger and expansion of groups is not something that has come about or is necessarily facilitated only by the change in law that we wrote; this has been a phenomenon that has been going on for the last 30 or 40 years with regards to credit unions, the nature of our economy, our mixed economy, and the occupations in the world at work. It is not entirely clear that they will become, that is, the small credit unions will become an anachronism. This is not, certainly, our intent, but possibly the effect of a long growth from unstaffed service centers with broader geographic basis. The setup could see an exponential growth of aggressive, larger credit unions with a multitude of services at the expense of the more traditional, more tightly focused community credit unions. That is a possibility that could occur. Of course, it does give rise to the idea of what is happening in the other financial services. They are a part of that phenomenon, not apart from it.
 Page 10       PREV PAGE       TOP OF DOC

    On the other hand, I am not sure that it is the domain of the regulator, after all, to alter that point of avocation, to reject the addition of a select employer group per se, because it is not the right type of credit unions. This kind of business undoubtedly takes time to think about and to apply for the NCUA. What expertise, indeed, what kind of regulatory fit would be accepting if the NCUA was predetermining which credit unions could add what SEG.

    My view might be more aligned with having training and technical assistance available to or through the trade groups for smaller credit unions to build their services' attractiveness, so that they can compete with larger, regional credit unions. That may or may not be looking to go interstate or in a leap-frog matter.

    In any case, Madam Chairwoman, it is important to exercise oversight on these regulations that are so critical to so many Americans, and I look forward to the hearing and to the testimony of those contributing today.

    Thank you.

    Chairwoman ROUKEMA. Thank you.

    For those who arrived late, I did indicate that we are under some time constraints. However, I will now see if any of our Members have additional opening statements.

    On this side?

 Page 11       PREV PAGE       TOP OF DOC
    Mrs. KELLY. Yes.

    Chairwoman ROUKEMA. Mrs. Kelly, thank you.

    Mrs. KELLY. I request unanimous consent to have my statement entered into the record.

    Chairwoman ROUKEMA. It is so approved.

    Yes, Mr. LaFalce.

    Mr. LAFALCE. Thank you very much, Madam Chairwoman.

    As ex-officio Member of subcommittees, I seldom attend and participate. I sometimes attend but without participation. But I feel compelled to both attend and participate to the extent that I am able to this morning in this extremely important oversight hearing.

    I do so because I have such serious concerns with a number of important policy changes that the NCUA board has included in its final rule implementing the field of membership sections of H.R. 1151, the Credit Union Membership Access Act.

    As the Chair is aware, I did submit detailed comments to NCUA in November to express these concerns and to explain some of the considerations that led to the field of membership provisions in the legislation. Without objection, Madam Chairwoman, I would like to ask that a copy of my comment letter to NCUA be included as a part of today's hearing record.
 Page 12       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. It is so moved.

    Mr. LAFALCE. Let me emphasize to all that H.R. 1151 was a substantive and political compromise. The leadership of the committee sought to craft a bipartisan bill that would resolve not only the field of membership issues addressed by the Supreme Court, but a variety of other issues raised by other financial institutions, small credit unions, Federal and State regulators, and so forth. We sought to achieve a balance that, in the end, permitted the legislation to move swiftly through Congress and on to the White House in a matter of months. And I will always remember the day in the oval office when the President signed that legislation and a number at the table and in the audience sitting here were present. We all worked together in good faith to accomplish that.

    I personally feel betrayed. I personally feel that there has not been good faith, but bad faith on the part of some since then. I may be wrong, but that is the feeling that I have.

    Let me remind the subcommittee that H.R. 1151, in its original form, with all those cosponsors, was one page. It was a 1-page bill. It would have been total carte blanche for the National Credit Union Administration to do virtually anything and everything that it wanted to do. Let me remind everyone that the bill that our committee reported was 37 pages—36 of which were basically limitations on what could be done. The field of membership sections alone amounted to about 15 pages of bill text, again, basically opposing limitations, so that the NCUA could not be in the future what the courts below had said it was, a rogue regulator, which was affirmed, not those words, but the decision, by the Supreme Court of the United States. The rationale of the decision came pretty close to saying that.
 Page 13       PREV PAGE       TOP OF DOC

    Clearly, it was an extremely different bill that we passed into law than was originally introduced. Basically, what we retained from the original bill was the title as a political concession to the overwhelming number of Members who cosponsored it. They promoted H.R. 1151? Well, let's change it almost totally, but keep the number. And that is exactly what happened.

    The final version of H.R. 1151 did achieve what the original 1-page bill had proposed, but it did so, again, with important limitations on this authority. It is those limitations that I think have been largely ignored, nullified, or defied.

    H.R. 1151 requires NCUA, as a statement of congressional policy, to give priority to the formation of separately chartered, common-bond credit unions wherever possible. That is crystal clear. It also requires that NCUA impose size and geographic limitations on the groups that are eligible to be incorporated within a credit union's field of membership. In addition, it limits the boundaries of future community charters to well-defined local neighborhoods and communities.

    These are important limitations that seek to reinforce, and this is what I always had in mind as I was seeking this limitation. I wanted to reinforce the traditional credit union values of common bond and community and to preserve the basic rationale for the continued existence of credit unions into the future. I remember, after the legislation had passed and I was asked to speak at a trade association meeting, and I said, ''Oh, I hope that the regulators are faithful to the traditional concept of credit unions, because that is going to be so necessary to preserve credit unions, as we know them, in the future.''
 Page 14       PREV PAGE       TOP OF DOC

    And so, the limitations may be imperfect. They may be inconvenient for some credit unions, but they were, and are, essential to the compromising act, yet they have been ignored or vacated in your rule—not by unanimous vote, but by a 2–to–1 vote.

    I am very, very concerned. I am more concerned about this than any other regulation that has been promulgated by any financial regulator in my entire service in Congress. I just want to put it in perspective. I am in my 25th year. I have never seen anything like this before.

    I am deeply troubled that the majority of the board voted to finalize these regulations without significant revision. They did so over the strong objections of the chairman of the board and many small credit unions. I am also troubled that the board would finalize these regulations without any effort to address the concerns which Chairwoman Roukema and I outlined in detailed comments and supported with legislative history and statements. And no effort was made—as a matter of fact, the policy changes that were made to the initial rule were even worse after being fully aware of the objections and the concerns. In many areas, the changes took the rule even further in the opposite direction from what the overwhelming, predominant majority of Congress intended.

    Some of these have no direct statutory basis in H.R. 1151, and they were never published as a proposed rule, yet they are being implemented in the final regulation. Never even been a part of the proposed rule.

    Some of these last-minute additions are among the most unreasonable in the entire final regulation. They include, for example, mobile branches. Not only does the rule undermine the H.R. 1151 provision that limits the ability of a credit union to incorporate only to those groups that are located in reasonable proximity—I inserted those words, ''reasonable proximity.'' I said, ''They've got to be in.'' And, boy, you distorted what I clearly expressed, and I inserted those words.
 Page 15       PREV PAGE       TOP OF DOC

    Not only does the rule undermine the H.R. 1151 provision that limits the ability of a credit union to incorporate only those groups that are located within reasonable proximity to the operational base of the credit union, it makes a mockery of this requirement by including mobile branches as a qualifying definition of the base from which credit unions can recruit new membership groups. This means that many credit unions with minimal resources to invest in a van or a trailer can draw new member groups from virtually anywhere.

    Automatic approval—oh, let me not go into that.

    Membership to family of non-members—I could go on and on. I will ask that the entirety of my statement be included in the record.

    Let me simply summarize by saying the goal of H.R. 1151 was to encourage growth in credit union membership in ways that preserve the unity and spirit of the credit union movement. There was no intent to promote the growth of large credit unions at the expense of smaller credit unions, nor any intent or desire to facilitate the growth of large, regional, bank-like institutions that would not be subject to comparable regulations as banks. Our intent was clearly opposite.

    If this regulation is implemented, I personally believe that it could sound the death knell for the credit union industry as we have known it in the past. I also suspect that it may divide the credit union movement by size and location. It may divide the trade associations by size and location. It may have to create new credit unions, abandoning the old, because the large are so predominant. It may well remove the basic rationale for the separate existence and tax exemption of credit unions.
 Page 16       PREV PAGE       TOP OF DOC

    I, for one, hope that this does not occur, and I hope that NCUA will reconsider what they have done, because I really think that what they have done is what they wanted to do, as if the 1-page bill had passed, not what they were really, in my judgment, bound to do because of the 37-page law.

    I thank the Chair.

    Chairwoman ROUKEMA. Thank you.

    With all due respect to our Ranking Member on the full committee, I will repeat my statement that I made at the beginning, and I think that I will have to alert people that I am going to exercise the use of this gavel because we are time-limited, and again, we are limiting both panelists as well as subcommittee Members to five minutes.

    Mr. LaTourette, I believe.

    Mr. SHERMAN. Madam Chairwoman.

    Chairwoman ROUKEMA. Pardon me?

    Mr. SHERMAN. I wonder if I could make an opening statement?

    Chairwoman ROUKEMA. Well, we are shifting to Mr. LaTourette on the Republican side now. Yes.
 Page 17       PREV PAGE       TOP OF DOC

    Mr. SHERMAN. Oh, OK, I didn't realize that Mr. LaTourette——

    Chairwoman ROUKEMA. Yes.

    If you will limit your remarks in consideration of the time restrictions, Mr. LaTourette.

    Mr. LATOURETTE. Thank you, Madam Chairwoman, and I will attempt to be breezy and under five minutes. And I thank you for conducting this hearing. It is the first hearing of this subcommittee, and it is an honor to serve on your subcommittee, not only with you, but also with Ranking Member Vento.

    I would say what a difference a year makes, however, in that there were times last year when people didn't want to touch the credit union issue, as if it were a hot potato, and I would echo the remarks that not only you made, Madam Chairwoman, but also Mr. LaFalce and Mr. Vento, about the bipartisan coming together that occurred in this Congress, and I hope that that can continue on this issue. And I am pleased that this is the first issue that we are taking up in this Congress.

    I think that it is important to have this discussion today, and I appreciate the opportunity to comment on the application of the rules, the regulations that were promulgated, and then the role of Congress, as it has oversight in the rulemaking process.

 Page 18       PREV PAGE       TOP OF DOC
    Many believe that the Congress did its job when it passed H.R. 1151, and with all deference to Mr. LaFalce, I kind of liked that 1-page bill. But your bill was better by the time we were finished. Simplicity is best sometimes. And then, people believe that the President did his job when he signed the bill into law and that it was for the regulators to do their job in promulgating regulations. And I agree with that.

    I think that it is also well within the expectations that Congress will undoubtedly express concerns as the legislation becomes regulation, and it is the responsibility of the regulators and industry folks alike to listen to those concerns.

    And, as an aside, I will say and express some disappointment—I know full well that Chairwoman Roukema, and also Mr. LaFalce, the Ranking Member of the full committee, and others, expressed to the regulator what they believed congressional intent was as the regulations were being considered. And, although there may be differences on this subcommittee and the full committee as to whether or not that mission has been completed, I would have liked to have seen greater deference given to the remarks and comments by such distinguished Members of the United States Congress. And I think that some of the comments that we have heard here today may not have been necessary to make if greater deference, or at least the feeling of greater deference, had been given to the observations that they were making not only in good faith, but based upon their wisdom and experience.

    Having said that, I do think that it is important to briefly touch upon what I believe was the intent of the Congress at the time of the adoption. One doesn't have to look past the title of the bill, the Credit Union Membership Act. And the purpose of the bill, there wasn't any hidden agenda, it was to expand and encourage membership in credit unions across the country. Credit questions revolving around membership thresholds, proximity issues, common bonds, family relations, and the like, now have sadly all created some obstacles to the implementation of the act.
 Page 19       PREV PAGE       TOP OF DOC

    At the heart of all these issues is what was perceived to be a conflict between the NCUA's mission to oversee and regulate the creation of new credit unions whenever feasible and the new regulations drawn up by the agency in response to H.R. 1151, which some have interpreted to be excessive in scope. Inherent in the NCUA's mission, however, is its responsibility to ensure that only credit unions are chartered which have a reasonable likelihood of surviving. To this end, it is my belief that Congress intended that access to credit unions be expanded so as to enable the NCUA to continue to charter credit unions with the best possible chances of surviving in these ever-changing and, oftentimes, precarious economic conditions.

    Among other things, single common-bond credit unions may be permitted as subgroups as long as the subgroups have common bond of association or occupation. Grandfathering provisions were included. The servicing of underserviced areas was provided for and voluntary mergers were addressed.

    While access to credit unions may have been the intent of H.R. 1151, there now appears to be a difference of opinion on what the law directs the agency to do. As we all know, Congress was clear in its guidance in many areas and deferred to the NCUA and others. The solution, in my mind, points to reasonableness. Did the agency act reasonably? If it did, and it is clear that it did that, then the judgment should be allowed to stand. If it did not, then it should not.

    With this litigation that is pending against the new field of membership rules proposed by the NCUA, I am hopeful that this hearing will provide insights into what Congress had intended once and for all and what subsequently has been accomplished by the NCUA.
 Page 20       PREV PAGE       TOP OF DOC

    And I thank the Chair.

    Chairwoman ROUKEMA. And I thank our colleague for staying within the time limits.

    Congressman Sherman from California.

    Mr. SHERMAN. Thank you, Madam Chairwoman.

    I hesitate to disagree in any way with the distinguished Ranking Member. I think that the regulators got it relatively close to correct. And I think that the whole purpose of the bill, whether it was 35 pages or 1 page, was to provide for an expanded view of credit unions, to make sure that they are economically viable and that Americans in all situations have a credit union that they can join.

    In dealing with individual issues, there is discussion whether the membership threshold should be at the 500 potential-member level or at 3,000 in dealing with the possibility of a small credit union being created or that group being assumed by a larger credit union would be more applicable. And I just don't know how, with only 500 potential members—I know that credit unions are great, but not everyone who is a potential member wants to join and move all of their assets into one. And, given that, and given the needs to deal with the paperwork that the Government inflicts upon credit unions and every institution in our society, to think that 500 potential members would yield a viable credit union, except in unusual circumstances, strikes me as overly optimistic.
 Page 21       PREV PAGE       TOP OF DOC

    I do share, to some extent, the Ranking Member's concerns about the reasonable proximity rule, in that reasonable proximity to any location that the credit union might create creates the opportunity, whether mobile or just one branch after another, of every geographical location being reasonably proximate to some fixed, or even mobile, site of the credit union. But I don't think that we should go to the point of having restrictive mileage rules that don't take into account how different various parts of this country are. If you take a look at a congressional district being a community, reasonably proximate—my district is 40 miles in length, and Earl Pomeroy represents the entire State of North Dakota. The point that I want to make here is that you do need a reasonable-proximity rule, but it has got to differ from one part of the country to the other, and I can recognize why you stayed away from fixed-mileage requirements.

    As to overlaps, I think that they are natural. I think that anyone who is in two or three clubs, is an alumni of a university or college, lives in a particular geographic area, is going to be eligible to be a member of several different credit unions, and I don't see that as a problem in any way. And, in general, I think that the regulators have written a regulation that reflected what many of us wanted to achieve, and, yet, I do commend the Chairwoman for holding these hearings, and perhaps they will lead to some corrections.

    Thank you.

    Chairwoman ROUKEMA. I thank my colleague.

    Congressman Bereuter, please.
 Page 22       PREV PAGE       TOP OF DOC

    Mr. BEREUTER. Thank you, Madam Chairwoman.

    My colleagues, I think that I can take less than one minute to say what I need to say. But I do so when the maximum number of Members are likely to be here, and in light of the strong statement of the Chairwoman and the Ranking Minority Member of the full committee.

    I want to remind my colleagues that, in the course of consideration of this legislation, I specifically amended it to say that what the National Credit Union Association would be promulgating, would be a major rule under existing, what you might call, generic statute. And so, this means that after 90 days after their action, under existing law, we can pass a joint resolution and stop the implementation of the regulation or some part of it. I did this with forethought and because of my concern, and, in fact, the regulators may exceed what congressional intent was.

    We have a Chairman who is a distinguished and able Member of this committee and subcommittee. He understands congressional intent. He is a former Democrat Member who represented one of the congressional districts in New Hampshire.

    But I would have to say to the National Credit Union Association board that I believe that you have clearly exceeded and directly violated congressional intent, very clearly expressed congressional intent. Now, Members of the Congress—the Congress itself doesn't always do a good job, as good a job of performing its responsibilities as our citizenry would like, but if you have any respect for the republican form of democracy which our Constitution calls for, then you do what the Congress, the elected representatives of the American people, tells you to do, when it is clearly expressed. And I would say that the board, by a 2–to–1 decision in some areas, has not done that. You are required, as citizens, to respect the Constitution. When Congress clearly says to you what we want, you are supposed to do it.
 Page 23       PREV PAGE       TOP OF DOC

    I think that the fact that Members have come together to pass this legislation because we thought it was essential by overwhelming margins, bipartisanly, may be misinterpreted. I think that the Members of Congress, institutionally, despite being sympathetic to the concerns of the credit unions, expect the law to be properly implemented by regulation. And you have not done that.

    So, I encourage my colleagues to think about the major statute. Either Congress, by clear expression of intent, means something when it says it, or it doesn't. And we have a responsibility as an institution to make sure that regulators do not trample our intent.

    Thank you, Madam Chairwoman.

    Chairwoman ROUKEMA. I thank my colleague.

    On the Democratic side, I believe, Mr. Mascara.

    Mr. MASCARA. Thank you, Madam Chairwoman.

    I would like to begin by thanking you and the Ranking Member, Mr. Vento, by bringing together such a distinguished panel. I took copious notes and read most of the testimony. I would admit that it served a medicinal use, it induced sleep, but I did the best I could.

    I am glad that, as a new Member of this subcommittee, I have a chance to consider an issue of such importance to those present today. Representing a rural area in southwestern Pennsylvania, there are a lot of credit unions and small banks that are affected by last year's Credit Union Membership Access Act. While I recognize that there are complaints about the implementation of this legislation, and I favored its intent when it was considered last year, that this issue is being revisited poses a number of questions that warrant consideration.
 Page 24       PREV PAGE       TOP OF DOC

    I am curious to know how limiting credit union membership will help the bank consumer. A major bank serving my district—where banks are sparsely located—recently decided to charge customers $2 for every teller transaction or a phone call to a teller. Given a credit union's affordability and focus on local service, I do not understand how the competition that they provide in my district can be so detrimental.

    I would also be interested to hear from the panelists today about the degree to which an industry comprising only 2 percent of household assets can really threaten the banking community. While much has been said about the danger that credit unions pose, frankly, I have not seen evidence of that in my district.

    Isn't the banking industry having its greatest day now? Profits are high. Stock values are high. All of this has happened under the untethered credit unions prior to H.R. 1151. So, what is the threat? What is the danger? I probably should suggest that to—is it Mr. Bergmeyer who will be testifying here today? Maybe this question is better posed to him.

    But I look forward to hearing your testimony and your response to this question that I have raised.

    Thank you, Madam Chairwoman.

    Chairwoman ROUKEMA. All right, thank you.

    Are we ready to go on with the panel? Are there any other Members who also wish to be heard?
 Page 25       PREV PAGE       TOP OF DOC

    [No response.]

    All right, very good. We are making progress.

    Mr. Kanjorski, I do appreciate your reserve here.


    Let me give brief introductions to the panelists.

    The first panel are three board members from the National Credit Union Administration. The first witness, of course, is well-known and has been referenced in many of the introductory remarks. The Chairman of the NCUA, Norm D'Amours, is a former colleague of ours, and many of us served and worked with him. He was a Representative for ten years, between 1975 and 1985. He was appointed in 1993 as Chairman of the NCUA Board and has testified previously before this very subcommittee. So, we welcome you here today, Mr. D'Amours.

    Our second witness—and this will be in the order in which you will be testifying—is board member Yolanda Wheat. Mrs. Wheat is an attorney of great standing, both by education and experience. She has been a member of the board of the NCUA since 1996.

    Our third panelist is board member Dennis Dollar. Mr. Dollar also holds the distinction of being the youngest elected State legislator in Mississippi history. I don't know what that means, but it is a distinction, isn't it? But I guess what it really means is that you have genuine experience on both sides of the aisle, I mean both in industry as well as in the legislative process. We are very appreciative of your being here today. You have served as the CEO of the Gulfport BA Federal Credit Union for about five years, right up until 1997. Mr. Dollar has been a NCUA board member since October of 1997.
 Page 26       PREV PAGE       TOP OF DOC

    We welcome all of you.

    Mr. VENTO. Madam Chairwoman.

    Chairwoman ROUKEMA. Yes, Mr. Vento.

    Mr. VENTO. I ask unanimous consent to submit questions in writing to this panel and other panels, without objection.

    Chairwoman ROUKEMA. Oh, absolutely.

    Mr. VENTO. I will have to leave, I have another important meeting that I must attend. As you know, I normally do persevere with you throughout these hearings, but it looks like you will have plenty of company, but I hope that you will understand that and that the witnesses will realize that I have another engagement.

    Chairwoman ROUKEMA. OK, it will be difficult to carry on without you, but we will try.


    It is important that everyone will be able to submit questions for responses in writing.

 Page 27       PREV PAGE       TOP OF DOC
    Yes, Mr. LaFalce.

    Mr. LAFALCE. Madam Chairwoman, in reviewing the testimony of the chairman of the NCUA, and Mr. D'Amours is a former Member of this subcommittee, I was unable to see within the testimony, as I read it, the fact that he voted against the implementation of the regulations, and so, as he is progressing with his testimony, I would ask the chairman to point out specifically those areas where he dissented from Mrs. Wheat and Mr. Dollar—thank you—because that is not done in your written testimony.

    Chairwoman ROUKEMA. All right, thank you. If that had not been done, I am sure that the follow-up questioning would have elicited that.

    Thank you very much, and without further ado, we will begin with Mr. D'Amours.


    Mr. D'AMOURS. Thank you, Madam Chairwoman, Ranking Member Vento, and full committee Ranking Member LaFalce, and distinguished Members of this subcommittee.

    I thank you for the opportunity to appear before you, and I congratulate you and others on the committee and subcommittee for recognizing the need to encourage the formation and preservation of smaller credit unions.

 Page 28       PREV PAGE       TOP OF DOC
    I voted against some of the provisions of our new rule precisely because I believe that they work against that goal, and because I believe that they may corrode the cooperative spirit of trust that underpins the credit union system. There are enough pressures working against small credit unions. We should not be adding to them.

    Where our new rule requires more paperwork from Americans seeking to charter a credit union with a potential membership of under 3,000 than for those with a greater potential, we are needlessly discriminating against smaller groups. Where our new rule tells smaller credit unions that NCUA will permit them to be overlapped by an increasing number of community charters and NCUA will not even consider any concerns that the overlap may seriously damage their safety and soundness, we are discriminating against small credit unions.

    This subcommittee is absolutely correct in exploring whether such actions are consistent with congressional intent. While reasonable people can disagree about congressional intent, in my view, these provisions are clearly bad policy. But, I must say, I also believe that they will survive judicial review.

    It seems to me that one of the basic reasons that we are here is that some people think that the problem is the size and growth of some credit unions. That concern is, in my view, off the mark. The challenge of credit unions today is not size; it is the ability of credit unions to focus on their mission of serving the underserved and to nurture the cooperative relationship among all credit unions, large and small, that distinguish them from all other financial institutions. In fact, size is irrelevant so long as credit unions, large and small, are working internally and among themselves in a cooperative manner and sticking to their historical and statutory mission.
 Page 29       PREV PAGE       TOP OF DOC

    Some leaders of the credit union movement are, in fact, addressing the challenge facing credit unions today. The National Credit Union Administration has recently rededicated itself to focus on serving the underserved and nurturing small credit unions in order to more clearly differentiate credit unions of all sizes from banks. Just as importantly, the Federation of Community Development Credit Unions has been promoting the development of low income and smaller credit unions for many years and is growing in strength and influence within the credit union system.

    And I believe that the NCUA has a statutorily assigned responsibility to facilitate the development and educational efforts of small credit unions. It is through small credit unions that many people of modest means get their only opportunity to become participants in and learn about America's mainstream financial system.

    I do not want to be understood as saying that only small credit unions can reflect the proper values and serve people of small means within the credit union movement. Nothing could be further from the truth. But just as large credit unions contribute to the societal mission and are critically important to that system, a system based on sharing of liquidity among people of great means and small, one must also acknowledge the equal and irreplaceable value of smaller credit unions to that system. Unfortunately, not everybody does so.

    Small credit unions are uniquely suited to penetrate underserved areas that may not be practically accessible to larger credit unions. Small credit unions keep us mindful of the fact that not all consumers yet have access to a convenient, reasonably priced source for financial services. Therefore, I believe it is important that we make efforts to preserve a viable, small credit union segment within the credit union system, as I believe Congress intended in passing H.R. 1151. I believe that the sections of our new rule that I voted against, which I just named, damage such efforts.
 Page 30       PREV PAGE       TOP OF DOC

    These are not merely philosophical musings. There are real-world pressures asserting themselves against small credit unions. For instance, some opinion leaders in the credit union movement seem to believe that big is beautiful and small is troublesome. They advocate merging small credit unions out of existence. Some think that the system ought to be left to the forces of the free market competition, forgetting that this is a cooperative system.

    Nor are we at NCUA immune to the all-too-human tendency to take the easy road of merging small credit unions into larger ones when seeking to resolve a problem. Small credit unions deserve the same care and attention from their regulator that the larger ones receive when troubles occur. But it is easier and quicker to merge a small credit union into a large one.

    Moreover, when addressing the need to assist smaller groups in starting a credit union and the need to work with problem small credit unions, the NCUA has, in my opinion, unwisely refused to allocate the needed resources to meet that need.

    Madam Chairwoman, I will continue in my regulatory capacity to stress and attempt to facilitate the mission of empowering the underserved. I hope that CUMAA will continue its increased focus on that mission, and that the Federation of Community Development Credit Unions will continue to expand its influence. I hope that other trade unions will join this commendable effort, and I fervently hope that this subcommittee and the Congress will remain vigilant to see that credit unions are fulfilling the purpose that Congress assigned to them.

    Thank you, Madam Chairwoman.
 Page 31       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. Thank you.

    Mrs. Wheat.


    Ms. WHEAT. Thank you, and good morning, Madam Chairwoman, Congressman LaFalce, and other distinguished Members of the subcommittee. It is an honor to appear before you today.

    Before I begin my statement with respect to the subject matter at hand, let me thank you, Madam Chairwoman, Congressman LaFalce, Congressman LaTourette, and Congressman Kanjorski, and the rest of the panel, for your continued leadership, your interest, and your active involvement in these and other credit union issues. I appreciate not only your perspective, but the focus and the intensity with which you address these matters.

    CUMAA, as we refer to it, embodies Congress' intent, in my view, to preserve access to credit unions for millions of American consumers and to allow credit unions to exist in a healthy, regulatory environment, an environment that recognizes the strength of a system that is cooperative in nature, volunteer-driven, financially competitive in the marketplace, and yet diverse in its membership.

    Opportunities to appear before your subcommittee provide me and other board members with a clearer understanding of both congressional intent as well as the effect on consumers directly impacted by legislation. I recognize that the subcommittee's oversight of financial institutions specifically includes the responsibility for the overall safety and soundness of the credit union system as a whole. And I am pleased to be here today to report on the most recent rules and regulations issued by the agency which address some of the statutory mandates included in CUMAA.
 Page 32       PREV PAGE       TOP OF DOC

    The agency adopts policies which meet stringent safety and soundness standards and protect the National Credit Union Insurance Fund. I, along with my colleagues on the board, have provided you with written testimony in response to questions that you have raised in order to ascertain the nature and extent of the NCUA's efforts to implement CUMAA.

    The principal philosophy which guides me in developing policy is the preservation of credit union access for American consumers within the parameters of a safe and sound credit union system. After reading the language of the statute, studying the legislative record of both the House of Representatives and the Senate, and reviewing and giving very serious consideration to each and every comment letter received by the agency from Members of Congress and others, I am confident that the board adopted a policy which will effectively and appropriately implement CUMAA. In particular, we adopted a revised Chartering and Field of Membership Manual which, among other things, encourages the formation of new credit unions while prudently addressing the safety and soundness concerns associated with the chartering and/or expansion of new or existing credit unions.

    Board member Dollar will, in his remarks, address in some detail the requirements for economic viability for new credit unions as well as the definition of reasonable proximity. I do not want to detract from that discussion, but I want to re-emphasize that our effort has been and remains to support the formation of credit unions wherever feasible and safe and sound to do so. And that has been the directive given to the agency.

    In our first month of processing applications under the guidelines of our new manual, no credit union in the country has been granted a group to add to its field of membership with more than 3,000 members. And of those credit unions that have been approved thus far to add to their field of membership, only 70 out of 978 groups exceeded 200 members. And of those 70, only 16 exceeded 500 members. In fact, only 6 out of that group of 70 exceeded 1,000.
 Page 33       PREV PAGE       TOP OF DOC

    While our experience thus far has been consistent with our expectations when we adopted the rule, we recognize our responsibility to continue to monitor these statistics to ensure that congressional intent is met. And in that regard, this hearing is most timely.

    I sincerely appreciate the opportunity to consult with Madam Chairwoman and other distinguished Members of this subcommittee during the early process of implementing this legislation. We have made significant progress in carrying out the statutory requirements; however, much work remains. And as required by CUMAA, the NCUA will continue to finalize regulations for member business loans, prompt corrective actions, financial statement and audit requirements, and others. I look forward to consulting with you throughout the process, and I will be happy to report back to you on any and all of these matters.

    Thank you, again, for inviting me to join you. I will be happy to respond to any questions that you may have.

    Chairwoman ROUKEMA. Thank you.

    Board Member Dennis Dollar, please.


    Mr. DOLLAR. Thank you, Madam Chairwoman, Ranking Member LaFalce, and Members of the subcommittee. It is a privilege to be here, and I am going to bypass all of the congratulatory messages about your leadership, which we do appreciate, in the passage of CUMAA, and jump on into, for time constraints, the discussion of, particularly, the two items that have had the most questions raised about them, and that is the 3,000 assumption and reasonable proximity. We covered the broader philosophical background behind our decision, and I want to get onto the meat of those particular two issues.
 Page 34       PREV PAGE       TOP OF DOC

    Incidentally, we have received some questions from Members of the subcommittee regarding the policy of determination, the charter manual, that in general a new charter of less than 3,000 may not be economically advisable. Some have interpreted this statement that groups of less than 3,000 cannot form their own credit union or that NCUA is not encouraging small groups to form their own credit union. Such interpretation is simply not true.

    NCUA specifically stated in section 1 of the chartering manual that any size group can apply for credit union charter if they demonstrate economic advisability. But common sense and experience dictates, of course, that the smaller the group, the more difficult that it is to form a successful credit union. However, that does not mean that NCUA will not charter a smaller group that is economically viable. Each determination of that is fact-specific, case by case. This 3,000 number is not intended to undermine the statutory requirement to encourage the formation of new credit unions. Rather, it has been established to provide groups with necessary advice and guidance when seeking to charter a new credit union.

    Personally, I approach this number, Madam Chairwoman, not as either a threshold or a ceiling, but merely as a documentation point. Those groups above that number would have some of the regular documentation requirements lessened because of a possible rebuttable presumption of economic viability. Those groups below would submit to the regular documentation that we have always required of new credit unions. Nothing new, nothing additional. Any group desiring to perform its own credit union will be given every opportunity to demonstrate that it has met the economic advisability requirement. However, our failure to do so would put the National Credit Union's Share Insurance Fund at risk.

 Page 35       PREV PAGE       TOP OF DOC
    Now, we recognize that there are currently thousands of credit unions with a primary potential membership of less than 3,000. But at the time of their charter, economic conditions and the financial services expectations of credit union members was significantly different than they are today, and these differences provided those credit unions an opportunity to become established and develop a loyalty base under those marketplace conditions that significantly differ from those today. Unfortunately, in today's economic marketplace, a small group that lacks member support, volunteers, and other resources will, in all probability, not operate a safe and sound credit union. And NCUA would abdicate its regulatory responsibility if it required such a group to form its own credit union. Better that I be here today, Madam Chairwoman, answering questions about our economic viability standards than to be here three years from now answering questions about why we chartered so many fledgling credit unions without the necessary support to succeed that failed and cost the Share Insurance Fund millions of dollars.

    I also want to briefly address the issue of reasonable proximity and service facility.

    CUMAA stated that groups must be in reasonable proximity to the credit union. The term is not defined in the law, but the board concluded that the clear intent of the statute is to ensure that the credit union is able to provide, has the ability to provide, effective service to members of the group. Our approach to this issue has been to focus on exactly that, service to the group. We approached the issue by requiring that the group be within the service area of one of the credit union's service facilities. We concluded that at a minimum that a service facility is a place where shares are accepted for members' accounts, loan applications are accepted, and loans are dispersed. We also decided that, given the legislative history of the act, and our desire to ensure that more than simply minimum service is provided, that ATMs would be prohibited as service facilities under the rule.
 Page 36       PREV PAGE       TOP OF DOC

    Now, I have got to tell you that this has generated considerable complaints during our comment period. And I still hear today complaints from credit unions that our rigidity in this service facility definition is, frankly, outdated in this era of cyber-banking, the Internet, automated response, and electronic transfer.

    But, still, I believe that you will find that our approach is both reasonable and practical because it provides sufficient flexibility while still assuring that any credit union adding to its field of membership will have the necessary presence that today's marketplace requires, near the group, to provide for its adequate service.

    In closing, Madam Chairwoman, I just want to say that in all aspects of this regulation, we have scheduled, as a part of the regulation, to monitor its effectiveness and, most importantly, its results. A one-year review time table has been included, and through this process we will examine how it has impacted safety and soundness, our first and foremost consideration; how it is impacting regulatory burden, and most importantly, are the results, not one month later or two months later, but one year later and going forward, consistent with the intent of this Congress in passing CUMAA, H.R. 1151?

    I appreciate the opportunity to appear today and look forward to answering your questions.

    Chairwoman ROUKEMA. Well, of course, that is what we are here about. Whether or not we are being consistent with the intent of Congress. There are lots of varied points of view. I was particularly interested in Mr. Bereuter raising his point, but I am going to leave that to him to follow up on. I assume that you are going to follow up on it.
 Page 37       PREV PAGE       TOP OF DOC

    I want to come back to Mr. D'Amours. Any additional comments that either of the other two panelists might want to make in response to Mr. D'Amours are encouraged, because it would seem as though you are in direct contradiction, particularly Mr. Dollar.

    I want you, Mr. D'Amours, to please go back to your statement concerning the fact that you believe firmly, and you voted against this rule, because you believed that it needlessly was discriminating against smaller credit unions.

    I have two quick follow-up questions. In your opinion, what would have been the more appropriate approach, and then, how do you respond to board member Dollar's statement concerning the economic viability, his assertion that the 3,000 number was neither a threshold nor a ceiling? I would really like, based on your extensive experience, to hear your response to that.

    Mr. D'AMOURS. Well, Madam Chairwoman, under our new rules, we require that any credit union with fewer than 3,000 members take extra steps, file extra paperwork, to convince us that they are safe and viable. If you are over 3,000, you don't have to do that extra work. So, there is an extra burden on credit unions below 3,000.

    Where that number 3,000 came from, I don't know, except that I know that Congress established, as you know, a 3,000 ceiling on allowing credit unions to become subgroups of existing institutions. And, suddenly, we found ourselves with a 3,000-level floor for presuming that new credit unions would be safe and sound.

 Page 38       PREV PAGE       TOP OF DOC
    As I said, there are enough pressures out there already for new credit unions. We don't need to add to them.

    Of the federally-chartered credit unions in America, 45 percent or more have fewer than 3,000 potential members. And yet, the vast majority of these credit unions are operating safely and soundly. I don't know why we are presuming that——

    Chairwoman ROUKEMA. Excuse me, I was distracted. What was that number that you used, Mr. D'Amours?

    Mr. D'AMOURS. Of about 45 percent of all federally-chartered, those we regulate, credit unions, have fewer than 3,000 potential members, and yet, the vast majority of them are operating safely and soundly. I don't know where the 3,000 figure came from.

    Surely, one could wonder at the 200-, 300-, or 500-member level whether or not a credit union has sufficient size to operate safely and soundly. That is a factual determination to be made. But to set the level at 3,000 I think is inordinately high, and is unjustified. As a matter of fact, in the early talking about this rule at the NCUA, a 1,000 number had been mentioned, and the Treasury Department has indicated that they thought that a 1,000 number would be more reasonable. I think that we might go lower. I don't know. But I think that, clearly, 3,000 is too high and discriminates against those credit unions.

    Chairwoman ROUKEMA. Well, could you respond to the economic viability statements of Mr. Dollar? Am I not correct in understanding that Mr. Dollar firmly believes that it should be much higher. He just feels that anything under 3,000 is economically unviable. We are running out of time here, but could you quickly summarize?
 Page 39       PREV PAGE       TOP OF DOC

    Mr. D'AMOURS. Well, I'll just tell you that credit unions—we are going to examine any credit union applying for a new charter, which we are charged with encouraging, to see that they can operate safely and soundly. Of course, we are going to do that. But to impose extra hoops, further hurdles, for those with under 3,000 potential members to jump through is not justified by any experience that I have, or by any studies that I have seen.

    Chairwoman ROUKEMA. I am afraid that I can't break my own rule here. Perhaps you can get a few words in the course of answering another question.

    All right. My colleague, Mr. LaFalce.

    Mr. LAFALCE. I hope that something can be worked out that will prevent the necessity for remedial congressional action. I hope that something can be worked out for the future that would negate the need for litigation in the future. I am not optimistic about that, but that is my hope.

    I would have hoped that there would have been some outreach effort with some of the prime sponsors of the 37 pages, or some review, very careful review of what they had said. But to my knowledge, there was none with my office whatsoever subsequent to the passage of the legislation. I think that was regrettable.

    I even think that there was an attempt to have the final vote on the bill, the final vote, early for whatever reason, maybe because they thought that I might be coming to the meeting.
 Page 40       PREV PAGE       TOP OF DOC

    I remember the history of this so well because there was this 1-page bill that I introduced. I came up with what I thought was a good compromise bill that you could get support for. I even introduced it at the request of the credit unions. We put it in the record as a study piece that people could dialogue and talk about, and I do think that the bill that I came up with became the focal point for discussion, especially amongst Chairman Leach and myself, Chairwoman Roukema, Ranking Subcommittee Member Vento and the Administration, and then a larger group later, including the two authors of the 1-page bill, Mr. Kanjorski and Mr. LaTourette.

    But there were so many—I won't go into each of the issues. In large part, I agree with the Chairman of NCUA. In large part, I agree with the Chairwoman of this subcommittee, with the statements of Mr. Bereuter. And the language—let's just take reasonable proximity. And, you know, I spoke on this so often. So many of these words that I believe I drafted that are now in contention—it was my intent in offering this provision, I said on the floor, that NCUA give a conservative interpretation to the term ''reasonable proximity,'' allowing credit unions located in a larger city to incorporate only common-bond groups located within nearby sections of that city. This would mean, for example, in my own congressional district, that a credit union located in Rochester could incorporate an eligible common-bond group within the Rochester area. It should not be able to incorporate groups in outlying counties or in a nearby city, such as Buffalo, except in instances in which there is no local credit union capable of expanding its services to serve those groups.

    Similarly, credit unions based in smaller cities or towns, like Lockport or Niagara Falls in my district, should be able to incorporate new groups only from within or close in proximity to those jurisdictions. However, they should also have priority in serving local groups ahead of any credit union based outside the area. This is an area where NCUA will need to provide very detailed guidance to credit unions.
 Page 41       PREV PAGE       TOP OF DOC

    Now, I am disappointed that in this area and in countless others this type of clear legislative intent was grossly disregarded, or arbitrarily and capriciously ignored. And I hope that revisions can be made beforehand in that and a good many other areas. This Congress will be torn apart. The credit union movement will be torn apart. I don't think that you realize what you have unleashed.

    You know, for 24 years credit unions have had the warm support of the Congress. For the entire history of the credit union movement you have had the warm support of the Congress. In this battle, you have had the warm support of almost the entirety of the Congress, and I don't think that you realize what you have unleashed with your arbitrary and capricious regulations. I think that the Chairman does.

    I thank you.

    Chairwoman ROUKEMA. All right, thank you.

    Congressman Bereuter.

    Mr. BEREUTER. Madam Chairwoman, thank you very much. I thank the National Credit Union Association board for their testimony today.

    I am concerned about what the board has done with respect to the formation of small credit unions. But I want to come back to what I told my colleagues before and be more specific about it and inform the public as well.
 Page 42       PREV PAGE       TOP OF DOC

    During the course of the deliberation on the legislation which led to the act, I offered an amendment which survived that legislative process and became statutory. It requires that any regulation prescribed by the NCUA board define or amend the definitions of two terms ''immediate family or household'' and ''well-defined community, neighborhood, or rural district,'' to be treated as a major rule for purposes of Chapter 8 of Title 5 of the United States Code. I was concerned that, in fact, those definitions would not follow congressional intent. And I wanted to share that they had one additional warning at the board that they do not follow congressional intent.

    So, I say to my colleagues, by March 5, 1999, we can, by joint action of the Congress, stop the implementation of regulations in those two specific areas. I think that we ought to do that. Frankly, I think that we ought to slap down these regulations and tell them to go back to the drawing boards; they are inappropriate.

    Let me give you one focus first on the matter of the definition of what is local. The NCUA gives, by their regulations, unduly expansive definition of it. It states that a community is limited to a single, geographic, well-defined area where individuals have common interest or interaction. According to the rule, an area is well-defined if it is a recognizable, single political jurisdiction, such as a county, and if the population does not exceed 300,000. Also, under the rule, the area is well-defined if the area is a multiple, contiguous, political jurisdiction where the population is no more than 200,000.

    This interpretation could have very major consequences on States where there are smaller populations and on those States that have very large counties, like most of the western States. I can tell you that in my State, for example, there are only two counties that do reach that 200,000 level.
 Page 43       PREV PAGE       TOP OF DOC

    I have asked, through NCUA staff, why they took the approach that they did. The speculated reason is that the geographic area would not work well in places such as New York City where a few square miles could involve millions of people.

    Now, I have lived in most parts of the country. I have worked in some major metropolitan areas, in most of them, in fact, and coastal areas, and I ask you not to be parochial when you think of how to make your definitions, gentlemen and lady. We are, after a period of time here, no longer so parochial. I expect that you are not going to be parochial.

    If you have a problem with intensely populated, metropolitan areas; then you make a part of your definition which applies to them. But you don't treat the whole country like it is all the same.

    Now, let's go the next definition, ''immediate family or household member.'' I've been told that there is active debate on this issue. ''Immediate family'' is defined as a spouse, child, sibling, grandparent, or grandchild. ''Household'' is defined as persons living in the same residence and maintaining a single economic unit. This rule would seem to allow five roommates living under the same roof to all be members of the same credit union. It would also seem to allow the family members of roommates to also join the same credit union. This rule would also seem to allow a relative of the eligible member to join the credit union when, in fact, the eligible member has not joined.

    So I think, just to give you two examples of many that could be offered in my very brief time here, I say to you, I think in the two areas where we specifically reserve the right to second-guess you because we thought that these definitions were so important. You have gone far beyond congressional intent, intentionally or unintentionally. There are problems in that area, and I think that you need to address them; or Congress, my colleagues, should address them and reassert congressional prerogatives here, particularly when a Member takes the time and the effort to say, ''OK, we are worried about this. We want you to do a good job, and we here, by statutory action, say, these two definitions are major rules under the U.S. Code, Chapter 5.''
 Page 44       PREV PAGE       TOP OF DOC

    Thank you. If there is any response, I would be happy to hear it from the board members.

    Chairwoman ROUKEMA. I am going to exercise my discretion here and ask if either Mrs. Wheat or Mr. Dollar want to briefly address the specifics of Mr. Bereuter's question, because I think that the potential action by the Congress under the legislation makes this very relevant for us to hear. And, by the way, you can also have time to have a more extended written response as well.

    Mrs. Wheat and Mr. Dollar.

    Ms. WHEAT. Yes, thank you. I was going to ask if I could have the opportunity to respond in writing to the numerous issues raised because they are very important.

    Chairwoman ROUKEMA. Yes of course. Very important.

    Ms. WHEAT. May I also let the distinguished subcommittee know, however, that we are acutely aware that two of the provisions passed under CUMAA are subject to the major rule. And so, consequently, the revised Chartering Manual has an effective date of January 1, but for those two provisions—and the credit union industry is aware that those two provisions that are within the Chartering Manual do not have an effective date until such time as the time limit for Congress has elapsed.

 Page 45       PREV PAGE       TOP OF DOC
    We spent considerable time reviewing specifically those two actions, as we did the rest, and, in fact, the comment letters received—and there were hundreds of them—focused primarily, in my recollection, having reviewed each and every one of them, on those two sections. There was a broad diversity of opinion about what the definition of ''immediate family member'' ought to be, what our definition of ''local'' could be. I will tell you that, as a board member, I felt very sandwiched in between because the range varied from A to Z on what the credit union industry, congressional, and other commenters said about what those definitions ought to be.

    Part of our review included looking to other Federal agencies and how they have defined the term ''family member,'' ''immediate family member,'' and their definition of ''community,'' and ''local community.'' And, again, while I will ask if I can submit in writing much of the detail on what we looked at, I believe that when we concluded our definitions, we were somewhere in the middle of all of those definitions.

    Chairwoman ROUKEMA. Of course, Mr. D'Amours, if you want to react, we would be glad to hear from you. But, first, Mr. Dollar, and then Mr. D'Amours. Yes, but we will restrict the verbal response with the understanding that fuller comment will be made in writing.

    Mr. LAFALCE. Madam Chairwoman.

    Chairwoman ROUKEMA. Yes.

    Mr. LAFALCE. Can I have unanimous consent for about 30 seconds?
 Page 46       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. For 30 seconds.

    Mr. LAFALCE. I'm rather amazed that the primary and almost exclusive focus of your deliberations was not congressional intent, and to look at what may have been meant by similar language in other legislation was wrong-headed. You had to look at what the Members of Congress said on the specific issues and words that you were interpreting.

    Chairwoman ROUKEMA. Point well taken.

    Yes, Mr. Dollar.

    Mr. DOLLAR. Madam Chairwoman, may I certainly say that in each and every issue, including that those that were classified by this Congress as major rules, we looked first and foremost at what did the law say. We think that is the starting point, and I can assure you, in answer to one of your statements or questions, that if we either intentionally or unintentionally did not follow legislative intent, I can assure you that if there was any failure to follow legislative intent, it was unintentional.

    I applied three standards as I looked at every comment letter, yours, Mr. LaFalce, yours, Mrs. Roukema, each and every comment letter that we received, I looked at three questions: One, is it consistent with H.R. 1151; two, is it sound from a safety and soundness point of view; and, three, can we remove some of the paperwork burden that has become so burdensome for all credit unions to do this?

 Page 47       PREV PAGE       TOP OF DOC
    And I just want to very quickly go back to that documentation point that I gave on the 3,000 member. It also applies on the local community on the 300,000 member. There is nothing that says that a group below 300,000 may not be asked for additional information or groups above 300,000 are automatically excluded. It is a case-by-case basis. This is all a part of this criteria number 3 that I mentioned, to try to remove some of the regulatory burden, some of the paperwork burden.

    Mr. Chairman's example of the group of 1,000 can still charter. But as a risk manager of the Share Insurance Fund, we naturally have to ask more documentation of that group than we would a group of 5,000 or 6,000. It is just a matter of size, economics, and risk management.

    Chairwoman ROUKEMA. Thank you.

    Mr. D'Amours, do you have anything to add? Or, if not, we will go on.

    Mr. D'AMOURS. Madam Chairwoman, I will also submit something in writing in deference to the Independent Bankers Association and for the Empire Federal Credit Union in Syracuse, which are the last two witnesses today. I know how they must be feeling in looking at the clock.

    Chairwoman ROUKEMA. Thank you, I appreciate that. I can see that Mr. D'Amours has had some experience in hearings of this kind. Thank you very much.

    Mr. Sherman.
 Page 48       PREV PAGE       TOP OF DOC

    Mr. SHERMAN. Thank you.

    Mrs. Wheat, we have had some discussions about credit unions forming with under 3,000 eligible members, and, as I understand it, thousands of credit unions were formed over the years, or in the past decades, with smaller numbers, and, under this rule, if someone wants to form a new credit union with under 3,000 eligible members, are they required to jump through more hoops than they were five or ten years ago, or is it simply that if you have over 3,000 potential members there are some old hoops that you don't have to jump through anymore?

    Ms. WHEAT. Not having studied specifically our old Chartering Manual, I will say, in general, that there are perhaps some misperceptions of what we do or don't require of all groups who apply.

    Every group that applies for a new charter must meet every requirement in the Chartering Manual. However, we felt, as a board, that it was important to tell those organizers of new credit unions that in our historical experience credit unions of less than 3,000 members may find it difficult to remain successful, economically viable institutions over the long haul.

    Mr. SHERMAN. Mrs. Wheat, if I can—you said 3,000 members. Do you mean 3,000 potential members or 3,000 actual members?

    Ms. WHEAT. We refer to 3,000 potential members, and, in fact, our historical experience in reviewing the credit union membership database led us to conclude that the average number of actual members who join from a 3,000 potential membership base is about one-third. So, in fact, a group of 3,000 applying for a credit union, over an historical period of time, could expect to have about 1,000 members if they are succeeding in the marketplace.
 Page 49       PREV PAGE       TOP OF DOC

    But it is not my view that we have in any way created additional hurdles for any organizer of a credit union. What we have simply pointed out to them is the practical considerations that they should take into account when trying to form a successful credit union.

    Mr. SHERMAN. Mrs. Wheat, as I understand it, as you also know, if you have more than 3,000 potential members, you are liberated from certain documentation requirements. So, it is not just an admonition to try to form a group with over 3,000 potential members; there is that incentive that if you define a group so that you have over 3,000 members, you can skip some documentation. And the question that I was asking, is that skipped documentation something—and maybe one of the other board members could comment on this, and Mr. D'Amours, perhaps you could comment—is this skipped documentation something that is a new requirement, or is it something that the credit unions 10 and 20 years ago already had to jump through?

    Mr. D'AMOURS. Congressman Sherman, the real issue here is that we are providing incentives for credit unions to become a SEG of another credit union rather than to form their own. Make no mistake, it is much more difficult for a group to start a new credit union than to join an existing one. And by putting extra paperwork, extra hurdles, on groups up to 3,000, we are discouraging them from doing what this subcommittee asked us to encourage them to do, and that is to start their own credit union.

    Mr. DOLLAR. Congressman Sherman, may I answer also?

    Mr. SHERMAN. Yes, the Chairman of your board says that it is extra paperwork. Is it extra paperwork, or is it the same paperwork that you would have had to do years ago anyway?
 Page 50       PREV PAGE       TOP OF DOC

    Mr. DOLLAR. It is the same paperwork that we have required, and we must require it as a risk manager of any startup credit union.

    I have the regulation in front of me, and the example of the types of things that must be in it are a business plan, or a mission statement—whether you are large or small, you would have that. And analysis of market conditions, whether you are large or small, you would have that.

    But here is one, evidence of member support. If you have an applicant group of 500, you are going to have to show a higher standard of evidence of member support than if you have a group of 5,000. That is an old rule that has been in existence since this group began being risk managers in 1972, when we established the Share Insurance Fund and took ourselves away from just creating a credit union because it seemed like a good idea and to make sure that they are safe, sound, and protecting that insurance fund that was created by this same Congress.

    Chairwoman ROUKEMA. I'm sorry, my colleague——

    Mr. D'AMOURS. Madam Chairwoman, I think that the record should be clear on one point, Congressman Sherman, and that is this: It is not a matter of how old these regulations are, when we required them; it is to whom we are applying them. If you are up to 3,000 in size, you have to do this paperwork; if you are above 3,000, you do not. That is an incentive to become a SEG rather than to start a credit union.

    Chairwoman ROUKEMA. All right, if there is further comment, please submit it in writing for the record.
 Page 51       PREV PAGE       TOP OF DOC

    I am going to have to point out that we are really losing time here. At this rate, we will never get to our third panel. So, I am going to be very, very strict. Anything that is not included we will submit in writing.

    Mrs. Kelly.

    Mrs. KELLY. Thank you, Madam Chairwoman.

    I am curious about a couple of things. One is, what caused the change from the old rule, the 500 potential members, to the new threshold of 3,000 potential members? And any one of you can answer that.

    Ms. WHEAT. It was our analysis of the historical data of all credit unions that had been chartered both pre–1982 and post–1982.

    Mrs. KELLY. Excuse me, but what in that historical—I am just trying to pin it down a little more finely and I don't have a lot of time.

    Ms. WHEAT. Sure.

    Mrs. KELLY. What in that data gave you that information to go for 3,000?

    Ms. WHEAT. Let me give you two specific examples.
 Page 52       PREV PAGE       TOP OF DOC

    Prior to the NCUA developing the 1982 policy to allow credit unions to add multiple groups to their field of membership, the Share Insurance Fund in the credit union was closing credit unions by the hundreds, most of them small. And it was the 1982 policy that allowed small credit unions as well as large to diversify their base. Of those credit unions that are currently in existence with memberships of 3,000 or less, 2,900 were chartered prior to that 1982 policy. And of those that still remain, most of them remain safe and sound and are run safely and soundly. However, of those liquidations that we have processed, we find that the vast majority of those liquidated have less than 3,000 members in their field of membership, giving us some indication that they were not able to remain economically viable.

    Mrs. KELLY. If that was the case, why wasn't this changed earlier?

    Ms. WHEAT. That is a good question. It was on the books, and staff within the agency had long made a determination that that number was outdated and had been giving the board indications that it ought to be increased. In the meantime, a comprehensive revision to the Chartering Manual was under review. The AT&T legislation took place. The injunction ensued. The legislation ensued. And so, over a multiple-year process, it may seem to have increased dramatically from 500 to 3,000, but, in fact, the agency had already reached a determination outside of any of this that that number at 500 was too low.

    Mrs. KELLY. I'm going to further ask questions. I am going to submit them in writing. I would like some responses on that because I am still not satisfied.

 Page 53       PREV PAGE       TOP OF DOC
    There is one other question that I would like to ask, and that is, when the NCUA trained their regional staff, I would like the dates of when they did because it seems to me a rather short time, and I would like to know whether or not that staff got the kind of training that Congress intended.

    Ms. WHEAT. I would be happy to submit that in writing.

    Mrs. KELLY. Thank you.

    Well, actually, I am sorry, Madam Chairwoman. I really wanted her to respond to that verbally.

    Ms. WHEAT. Oh, I'm sorry.

    Mrs. KELLY. I am going to pursue the other question—yes, please——

    Mr. D'AMOURS. Well, Congresswoman, I would say that it is an intuitive matter. I don't think that we have any solid scientific or even experiential data that would establish 3,000 as a proper number. I think that, generally, intuitively people feel that 500 is too small a group, but I don't think that there is a clear answer to your question.

    Ms. WHEAT. In answer to your question about training, Congresswoman Kelly, the information that I have before me at this time indicates that training of the entire staff of regional office directors of insurance who are responsible for the collection of the data and the initial review took place during a conference in mid-December. In addition, after the Manual was adopted by the board, all of the regional directors, the directors of insurance, and the insurance staff again met at a regional conference in January.
 Page 54       PREV PAGE       TOP OF DOC

    Along the way, I want to point out that our task force that helped develop this Manual did not have just the regional directors or senior management, but actually the directors of insurance who were responsible for the implementation of the——

    Mrs. KELLY. I'm sorry, I just have a little bit of time here, and I just want to ask one—when was that conference? What was the date?

    Ms. WHEAT. The first conference was December 17–18.

    Mrs. KELLY. That was the date that the rule was approved. Is that correct?

    Ms. WHEAT. That is right. And all of the task force and the directors of insurance were in the office that day, and they met on December 17 and 18 for training and then went back to the field to implement it.

    Mrs. KELLY. And since January, you have approved the addition of 978 groups. Is that correct?

    Ms. WHEAT. That is correct.

    Mrs. KELLY. All right. I will have some more questions which I would like to submit.

 Page 55       PREV PAGE       TOP OF DOC
    Chairwoman ROUKEMA. Yes, and that data, I would request be submitted to us in writing for the record.

    Ms. WHEAT. OK.

    Chairwoman ROUKEMA. Thank you.

    Yes, Mr. Mascara.

    Mr. MASCARA. I am a little confused. Maybe someone can straighten this out for me. Is the threshold of 3,000 potential members designed to discourage the formation of new charters?

    Mr. DOLLAR. No, sir, it is not.

    Ms. WHEAT. No, sir, it is not.

    Mr. MASCARA. I was going to say, because it would be an oxymoron, having read Harley Bergmeyer's testimony. It seems that we are trying to protect small credit unions. Is that correct?

    Mr. DOLLAR. Congressman, I believe that all credit unions, whether they be large or small, will be adversely impacted by losses to the Share Insurance Fund by credit unions that were forced into liquidations and into conservatorships. I think that the entire credit union community, and we, as a regulator, are always more benefitted when they are safe, sound, well-managed institutions. I think that our policy serves to benefit both large and small credit unions.
 Page 56       PREV PAGE       TOP OF DOC

    Mr. MASCARA. The information that I have from the Pennsylvania League of Credit Unions indicates to me, after looking at the numbers and doing some calculations, that 40 percent of all credit unions in Pennsylvania fall into the category of 500,000 to 2,000,000. And if you take the total credit unions in Pennsylvania—I have some 865—that 88 percent of all credit unions in Pennsylvania fall into the category of 500,000 to 25,000,000 category. So, it seems to me that, prior to H.R. 1151, that the small credit unions were doing well, and that they are thriving. I don't see anything magic about that 3,000, unless someone can explain that to me. There are a lot of small credit unions that are very helpful. And from the information that I have in Pennsylvania—now I don't mean to extrapolate that across the United States, but is that true? Do any of you have any national numbers that would indicate that they are much different than Pennsylvania?

    Ms. WHEAT. I think that it would be appropriate for us to respond to you in writing with very specific numbers, and I would be happy to do so.

    I would also like to point out that the largest concentration of Federal credit unions in the country, as well as the largest concentration of small credit unions in the country, are located in three of our regional offices. And each of the regional directors assigned to those three regions have been appointed to those positions since I joined the board three years ago. And each of those three regional directors have from the very first day on the job been committed to preserving the small credit unions located within their district and developing credit unions to preserve credit union service to members. In fact, those three regional directors are sitting behind me today, and I appreciate their desire to be here to hear your views, as well as the board's view, on preserving small credit unions.
 Page 57       PREV PAGE       TOP OF DOC

    Mr. MASCARA. There is a lot of concern about protecting small credit unions. From what? Or from whom? They seem to be doing very well in the existing climate and prior to H.R. 1151.

    Mr. D'AMOURS. Congressman, from what? Let me point out to you that one of the questions you asked our board about was overlaps and overlap protections. Our rule does not permit the board to even consider whether a small credit union's safety and soundness might be threatened by the overlap, as we used to in the past. That, I would think, as I pointed out in my testimony, is a discrimination and a real threat.

    Mr. MASCARA. But the new law provides the protections for solvency of all credit unions, so they are going to have to adhere to certain regulations about their solvency and meet certain tests. So, if we follow the law, then those people who do not rise to that level, then action will have to be taken.

    Mr. D'AMOURS. This agency's primary responsibility is protecting the safety and solvency of credit unions of all sizes. There is no question about that.

    But, as I said in my oral testimony, and I think in my written testimony, Congressman, we have a special responsibility to see to it that we are fostering an atmosphere in which small credit unions can thrive and perform the special function that they bring to the credit union movement. And I think that the threat that I just identified is one that will work against small credit unions continuing to exist. And, in fact, there is sentiment in the movement that small credit unions should be merged into larger credit unions because that is more efficient in the modern day and age.
 Page 58       PREV PAGE       TOP OF DOC

    I think that is a tendency that we should resist, and I think that is something that Congress in the legislation sought to protect against.

    Mr. MASCARA. Good. Thank you.

    Thank you, Madam Chairwoman.

    Chairwoman ROUKEMA. Yes.

    Are there further questions?

    Oh, I'm sorry. Congressman McCollum has another meeting to attend, so I will recognize him.

    Mr. MCCOLLUM Just very briefly, but thank you very much. Thank you, Madam Chairwoman.

    I want to just ask a question about the service facility area. There has been some suggestion by critics that your new regulations significantly expand the definition, thereby permitting a broader interpretation of other aspects of what is included in the proximate area, Mr. D'Amours, for the purposes of having growth in the credit union with new members, and so forth. How do you respond to the critics who say that prior to this regulation that the facility definition was much more defined; it was much smaller; it was encompassing only a facility where someone could actually go in and actually talk to a loan officer, or whomever? And, by allowing this definition to include, I think, in your own words, what I got here in the response, a ''facility where shares are accepted,'' and so forth, and so forth, but, in addition, ''a credit union-owned branch, a shared branch, a mobile branch that goes to the same location on a weekly basis, or a credit union-owned electronic facility that meets, at a minimum, these requirements''—I know that you said that it doesn't include an ATM.
 Page 59       PREV PAGE       TOP OF DOC

    Mr. D'AMOURS. Yes, it does not. Some people think that it includes an ATM, Congressman McCollum. It does not.

    One has to remember that credit unions are somewhat unique. Many of them really have no main office. Or if they have a main office, all they really do is back-office kinds of operations. They go into low-income areas sometimes on a part-time basis in an office that may be only open one or two days a week. Some credit unions, in an attempt to reach outlying areas and low-income people, have mobile offices that penetrate those areas. I think that we have to take that into consideration. I do not think that—while we might make changes to this section of the rule to make it more consistent with what Congress would like, I believe that, given the special nature of credit unions, there are good reasons to support this.

    Mr. MCCOLLUM Yes, but my real question is, did you expand your definition? In other words, previously was there a narrower interpretation?

    Mr. D'AMOURS. Yes. We used to have geographic, mileage limits, for instance. This is an expansion.

    Mr. MCCOLLUM OK. That is what I wanted to make absolutely sure, that the critics were correct in that point. Not that it is wrong, but I am just suggesting that we need to know the ground rules here. I need to understand those.

    And, thereby, they could extrapolate, logically, that if you got a facility now that is differently defined, it is going to be further out from the center that you previously outlined as the center for measuring purposes. Therefore, there could be more proximity for bringing people in.
 Page 60       PREV PAGE       TOP OF DOC

    So, again, I am not going to get into a discussion of criticism one way or the other today. I am interested in finding out your interpretation and the facts as opposed to just what somebody else says. That is what I am interested in today.

    Mr. D'AMOURS. I thank you for that, Congressman McCollum. And if this new interpretation should be abused, I believe that we, the board, have the ability to control any abuses that might result from this expansion of the ability of credit unions to reach out.

    Mr. MCCOLLUM Well, you know what the worry is. And I am going to end on this. But the worry is that you've got some electronic facility over here, 10 miles away, and thereby you are going to be able to have some gathering in of a greater force, if you will, and you want to have that credit union expand its membership than what you would normally envision. I have no idea the practicality of that. I don't know whether that criticism is meritorious or not, but it certainly has some logic to the argument.

    Mr. D'AMOURS. In the past, Congressman, we would not allow a credit union to reach out beyond a certain mileage parameter unless it had a pre-existing membership in that service area to be served. We now allow them to go into these areas without a pre-existing membership and building a membership. That has been criticized, but I think that we, as the board, could control abuse of that process.

    Mr. MCCOLLUM Well, we are concerned about it, and that is the type of criticism that I think could be justified. It may or may not be proved to be, but it certainly could be.
 Page 61       PREV PAGE       TOP OF DOC

    Thank you, Madam Chairwoman. I will yield back.

    Chairwoman ROUKEMA. Yes, Mr. Moore, please. Do you have questions? Any other questions on this side?

    Mr. Kanjorski.

    Mr. KANJORSKI. Madam Chairwoman, first of all, I want to congratulate you for holding this hearing. I think that it allows everyone to have a better understanding of the situation. Along with that, Madam Chairwoman, I would like to ask unanimous consent that a letter sent by me on November 12, 1998, to the National Credit Union Administration as comments on its rulemaking be entered into the record at this time to indicate the position from which I come.

    I would like to congratulate the board on taking the act that Congress sent to you and implementing it as speedily, and, quite frankly, as liberally as you did. You will get criticism. There are ultra-conservatives that fear this extensive reach of the credit union movement. While my friend from California may have left, this whole idea that the credit union would go within a mile radius of a fast horse, I think bespeaks the fact that we may be using automobiles today. It is absolutely important that the credit union movement put itself in a position to be competitive with the tremendous changes in the financial services industry.

    I, from Pennsylvania, together with my colleague from the Pittsburgh area, recognize the fundamental need for credit unions in our area. But we also have to call the attention of the subcommittee to the fact that there is a great diversity in the United States of jurisdictions, political subdivisions, and groups of membership that may or may not belong to credit unions. May I call your attention to the fact that Pennsylvania is one of those archaic States that still contains municipal jurisdictions of over 2,500 municipalities, 90 percent of which are under the size of 3,000? So, not one of the 90 percent of the communities in Pennsylvania could independently sustain a credit union. If you start talking about laying out credit unions in jurisdictional lines, you are going to find out that you weed out a good part of Pennsylvania that needs credit unions.
 Page 62       PREV PAGE       TOP OF DOC

    Now, I think that the intention of Congress should be that we give the regulators the opportunity to implement regulation. We should also hold oversight hearings and receive their explanation. I therefore want to compliment the Chairwoman for calling this meeting.

    But I also want to suggest that built within this regulation is a yearly review. If the subcommittee thinks that it is important to review this matter—and I can understand that, particularly given the two definitions the NCUA has made—let us have a review in six or nine months.

    When I look at the statistics that were sent by NCUA to this subcommittee, of the 978 select groups approved since the regulation became effective, 908 of them are under 200, primarily potential members. Now, they clearly cannot form their own credit union. Another 54 select groups are under 500. So, 962 of them are under 500. We are not interfering with the creation of credit unions here.

    Quite frankly, I have to tell you that in most instances the cost today to set up a credit union and service people properly requires sophisticated computers and trained personnel. When you are talking in very low numbers of potential primary members, you are just going to discourage a credit union from providing its services to small businesses and other people who need this type of service.

    If we want to get into the idea of subsidizing, then let us, as a Congress, subsidize small credit unions in needed areas where they are excluded. Let us not tell the credit union movement that you have to be self-sustaining, competitive, and yet do things that we know are economically not feasible.
 Page 63       PREV PAGE       TOP OF DOC

    I think that we have to express, most of all, as Members of the Congress, that we have ably appointed regulators that have indicated a willingness to disagree, and to disagree not on party lines. That is a compliment to the regulators. Let them do their job. Why do we think that they have to come to us to get definitions? You know, I spent many hours and many weekends drafting that bill, too. We all knew that the language we used in that bill was not easily definable and understandable. We also understood that we were going to give the credit unions and the regulators the opportunity to take that ambiguous language and allow them to run with it.

    Let us call them back in in six months, or have them report to us in six months, to get the statistics and we will then see if, in fact, this regulation abuses the intention of Congress. Before screaming and running around this country, and encouraging the banking community to say that we agree with them that the ''sky is falling; the sky is falling,'' we should look for the facts. From the evidence that I hear today, there is no sky falling.

    We have very responsible regulators administering our law and forming regulations. Let us hold back and not feel so constrained to do the bidding of our friends in the banking community.

    Chairwoman ROUKEMA. OK, thank you, thank you. Time is really running on here, and I was almost at the point of asking unanimous consent that there be no more questions, but I will accede to my two remaining colleagues. After these two questions, then I would expect that we will get to the next panel.

 Page 64       PREV PAGE       TOP OF DOC
    I would suggest that we have continuing concerns about Mr. Kanjorski's statement. I won't take the time now to address it except to say that I neglected to ask unanimous consent to have my letter to the NCUA on the rule included in the record. I think that the questions which were raised in that letter of December are still relevant. I have not heard anything that has definitively dispelled those questions. I want that letter to be put into the record.

    Chairwoman ROUKEMA. Mr. Riley.

    Mr. RILEY. I feel like I should apologize for asking a question.

    Mr. Dollar, there has been a lot of talk today about these additional hoops that small credit unions, or small fields of membership, that want to start a credit union must jump through. You gave one example a moment ago that seemed highly appropriate. It seemed like a question that I would have asked as a regulator. Can you give me any other indications of what these hoops and hurdles are that we are asking small credit unions to jump through?

    Mr. DOLLAR. Congressman Riley, let me begin by saying that I think that the most important thing that this agency could do for small and large credit unions to facilitate their success in their safety and soundness would be to create a regulatory environment that minimized hoops, that lowered hurdles that are not safety and soundness hurdles, but were merely paperwork hurdles. And, as I have said earlier, I looked at these numbers that have come into contention here, the 3,000 for economic viability, the 300,000 for community, as merely that, documentation points—not an attempt to increase hurdles for those below, but to remove hurdles for those above.
 Page 65       PREV PAGE       TOP OF DOC

    Mr. RILEY. I guess what I am trying to say, and I think what most Members of this subcommittee would like to know is, how onerous are these additional steps? The one example that you gave seemed very appropriate. Can any of you give me examples that the field of membership of less than 3,000 would have to abide by that a field of over 3,000 would not?

    Mr. DOLLAR. The one that I gave you is the major one, and that is the evidence of member support. There are certainly others that might relate to computer networks. You would need less of a computer network for a smaller credit union than you would for a larger one.

    Mr. RILEY. I cannot believe that that one regulation would cause any credit union either to form or not to form.

    Mr. DOLLAR. I don't think that it will, either. I think that what we need to be doing is to continue to remove those kinds of hurdles.

    Mr. RILEY. Is there any other regulation that we need to know of that——

    Mr. D'AMOURS. We require, Congressman Riley, that they file business plans, marketing plans, indicating a level of sponsorship for it that they can expect to receive, all of which imply that they are going to need special help. It is not the questions that are being asked, but a good regulator needs to know these matters before chartering any financial institution. It is applying these extra burdens—and they are burdensome; it is not as easy as it sounds—it is applying these extra burdens to credit unions as large as 2,999, thus, discouraging them from forming a new credit union and encouraging them to join an existing credit union.
 Page 66       PREV PAGE       TOP OF DOC

    Mr. RILEY. Well, and you have repeatedly said this morning that there are additional hoops; there are additional hurdles, but I have heard just one.

    Mr. D'AMOURS. No, I just mentioned others: the marketing plan, the sponsorship for support, the business plan.

    Mr. RILEY. So, a credit union with over 3,000 would not have to have a marketing plan?

    Mr. D'AMOURS. Well, but they have to file extra—a longer marketing plan, extra steps within that marketing plan, within that business plan, extra parts of the business plan that they have to meet. They have to prove the level of sponsorship of support, for example. It is not unburdensome to reply to these matters.

    Mr. RILEY. It may be burdensome, but it doesn't seem like that would be a deterrent.

    Mr. D'AMOURS. Well, I would think that anything that makes it harder to do something makes it easier to do something else. And what we are making it harder to do is to form your own credit union, which this subcommittee asked us to make easier to do.

    Mr. RILEY. Let me approach it from this way, and I know that my light is on and my Chairwoman wants me to hurry: You said a moment ago, Mrs. Wheat, that since January—and I believe that is when these rules took effect; we are into this one month now—there have been 968 applications, or was that 560 new credit unions established?
 Page 67       PREV PAGE       TOP OF DOC

    Ms. WHEAT. There were 978 approved to join currently existing credit unions.

    Mr. RILEY. Do we have any kind of documentation now on whether or not these rules have, in effect, caused smaller credit unions not to come forward in a month's time? I guess I must go back to what Mr. Kanjorski said a moment ago, and that is that we have been doing this for 30 days now. How can we make this kind of interpretation, these kind of broad, bold statements here, when we have absolutely no historical fact to base it on?

    Mr. DOLLAR. Congressman Riley, may I say that I think that is the reason why we put the one-year evaluation period into the regulation, realizing that we needed some time to compile that type of data and to look and see, with a year under our belt, and hopefully, again, with two and three and five years under our belt, whether or not we are accomplishing what we set out, both as safety and soundness regulators and in keeping with congressional intent, to try to encourage, and which I agree, to charter new credit unions. I would even go so far that, through a reduction in our paperwork process, that we can help facilitate the creation of new credit unions. I think that we have a difficult time as a regulator to require the creation of new credit unions.

    Mr. RILEY. Have any credit unions been denied or turned down in the first month that are under 3,000, basically because of their field of membership?

    Ms. WHEAT. I would have to submit a written response because we haven't collected that data. There have been groups—there has been an application by a group over 3,000, and it has been denied. But I would like to get back to you with the specifics on that.
 Page 68       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. All right. Thank you.

    I would ask, given the fact that we have three consecutive votes coming up, and that this is the conclusion of this panel, do I have unanimous consent that we dismiss this panel and resume immediately after these three votes with the second panel? Do I have unanimous consent for that? Thank you.

    Mr. D'AMOURS. Madam Chairwoman, is unanimous consent granted that our entire statements be submitted?

    Chairwoman ROUKEMA. Oh, I am sorry. That should have been done. If I did not do that at the beginning, I will do so now.

    Mr. D'AMOURS. Thank you.

    Chairwoman ROUKEMA. Unanimous consent that witnesses' full written statements will be made a part of the hearing record, along with the documentation that both Mr. LaFalce, Mr. Vento, and I requested.

    Thank you very much. We appreciate it.


    Chairwoman ROUKEMA. Well, there are a certain number of conflicts here today, and I am sorry that our two Democratic senior Members had conflicts with other meetings. They expected to be back by this time, but I am advised by staff that we should begin and continue with the hearing in any event. Other Members will be arriving shortly, I believe.
 Page 69       PREV PAGE       TOP OF DOC

    The panel can be assured that all the testimony will be on the record and will be reviewed by both staff and Members as a permanent part of the record.

    I am very pleased to have this group with us here today. We have representatives, actually CEOs, of operating credit unions. They are not speaking in theory; they are speaking from practical experience here today.

    Our first witness—and I believe I will just introduce them in the order in which they will be heard—is Mr. Stuart Perlitsh. Am I pronouncing that correctly? And Mr. Perlitsh is President and CEO of Glendale Area Schools Federal Credit Union of Glendale, California. Mr. Perlitsh has 25 years of experience working with credit unions, and he has served in executive positions in three separate credit unions in California. They are small credit unions. Having heard the previous panel, you do know that the question of size is central to many of the issues that have been raised.

    Also, we have Mrs. Doris Painton. She is the co-manager—and she is here today, along with her husband, Robert—of Irondequoit Federal Credit Union. Am I pronouncing that correctly? I am having trouble here today, aren't I?

    Ms. PAINTON. It is an Indian name.

    Chairwoman ROUKEMA. Irondequoit?

    Ms. PAINTON. Irondequoit.
 Page 70       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. Irondequoit Federal Credit Union in Rochester, New York. Both she and her husband have had extensive experience with credit unions. Mrs. Painton has 35 years of experience working with a credit union and has been active in the credit union movement for many years. Her husband is here with her today, as I indicated, and also has long experience and is directly associated with the same credit union in Rochester. Mr. Painton will be speaking on behalf of both.

    The third witness is Ms. Carol Aranjo, who is the President of the D. Edward Wells Federal Credit Union in Springfield, Massachusetts. Ms. Aranjo is speaking on behalf of the National Federation of Community Development Credit Unions. That is a little different angle than we have had from previous speakers and other panel members, but a very important one to understanding the full range of credit unions as they apply to community development and low-income areas.

    We welcome you here and, without further introduction, I would simply ask for Mr. Perlitsh to begin. Again, I will repeat, we will try to adhere to the five-minute rule in consideration of our time limit. We do have to be out of here by 2:00 o'clock at the very latest, and I will try to be fair about wielding the gavel.

    Mr. Perlitsh.


 Page 71       PREV PAGE       TOP OF DOC
    Mr. PERLITSH. Thank you, Chairwoman Roukema, for inviting me this afternoon to speak with you and the subcommittee regarding the NCUA, and specifically, the eight questions pertaining to the final rule on chartering and the field of membership.

    My name is Stuart Perlitsh, and I am testifying as CEO on behalf of the Glendale Area Schools Federal Credit Union. The credit union has 10,500 members and $88 million in assets. You have my written testimony. I would like to elaborate on the eight questions framed in the context of the House vote and the Senate vote.

    We have here an overwhelming, bipartisan congressional mandate for your constituents. Now they have a real choice in the financial marketplace. This is especially important today as banks continue their global, predatory feeding frenzy at the speed of light. It borders on economic cannibalism.

    In December of 1980, there were 14,400 FDIC-insured banks. In December of 1997, that number dropped like a knife through hot butter to 9,100. Now, more than ever, your constituents need a choice in the financial marketplace. We can agree that the final rule is not perfect. There exists some imperfections. These can all be resolved by the various State trade associations, the national associations, our regulator, and the family of 11,000 credit unions of which I am so very proud and honored to be a part of these past 25 years.

    The House vote and the Senate vote was a ringing endorsement for credit unions and consumer choice. In light of the mandate reflected by the overwhelming bipartisan vote, and the fact that the Members of this body, as well as the full House and Senate, had a vigorous and lengthy debate on credit union-related issues, I am a bit surprised, as are many of my colleagues, to be back before Congress so soon.
 Page 72       PREV PAGE       TOP OF DOC

    My written testimony details my answers to the subcommittee and Chairwoman's questions, but, in brief, I believe that the NCUA has an obligation to promote the chartering of new credit unions and should consider working with other Federal agencies to promote credit unions. The NCUA should be flexible with any numerical thresholds. Groups of less than 3,000 may be viable as independent credit unions. The NCUA should provide a potential group as many choices in credit union service as possible. The regulation does not seem to favor one size credit union over another. Regardless of size, all credit unions share a common mission.

    Finite limitations, such as mileage, are not appropriate. A potential group should be within the service area of the credit union. The service area should be defined by the NCUA on a case-by-case basis. The NCUA has an obligation to provide the potential group with a list of compatible credit unions to join. It would make for poor public policy for the NCUA to dictate the choice of credit unions to the group. American democracy and H.R. 1151 are about preserving choice.

    The congressional intent was to allow all of America's consumers a choice in financial services. In fact, the more expansive membership definition, I submit, would be required, as in my testimony. The NCUA must not unfairly create a population threshold that does not meet the needs of local communities for a Federal credit union.

    I have testified on what credit unions are doing to serve your constituents. The Members of this great body have served their constituents by passing H.R. 1151. Because of your support, your constituents now have the choice of where they may go for their financial needs, the for-profit bank and thrift, or the not-for-profit member-owned cooperative credit union.
 Page 73       PREV PAGE       TOP OF DOC

    But perhaps the greatest concern is what role the Nation's banks are playing today and will play in the future for you and your constituents. They now own approximately 98 percent of the market, yet they are demanding from Congress that they get the other 2 percent by unfairly limiting the ability of credit unions to grow and offer services to members while at the same time encouraging Congress to enact liberal, financial modernization legislation and the opportunities for tax-exempt, Subchapter S status.

    Just consider what the marketplace would be like without credit unions. The banking industry is on the verge of a total marketplace monopoly. I worry about the future financial well-being of my children. I worry about what their choices will be if banks were the only choice. What will they have to pay for loans? How many more fees will be imposed on them? How much will they pay to speak to a teller?

    In one minute, if I could conclude?

    If credit unions, as the banking industry contends, got so many unfair competitive advantages, I would invite them to trade in their bank charter and apply for a Federal credit union charter. Such a conversion would force the bank to eliminate their stock options, to recruit a volunteer board, live under stringent regulations, and the bank CEOs would have to take a drastic pay cut. Adopt a democratic structure, such as credit unions, a one-member/one-vote policy, and go from a potential membership of over 270 million, the United States population, to a limited and restricted field within their community, of course, subject to approval by our Federal regulator. These are a few of the competitive advantages enjoyed by credit unions.

 Page 74       PREV PAGE       TOP OF DOC
    While we have no quarrel with the banking industry, we are at a loss to explain why they are so relentless in their attacks to undermine the Nation's credit unions with over 76 million members. We believe that if banks spent more time focused on their customers and less time focused on credit unions, they would see the value in helping people, a value that has been the bedrock principle of credit unions since our creation.

    Finally, our relatively insignificant 2 percent of the market represents an absolute lock on their virtual monopoly. Now they want to limit our ability to grow. They ought to be ashamed of themselves.

    I invite your comments.

    Chairwoman ROUKEMA. Excuse me, they are trying to limit—I'm sorry, I was distracted here with a question of my own. Give me that last sentence, please.

    Mr. PERLITSH. The last sentence was that the banks ought to be ashamed of themselves.

    Chairwoman ROUKEMA. Thank you.

    Mr. Painton.

 Page 75       PREV PAGE       TOP OF DOC

    Mr. PAINTON. Thank you, Madam Chairwoman, for allowing me to speak on behalf of my wife and our credit union.

    Doris and I have been in the credit union movement for 35 years. I started as a treasurer of a small credit union when it was just getting started in the school district, and I was a teacher by profession, retired teacher, and we moved to another credit union that was floundering, and we have brought that credit union back very nicely.

    We co-manage the Irondequoit Federal Credit Union in Rochester, New York. And at the present time we represent 1,475 members, and our assets are nearly $5,000.

    Mrs. PAINTON. Five million dollars.

    Mr. PAINTON. I'm sorry, $5 million. Thank you.

    We are a full-service credit union with our own building. We bought a very modest ranch house and converted it, so that we had an office to serve the membership. We are proud of the fact that three years running we won the full family marketing award in New York State for credit unions under $5 million. We were chosen number one in that category.

    We've been with the movement for 35 years, and we have kind of watched the evolution as it has come along. We are here because we have a special burden for the movement itself, first and foremost, but in recent months and recent years, an increasing burden for the small credit union. We hope one day that perhaps our grandchildren will be able to enjoy membership in a small credit union and the benefits that it brings to them.
 Page 76       PREV PAGE       TOP OF DOC

    We feel that the future of the movement and small credit unions, by virtue of the decisions that the NCUA board has made, has put the movement and small credit unions in serious jeopardy. We feel that the NCUA has changed the rules in a way that is not in the best interest of the movement. Our written testimony will explain it in more detail than I can right now, but just in the area of the chartering of credit unions, we feel that Congress gave them the specific responsibility to charter new credit unions.

    Yet, historically, in the past 15 or 20 years, the number of charters has diminished tremendously, and I believe that their setting a threshold of 3,000 for a viable size economic credit union is wrong. It is going to even further discourage the chartering of credit unions. And, we feel that what it is doing is enhancing more of the addition of SEG groups and smaller groups joining large credit unions, and I feel they should be doing more in the chartering area.

    In terms of the field of membership family tree, for the last 18 or so years, we have been operating under the concept of a family tree membership, where anyone in the immediate family or relatives of the immediate family, whether they live under the same household or not, could become a member. And what better common bond than a family membership bond?

    It appears now as though perhaps that's even being drawn back to people who live under the same household or under the same roof, and for small credit unions that is reducing the means by which we can add controlled growth to our credit union. As witnessed by the decisions recently, and the rules that they have made their decisions on, we feel that competition is being brought into the credit union movement.
 Page 77       PREV PAGE       TOP OF DOC

    Years ago, we weren't in competition with any credit union. In fact, we worked side by side with them. If we had any problems, we could go to them for their help. I think now, by virtue of the decisions that they have made, I think NCUA has lost sight of the small credit union and they are only focusing on this whole idea that got this thing started, and that is consumer choice banks versus credit unions.

    I think now that concept has been brought to the credit union family and now it is consumer choice among credit unions. And, I do believe that smaller credit unions don't choose to become large credit unions; they choose to remain small and serve their members the way they're presently doing it. But, I do believe that the rules and regulations that are now being given to us are going to enhance the whole playing field for the larger credit unions to go out and get as many members in as they can.

    We just don't have the staff to go out and seek SEG groups, seek areas of 300,000 or more. I just believe, too, that the community overlap, without any ability of a credit union to say that they are against it, is eventually going to be the demise of the small credit unions. And if that happens, then I really think prophetically it could be the demise of the NCUA.

    If we're just a group of big credit unions, then why have NCUA? Merge it with the banks. Again, in our testimony, we had several recommendations that we made. I don't know if you want me to address those now or just pass on them?

    Chairwoman ROUKEMA. In the follow-up questioning.

 Page 78       PREV PAGE       TOP OF DOC
    Mr. PAINTON. OK.

    Chairwoman ROUKEMA. Thank you.

    Mr. PAINTON. Thank you.

    Chairwoman ROUKEMA. Ms. Aranjo.


    Ms. ARANJO. Thank you, Congresswoman Roukema, for having these hearings. As Chairman of the Board for the National Federation of Community Development Credit Unions, an association of 170 credit unions in 40 States, I have a special mission of serving low-income American communities and consumers.

    The great majority of these credit unions would be categorized as small. The average one has assets of less than $2 million. But often these credit unions are the only source of affordable financial services in these communities.

    We are very concerned about some of the measures that the National Credit Union Administration took at their December meeting. We feel the agency's regulations, taken together with the growing sentiment in some parts of the credit union industry, will put small credit unions on the endangered list and create unfortunate and unnecessary hurdles to community groups trying to start and maintain new credit unions that service predominantly low- and moderate-income communities.
 Page 79       PREV PAGE       TOP OF DOC

    Historically, the Federal agency that regulated credit unions always worked to establish and charter new credit unions. After the credit unions began to pay for Federal share insurance, that assistance in forming new credit unions began to change. Emphasis on protecting the insurance fund became the priority.

    During the late 1980's and 1990's, chartering of new credit unions dwindled to a dozen or less each in the entire United States. From the end of 1989 through 1992, no Federal charters were issued for new credit unions to serve low-income communities. NCUA's new policy seemed to grant charters to small credit unions, small groups, especially small community groups, during that period.

    On the contrary, they involuntarily merged or liquidated many of the small and community development credit unions operating in these areas. Starting in 1992 and 1993, the NCUA board, under the guidance of board members, Chairman D'Amours, Shirley Bowne, and Mr. Swan, reversed that pattern and began chartering credit unions again. Instead of liquidating or merging small credit unions, NCUA developed a system of assisting them in solving the problems which plagued them. The Office of Community Development Credit Union was created, and it has been instrumental in helping subscribing groups to obtain new community charters and in helping small credit unions solve their problems. Its work is fundamental to the success of small credit unions, and we believe that it ought to be made permanent.

    We understand the need to preserve the National Credit Union Share Insurance Fund, but we asked for a study seven years ago by Chairman Jefferson as to what effect the small and community development credit unions have on Share Insurance Fund, and that study came out that it was very negligible, that there were high delinquencies in low-income communities, but very little loss.
 Page 80       PREV PAGE       TOP OF DOC

    I attended the December 17th board meeting and was very disturbed at what I had seen. Board member Yolanda Wheat made the motion, and it was cast by the board 2–to–1 to limit new charters to groups of at least 3,000. We encouraged them to research the thousands of small and viable credit unions already in existence that have less than 3,000 members, even today. Under the rationale that I heard at that meeting, it concerns me as to whether or not those credit unions will continue to exist if the attitude at NCUA is that less than 3,000 is a safe and soundness issue.

    My credit union will celebrate its 40th anniversary in March of this year. We have a membership of 2,700. We don't like hearing that we are a safety and soundness issue and we may find ourselves in jeopardy. Small credit unions—to charter a credit union today in a community, it takes two-and-a-half to five years.

    In my testimony, there is some documentation from startup groups of the problems that they run into. I want to leave my prepared text, as my time has run out, because I want to answer some of the things that I heard this morning.

    Congressman Vento said only a 100 new credit unions with less than 3,000 members were chartered in the last so many years. He needs to ask, how many credit unions started and were discouraged because the process took—the credit union that just got its charter in Rhode Island took six-and-a-half years. There is a proposed credit union from Georgia, it started in 1991; they still do not have their charter. Some people persevere, some communities, through the three-and-a-half, five-to-six-year process; some do not. No one has given you the statistics of how many started, and regional directors just never gave them a yes-or-no answer, and they are just sitting out there languishing in the pipeline. Congress needs to ask that information.
 Page 81       PREV PAGE       TOP OF DOC

    Also, the number of small credit unions that Ms. Wheat said were unsuccessful or had to be liquidated, during the H.R. 1151 study, we gave you a paper which showed 20 credit unions that had been closed, low-income credit unions, under $10 million that had been closed in a ten-year period. And of those 20 credit unions, the loss to the insurance fund was $20 million. That loss, one large credit union would do that; that was 20. Small credit unions are not afforded 208 assistance, which Congress put in to survive. The second oldest African-American credit union was sold to a white community Monday of last week.

    I would like to say what Ms. Wheat does not say has happened in the last 30 days is that four community credit unions were threatened with not liquidation anymore, but purchasing assumptions by larger credit unions. The regional director in region 1 nationally circulated a petition for credit unions interested in taking over Central Brooklyn Credit Union, even though they were given until February 28 to give a plan of how they would become solvent. They are already marketing nationwide. There are some things the Board is not telling Congress.

    Chairwoman ROUKEMA. Thank you very much. With respect to that last question, as you heard, we were going to submit a number of them to them to get that kind of data and the rationale and explanation.

    Let me say that I appreciate the contribution you've made here. Let me observe that Mr. Perlitsh used some rather strong language, almost as strong as Congressman LaFalce's, in terms of not only defending, but your credit unions——

    Mr. LAFALCE. I may have met my match.
 Page 82       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. You may have.


    Well, you are in competition, anyway. You have competition. But, I am much more interested—now, the reason I asked you the question was that I was focusing, in my own mind, on the distinctions between the small credit unions and the large credit unions. To the extent that the new regulation seemed to be unfair to the small credit unions, and I was looking more for that comparison.

    Now, let's put it in between small and large, and some of your remarks have been addressed to that. But, let me ask two questions, two related questions: one, to give Mr. Painton the opportunity to refute those recommendations that you referenced. Also, I think what I would like to hear you refute, from your own experience, the charges that have been made strongly by Mr. Dollar about the economic viability. Now, on the basis of your own experience, can you refute the inference that there are no objective standards, financial standards, whereby you can justify your existence? I mean, that's the suggestion here.

    So let's begin with Mr. Painton. If you want to restrict yourself to your recommendations, that's fine, in consideration of time, and then we will go on with a brief comment, with the understanding that you could add anything in written form and make it part of the record.

    Mr. Painton.
 Page 83       PREV PAGE       TOP OF DOC

    Mr. PAINTON. I do believe that the marketplace has changed, and, possibly the 500 that they've operated with in the past, maybe that needs to be raised a little bit. But, I guess in listening to the previous testimony, I immediately got the feeling, wow, with 1,475 members and close to $5 million in assets, I would be quote, unquote, one of those ''economically unviable credit unions'' because our maximum membership, our potential is 2,500, and we're doing just fine in the marketplace. We are able to offer full services and we are able to remain very solid as far as liquidity and all the other issues are concerned. So, I can't necessarily refute the——

    Chairwoman ROUKEMA. Can you refute the document with some objective financial standards out of your own records?

    Ms. ARANJO. Out of NCUA's manual.

    Chairwoman ROUKEMA. Yes. Thank you.

    Mr. PERLITSH. Yes, I would like to address that, if I could.

    Chairwoman ROUKEMA. I don't know if Mr. Painton has completed.

    Mr. PAINTON. Yes.

    Chairwoman ROUKEMA. Do you want to go on to Mr. Perlitsh, then we will come back?
 Page 84       PREV PAGE       TOP OF DOC

    Mr. PAINTON. Go on.

    Ms. ARANJO. I'll make a statement.

    Mr. PAINTON. If she can make a statement——

    Ms. ARANJO.——in regards to——

    Chairwoman ROUKEMA. Yes.

    Ms. ARANJO. The other reason for mistreatment of small credit unions is the fact that we are the biggest quantity of credit unions in the United States and we have no voice. We have no voice, and this is why this is coming about. We have never been heard; we don't have the time, and if somebody does tend to trail after it and try to get something going——

    Chairwoman ROUKEMA. Have you been purposely closed out or has it been a question of time and effort?

    Ms. ARANJO I have been censored, yes.

    Chairwoman ROUKEMA. All right, we are getting on in time here, but, Mr. Chairman, I am going to unilaterally grant myself a little more time.

 Page 85       PREV PAGE       TOP OF DOC
    Mr. Perlitsh.

    Mr. PERLITSH. Yes, regarding credit union formation, the NCUA cannot realistically impose a numerical requirement because the issue really and fundamentally must go to the business plan that the promoters are putting out in forming the credit union. Because if the credit union is promoting to offer full financial institutional services to that membership, then they are going to need a significant number of members in order to support the enterprise.

    Now, if on the other hand, the credit union is being promoted, it's only going after serving a certain niche within that community that that credit union promoter has put up, then a smaller number would be sufficient and would make the credit union viable. But, I don't think the focus should be on the numbers, but, instead, the focus should be on what is the business plan that the promoters are offering for this potential membership.

    Chairwoman ROUKEMA. Thank you very much.

    Ms. Aranjo.

    Ms. ARANJO. The economic viability that board member Dennis Dollar referred to doesn't really go along with what they do when they try to raise small credit unions. Generally, a small credit union is given an LUA, a letter of understanding, which tells them when they can loan, when they cannot loan, what dollar amount they have to reach before they are able to render certain services. So they have those controls in place.

 Page 86       PREV PAGE       TOP OF DOC
    This is not about economic viability. This is about small credit unions in regions—in NCUA, it depends on—the pendulum swings both ways. There was a time when small credit unions were in vogue and NCUA had an Office of Community Development. Then small credit unions went out of vogue when the board changed and they closed that Office of Community Development. Then, small credit unions came in vogue again, and they opened a new Office of Community Development, and small credit unions were being chartered. And, regional directors do not like small credit unions in their area; it's too much work to look after them.

    So, what you find is, when they are allowed, and they have a lot of authority—one just made a statement a couple of weeks ago that he's closing a credit union—I believe they sent you a letter, Congresswoman Roukema—from Maine, Waldo Credit Union. His statement was, ''I'm closing them because I can and I don't have to go to the NCUA board because, as a regional director, I have that authority.''

    And, when they perceive, as the board is today, not quite in favor of small credit unions any longer and the regional directors perceive this, they are at liberty, then, to deny charters to small credit unions, to sell and merge small credit unions, and any low-income or small community credit union can be determined a safety and soundness issue just by examiners going into that credit union, reclassifying its loan portfolio, because in those communities, the loan portfolio's credit reports do not look like the crystal credit reports that you get in the high-income communities.

    So, it is very easy for me to be solvent today, and someone decides that I am a pain in the neck, and they come in and reclassify my entire loan portfolio because I serve an ethnically poor community, and say, you are now insolvent because you loaned to that welfare mother who had three delinquent marks on her credit report, so I am going to make your credit union reserve a 100 percent on that loan. That's easily done, and has been done, by many regional directors. So that economic viability needs to be really looked at, as to how do they come to that conclusion.
 Page 87       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. That's why I am trying to get at some of these objective financial standards that we are talking about.

    All right, my time is long overdue.

    Yes, my colleague, Mr. Sherman.

    Mr. SHERMAN. Thank you. I think we are in agreement that the regulatory board should be doing everything possible to assist the formation and continued independence of the small credit unions. And I know that the next panel will include some discussion of concrete steps that can and should be taken. On the side of creating new credit unions, I believe Mr. Curtin is going to propose that the examiners once again use some of their time to assist groups in forming new credit unions.

    We have fewer credit unions for them to examine, in part, because of the problems that have been outlined by some of the members of this panel, and they should give the examiners some time to try to create and provide guidance to groups that want to form credit unions.

    Second, I believe Mr. Curtin is going to be pointing out that NCUA has kind of let lapse its booklet or book, ''Credit Union Organizer's Manual.''

    I just want kind of a yes, no, or nodding, whether you folks found that manual helpful at various times in working with new credit unions. But I'm told that it's out of print and obsolete. And I would hope very much that the NCUA would republish it and update it.
 Page 88       PREV PAGE       TOP OF DOC

    I think there have been illusions here to the need to get the SBA and HUD and others who are involved in community development to work with the NCUA in developing new credit unions. I gather from Ms. Aranjo—am I pronouncing your name correctly?

    Ms. ARANJO. Yes.

    Mr. SHERMAN. Ms. Aranjo's testimony that the Office of Community Development is now in vogue and is now functioning in trying to help community development credit unions?

    Ms. ARANJO. It operates at the board's whim, and we hope that Congress will make it permanent or give it some sort of status, so that it is not like, when you're here, I like you; today you're fine, and tomorrow you're passe. It is hard for small credit unions to operate in that type of atmosphere.

    Mr. SHERMAN. I think that the NCUA is here and I realize—well, I am 50 percent of the subcommittee.


    Fifty percent of the subcommittee strongly believes that, whether it be through this office or that office, the efforts of community development should be a strong part of credit union movement. And I recognize that if you're going to serve poor people, you're going to end up facing more money problems or more people with money problems than if you serve middle-class people. I mean, that's one of the things about being poor.
 Page 89       PREV PAGE       TOP OF DOC

    And it is possible that a credit union that serves the poor is going to have more actual or, as you point out, at least perceived risk in its portfolio. And somehow the NCUA needs to factor in the good work that you're doing in poor communities and say, look, OK, if we have 100 credit unions operating in poor communities and they're taking certain risks, and we perceive that that will cost us a little more out of our fund than 100 similarly situated credit unions operating in middle-class communities, that's good. That's a little extra risk that we as a society ought to be able to take.

    If you have a credit union debted—with all due respect, if the Beverly Hills credit union is lending money to people with terrible TRW reports, that may not be as good a thing for them to do as someone who is setting out to serve a poor community where an awful lot of people have bad reports.

    I just want to quickly get to this issue of 3,000 potential members because there was a lot of the discussion in the earlier panel. First, I would hope the NCUA would focus on—I mean, 3,000 potential members is just kind of a measuring stick for how many actual members you are likely to have. Now, in my community you could have 3,000 potential members and only end up with 30 real members, because there are just so many financial traces. I pass dozens of banks every mile on my way to work, and dozens of credit unions are in every town I represent.

    And, so what I suggest to NCUA is that, if they are going to have this provision of less paperwork for those with 3,000 potential members, that they give that same benefit to any group that has 300 people sign a petition saying, ''I'm eligible and I'm willing to join.'' Because the only reason they have this 3,000-potential-member viability standard waiver of paperwork is because they expect so many people to join out of those that are potential. So, why not just skip that step and just say, well, do you have at least 300 people who signed a petition?
 Page 90       PREV PAGE       TOP OF DOC

    And, I would think that anyone involved in community organizing—they can't get 300 signatures, maybe they should fill out the additional paperwork. And, I will say that the two credit unions represented here, I think one of you indicated that, Mr.——

    Mr. PAINTON. Painton.

    Mr. SHERMAN. Mr. Painton, I can't read that far. You indicated that you had fewer than 3,000 potential members, but you have well over 1,000 actual members. I think the focus here, if there is a belief that to get started you have to have a few hundred, maybe even 500, actual members, the best way to show that is with a petition from people who are saying that they will actually join, or, if you want, with the 3,000 potentials. I would hope that the NCUA would stop addressing with—OK, they can address how many actual members you're going to have, but they should allow you to establish how many actual members a new organization is going to have.

    I know my time is up.

    Chairwoman ROUKEMA. Yes, we will have to leave time for the third panel and we are fast coming to an end. Now, again, if there is something explicit you want to relate back to Mr. Sherman and myself, please put that in writing. With respect to the specific observations he has made, although I would suggest that they are probably consistent with everything that you are thinking right now.

    Ms. ARANJO. Congresswoman, I would just like to say I wish Mr. Sherman measured, at saying that if NCUA would take a little more risk, take a little money out of the fund to save those credit unions' savings, serving low-income communities—I wish you could have been out before last Monday; the African-American community would have been able to save its history. Because last Monday NCUA sold the second oldest African-American credit union in the country and we lost a part of our history.
 Page 91       PREV PAGE       TOP OF DOC

    Chairwoman ROUKEMA. All right, Ms. Arenjo.

    Panel, we do thank you for being with us this today and we regret that we did not have more time. Unavoidably, we have another markup coming up shortly, but we do thank you for all of your contributions to our understanding of the issues. Thank you.

    Would the third panel please come forward? Thank you.

    I apologize for the lack of attendance here. I do know that at least one of our Members is en route. Mr. Sherman just apologized that he had another conflict. But, I can tell you that that does not mean that your testimony is not significant in terms of our evaluation, certainly my evaluation, and Mr. Vento and Mr. LaFalce's evaluation, as to how we best follow up with the issues with NCUA and with other Members of Congress on the issues that have been very relevantly brought to the subcommittee's attention today and consider a few areas of agreement.

    We are going to have to make our determination based on what the statutory and congressional intent was considered to be. And, of course, we will continue to work with the NCUA in terms of any ambiguities in their own positions.

    But, this particular third panel has a wide range of interest and experience here, as we will see, beginning with Mr. Harley Bergmeyer, and he is President of a prominent bank in Wilbur, Nebraska. In addition, he is officially representing here today, testifying on behalf of the American Bankers Association. Given the legal circumstances under which we are operating here, that is, of course, most relevant. Not that we are a jury or a courtroom here, but it is most relevant as to the different interpretations that have been out there as to what is or is not the congressional intent in the legislation.
 Page 92       PREV PAGE       TOP OF DOC

    The second witness represents the Credit Union National Association, Diana Roberts and she is here herself as President of a credit union in Hershey, Pennsylvania, a Federal credit union.

    The third witness is speaking on behalf of America's Community Bankers, John Garrison, and he is President of a savings bank in Walden, New York. We welcome him here today.

    The fourth witness is Raymond Curtin. Mr. Curtin is President and CEO of the Empire Federal Credit Union in Syracuse, New York.

    There seems to be quite a range of experience here.

    And, finally, last but not least, as the saying goes, Mr. Stenehjem is President of the First International Bank and Trust in Fargo, North Dakota. Mr. Stenehjem is testifying on behalf of the Independent Bankers Association of America, the IBAA, as it is known. We do appreciate it.

    Mr. Bergmeyer, will you begin.


 Page 93       PREV PAGE       TOP OF DOC
    Mr. BERGMEYER. Thank you. I would like to thank you, Madam Chairwoman, for holding this timely hearing. We agree with the concerns that you and Representative LaFalce have raised regarding NCUA's field of membership rule. Your perspectives are important because you were instrumental in drafting the statute. We felt so strongly that the NCUA disregarded the law that we had no choice but to challenge the rule in court.

    Rather than fostering small, independent credit unions, as Congress intended, NCUA's rule is biased toward large, multiple-group credit unions. Rather than fostering cohesive, locally based, rules-based credit unions, as Congress had intended, NCUA's rule promotes geographically expansive credit unions. Rather than providing a reasonable definition of ''immediate family member,'' as Congress intended, NCUA's rule could result in virtually infinite fields of membership.

    We do not intend to reopen last year's congressional debate through the courts. ABA opposed the credit union bill because we felt it was too broad, given the tax and regulatory advantages enjoyed by the credit unions. We understand that the multiple bond will be permitted even if the court rules in our favor. However, we cannot stand idly by while NCUA creates rules that violate the law.

    The critical question is, are credit unions meant to be local institutions or are they meant to be large, geographically broad institutions with billions of dollars in assets? We believe last year's law was intended to protect smaller, independent credit unions. NCUA's rule, however, stands the law on its head. It is permeated with a bias against smaller credit unions and encourages the gobbling up of small groups by large, aggressive credit unions.

 Page 94       PREV PAGE       TOP OF DOC
    Today I will address the field of membership rule, but there are other important rules being made by NCUA, such as the business lending rule that we believe also oversteps congressional intent. Let me turn to a few key concerns on the field of membership rule.

    First, the statute requires NCUA to encourage the formation of separately chartered credit unions. NCUA's rule fails to meet this requirement. For example, NCUA makes small groups jump through more regulatory hoops than large groups to show viability. Simply put, this rule tells large credit unions to get bigger and it tells small groups, wanting to form their own credit unions, not to bother.

    NCUA's rule also destroys the concept of local in several ways. First, Congress said that any new group must be within reasonable proximity to the credit union it wants to join. NCUA's rule nullifies this limitation. By setting up shared facilities in distant locations, a large credit union can bootstrap itself in reasonable proximity to practically any group.

    Second, Congress added the word ''local'' to the laws to limit the geographical area of community credit unions. NCUA's rule simply presumes, with no evidence, that a single county with fewer than 300,000 people or multiple counties with fewer than 200,000 people are local. These assumptions are absurd. In my State of Nebraska, you could put 46 counties together without reaching 200,000 people. This so-called community would cover 44,000 square miles—more than five times the State of New Jersey and over half of the State of Nebraska. Is this a community? Of course not. And, yet it would qualify as one under NCUA's rule. Far worse, the rule has no absolute outside limits and no objective standards to judge communities over these population thresholds.
 Page 95       PREV PAGE       TOP OF DOC

    Finally, Congress intended a tight, objective standard for membership eligibility. Instead, NCUA's rule allows for an infinite field of membership by creating the possibility of a never-ending chain of individuals eligible to join. The law made the definition of ''immediate family'' and ''community credit unions'' major rules subject to congressional review. We urge such a review.

    In conclusion, Madam Chairwoman, we believe NCUA has disregarded the law by weaving a bias for ever-larger and geographically diverse credit unions throughout the fabric of this rule. Thank you.

    Chairwoman ROUKEMA. Yes, Ms. Roberts.


    Ms. ROBERTS. Good afternoon, Chairwoman Roukema and Members of the subcommittee. My name is Diana Roberts and I am President of the Hershey Federal Credit Union in Hershey, Pennsylvania. I am here before you on behalf of the Credit Union National Association, the Nation's largest credit union trade association. Through our nationwide network of State credit union leagues, CUNA represents over 90 percent of America's 11,300 Federal and State-chartered credit unions and 76 million credit union members.

    Before I begin answering questions posed in your letter, let me tell you about my credit union. Hershey Federal Credit Union is a $25.5 million credit union, established in 1949. In addition to serving the employees and family members of the Hershey Foods Company, our credit union serves 18 other SEG employee groups. These groups range in size from the Hershey Entertainment Company with 400 members to a cleaning service with two members. In between, we serve groups ranging from a local college to a vegetable and fruit packing company, to a tool-and-die shop.
 Page 96       PREV PAGE       TOP OF DOC

    In 1988, we brought in our first SEG, a construction supply company which had been searching for a credit union. We were selected because of convenience and because we are a small credit union. Pennsylvania State Employees Credit Union, 15 miles away and $1 billion in assets, is actually closer to the company's headquarters. But larger doesn't always fit a SEG's needs. My point is that, as a small credit union, I don't feel a competitive disadvantage to any credit union, large or small. It is service to the consumer that really matters.

    In responding to the subcommittee, I commend you for today's hearing. Congressional oversight on the regulatory process is not only your clear responsibility, but also a healthy aspect of the interaction between Government and the private sector. We welcome the scrutiny as a way to assure public confidence in the laws under which we operate.

    Also, the new law requires the review of the definitions of ''immediate family'' and ''local community'' under the major rule provision. We are confident that you will be diligent in this review as well. At numerous points of the new law, Congress instructed the NCUA to define certain terms. In general, Tina Fields with the NCUA acted responsibly in coming up with those definitions.

    For example, Congress told the NCUA to define ''reasonable proximity.'' According to the law, when a credit union adds a new group, the group must be in reasonable proximity to the group. NCUA devised a rule that balances geographic convenience and economic reality to safety and soundness concerns the Congress demands to regulators. In short, the NCUA was charged with devising a real-world answer for a real-world situation. We believe that this was done in a sensible and legally consistent manner.
 Page 97       PREV PAGE       TOP OF DOC

    While we answered all eight of your questions in our written testimony, I would like clear up possible confusion regarding the use of the 3,000 members. The law states that only groups of fewer than 3,000 members are eligible for membership, unless a larger group couldn't feasibly or reasonably establish a new credit union. In other words, 3,000 is the ceiling for the size of the new SEG, unless NCUA determines that a group larger than 3,000 couldn't or shouldn't form its own credit union because of economic or safety and soundness concerns.

    Second, the NCUA devised what some have wrongly characterized as a 3,000-potential-member floor to determine whether a group could form a new credit union. This replaces the 500-minimum number which was widely considered to be outdated, given changed economic times. Experience shows that only 10 to 20 percent of potential members join a credit union in its first years of operation and that only one-third join even a mature credit union.

    Congress asked the NCUA to use its considerable experience in making judgments about new SEGs and new credit unions, and we feel the agency has done so in a prudent manner.

    Overlapping fields of membership are another issue for discussion. Quite simply, CUNA believes that competition among credit unions is beneficial to consumers. If members are unhappy with the service provided by their credit union, why shouldn't they have another credit union to consider as an alternative, not just a bank?

    As I said earlier, CUNA is pleased to appear here today before you. We are not pleased, nor are we surprised, however, that bankers have come to Congress and the courts with further complaints about credit union membership. Last year, Congress spoke decisively by a 411–to–8 vote in this chamber in support of multiple-group credit unions. Then, bankers claimed that H.R. 1151 has no meaningful limits on credit union expansion. Now, bankers are trying to say that the act is intended to be very restrictive when it comes to adding new groups. The banks can't have it both ways.
 Page 98       PREV PAGE       TOP OF DOC

    The truth is that when Congress overruled the courts and allowed credit unions to add groups and grow and remain a viable part of the financial services industry, banks apparently decided on their latest lawsuit before even reading what the NCUA issued. Last August 11, less than one week after H.R. 1151 became law, the head of the ABA said, ''We will exercise our newly won right to bring suit against the credit unions and their Federal regulator.'' No wonder we feel exasperated at the prospect of continuing harassment by the banks.

    Next week, the full Banking Committee will begin its deliberations on financial modernization. CUNA is not attempting to hinder the banks in their efforts to stand and update their services. Why? Primarily because we recognize that the times have changed over the last seven decades and that American consumers deserve to have their financial service choices reevaluated by their elected Representative. If only the bankers would view credit unions and our 2.1 percent share of the market in the same manner.

    Thank you.

    Chairwoman ROUKEMA. All right, Mr. Garrison, will you continue, please.


    Mr. GARRISON. Madam Chairwoman and Members of the subcommittee, my name is John Garrison. I am Chairman, President, and State Executive Officer of the Walden Savings Bank, a mutual savings bank in Walden, New York. Walden Savings Bank was established 127 years ago with approximately $130 million in assets.
 Page 99       PREV PAGE       TOP OF DOC

    Madam Chairwoman, on behalf of ACB and its membership, I would like to commend you for holding these very important oversight hearings on the implementation of the Credit Union Membership Act by the NCUA. We would also like to commend Congressman John LaFalce for his insightful comments on this issue.

    Congress should be alarmed by the new regulations in the field of membership chartering manual issued by the NCUA—regulations which clearly ignore the expressed intent of Congress when it passed a credit union bill last year. Nothing more dramatically underscores what one Federal judge once described as a rogue regulator than the recent action of the NCUA in implementation of regulations that would allow the single credit unions to encompass ever-expanding multiple employer or community groups, in clear contradiction of the intent of Congress.

    A careful review of legislative history shows that Congress clearly intended to preserve the boundaries and responsibilities inherent to the credit union charter; that is, to serve the voluntary associations of closely linked people, subject to well-defined common bonds. Congress' intent was to preserve public access, subject to well-defined limitations, and help facilitate the creation of a greater number of credit unions. The NCUA regulations, on the other hand, circumvent this intent in favor of larger credit unions.

    In addition, most of the NCUA's regulations are written in overly broad and ambiguous terms. While the credit union legislation defines by statute a number of different terms, such as those relating to fields of membership, it granted the NCUA the authority and responsibility to issue regulations or guidance to implement the statutory definitions. The vagueness and lack of specificity in the regulations, however, only serve to facilitate the ambitions of a few large credit unions at the expense of the small credit unions, and, yes, community banks. For instance, I have had discussions with small credit unions in New York who share my views.
 Page 100       PREV PAGE       TOP OF DOC

    Madam Chairwoman, there are two main problems with the regulations as implemented by the NCUA. First, the NCUA ignored the intent of Congress by favoring larger credit unions over small ones. The second, that the vagueness of the NCUA's regulations will allow large credit unions to expand at the expense of the smaller, more traditional institutions and hurt community banks as well.

    For example, I spoke with the manager of the Hudson Valley Federal Credit Union, an institution with nearly $1 billion in assets, located about six miles from my office. Out of curiosity, I asked if I can become a member. I was told that all I needed was a relative who worked for, or is retired from, the IBM Corporation. After indicating that my daughter-in-law's father and her sister's husband were IBM employees, the manager told me that I could become a member.

    I asked her what type of documentation I needed and she said that I did not need any. She even offered to put $5 into the account to open it for me.

    I understand that Congress wants to expand the number of Americans eligible to join credit unions. The NCUA interprets this to mean that every American should be eligible to join every credit union.

    I also would like to call your attention to the advertisement in the front, to my right. It's an ad in the ESL Credit Union inviting people to become members. Interestingly, it encourages people to enroll their family and friends as well.

 Page 101       PREV PAGE       TOP OF DOC
    I believe that the Credit Unions Membership Act—I understand it and I've read it—nowhere does it extend membership eligibility to friends of eligible members. Congress should use its oversight powers to prevent NCUA's regulations from taking effect until they are revised to reflect the intent of Congress.

    In addition, Congress should reexamine the $1 billion tax break that larger credit unions enjoy at the expense of the American taxpayer. As a mutual institution, Walden Savings Bank operates much like a credit union. What we make goes back into the institution and to customers. Unlike credit unions, however, we pay taxes and adhere to the Community Reinvestment Act.

    My previously submitted written response answers your direct questions in detail. Again, Madam Chairwoman, I would like to thank you for the opportunity to present the views of America's Community Bankers on the NCUA's implementation of the Credit Unions Membership Access Act. Thank you very much.

    Chairwoman ROUKEMA. Thank you.

    Mr. Curtin, please.


    Mr. CURTIN. Thank you, Chairwoman Roukema and Members of the subcommittee. My name is Raymond Curtin. I am President and CEO of Empire Federal Credit Union in Syracuse, New York.
 Page 102       PREV PAGE       TOP OF DOC

    Thank you for the invitation to testify. In the interest of time and the hope to answer a couple of your questions, I am going to present only a portion of my remarks and apologize if they seem a little bit disjointed.

    NAFCU supports efforts to charter new credit unions. The NCUA has the duty to encourage new separately chartered credit unions, but this obligation is not an absolute obligation. Congress conditioned NCUA's obligation upon a variety of factors, including safety and soundness considerations.

    The NCUA's petition to increase from 500 to 3,000 the economic advisability level for potential members makes sense. NAFCU's research shows that the average membership size of credit unions that survive over time is much larger than the average membership size of credit unions that do not survive in the long run. The number 500 must be recognized as being reflective of a past era.

    The phrase ''reasonable proximity'' is not found in isolation in the Credit Union Membership Access Act. Reasonable proximity is modified by two phrases, ''whenever practicable'' and ''consistent with reasonable standards for safe and sound operation.'' These modifying phrases are open-ended and ambiguous, and, accordingly, require the agency to use its judgment and discretion.

    NAFCU has reviewed the terms ''immediate family'' and ''community'' by comparing their use in other Federal statutes, rules, and regulations. We have found that there are both broader and narrower definitions in those regulations. On balance, NCUA, in promulgating rules implementing the act, managed to steer a middle course, striking an appropriate balance of the options available to it within the scope of the new law.
 Page 103       PREV PAGE       TOP OF DOC

    On behalf of NAFCU, I would once again like to thank the subcommittee for the opportunity to participate in this important hearing.

    Chairwoman ROUKEMA. Thank you.

    Mr. Stenehjem.


    Mr. STENEHJEM. Thank you. Good afternoon, Madam Chairwoman and Members of the subcommittee. I am Leland Stenehjem, Jr., President of a community bank in Fargo, North Dakota. I am testifying on behalf of the Independent Bankers Association of America. I am a past President of IBAA and currently serve on its executive committee.

    Madam Chairwoman, we believe the NCUA has ignored the will of the Congress and statutory mandates in the field of membership rule. We hold this position so strongly that the IBAA has intervened as a co-plaintiff in the lawsuit filed by the ABA, contesting the legality of NCUA's actions. We appreciate the comment letters that you, Madam Chairwoman, and Mr. LaFalce wrote, expressing your own reservations about this proposed rule. We would note, as Mr. D'Amours testified today, that he also expressed concerns about the fairness of the rule to smaller credit unions, by casting the lone dissenting vote on the rule.

 Page 104       PREV PAGE       TOP OF DOC
    We are grateful that you have scheduled this hearing to provide much-needed congressional oversight over this agency's actions. Your letter of invitation asked that we address a number of important issues. My written statement covers each of these issues in detail. I will highlight just a few in my oral statement.

    The first issue I want to discuss today is the issue of economic advisability. The NCUA's economic advisability provisions discourage the establishment of smaller credit unions. As a trade association that represents primarily small banks, this is an issue in which we are particularly sensitive. The rule states that while groups with less than 3,000 members may apply to establish a Federal credit union, they would have to supply greater documentation; that is, face a far greater burden to demonstrate their viability. In our view, this will turn congressional intent completely on its head, obscuring the difference between a ceiling and a floor.

    NCUA's assertion that groups with less than 3,000 potential members are not economically viable is simply absurd and not supported by the facts. There are over 3,300 credit unions with an average membership of 700 and less than $2 million in assets, and there are over 2,000 credit unions with membership of 500 or less. These credit unions are profitable, well-capitalized, and I can assure you that they are competitive. NCUA is just plain wrong on this one.

    They are also just plain wrong in the way they define ''family member'' and ''member of household'' as well. IBAA believes that these terms are defined much too broadly. By eliminating the distinction between the primary member and the secondary member, the rules would allow for exponential expansion of the field of membership. This would result in the diminution of the common-bond and field-of-membership requirements over time, making them completely moot. We do not believe that this is what the Congress intended.
 Page 105       PREV PAGE       TOP OF DOC

    The last issue I want to touch on in my oral statement is the issue of the community credit union. The community credit union provisions are problematic because the regulation fails to define ''well-defined local community neighborhood'' or ''rural district,'' and makes it far too easy to establish large community credit unions, which goes well beyond the local limitations envisioned by the Congress. Because their final rule does not offer sufficient guidance as to what constitutes the local community, it should be amended to include a list of criteria that should be considered in determining whether there is a single local community.

    The regulation essentially allows any political subdivision with less than 300,000 people to virtually certify as a local community. According to the 1990 United States Census figures, there are very few counties in the United States with a population over 300,000 residents, making the restriction virtually meaningless.

    What has been the result of these dramatic shifts in policy, there has been a rash of approval by the NCUA that defies common sense. For example, a $40 million credit union in Ohio that was serving a population base of 22,000 people just got NCUA approval to expand its field of membership to include the 1,000,000 people living in Franklin County, Ohio, including the city of Columbus. A $113 million credit union in California has converted from an occupation-based charter to a community charter, serving more than 700,000 people living in Ventura County. An $80 million credit union in Texas, serving city employees in El Paso, with 29,000 members, has been allowed to expand its field of membership to include the nearly 600,000 people living in El Paso County.

    Now, what do these people have in common, these hundreds of thousands or millions, except that they live in the same county? We would suggest that granting these small credit unions such a greatly expanded field of membership also poses safety and soundness concerns that this subcommittee should examine carefully. Our recommendation would be to sharply reduce the population base for a reduced documentation requirements for community-based charters to something on the order of 25,000.
 Page 106       PREV PAGE       TOP OF DOC

    In conclusion, it is vital that the NCUA's final regulations contain specific rules and guidelines for credit unions and charter applicants consistent with the law and congressional intent. Thank you for the opportunity to testify, and I will welcome any questions you might have.

    Chairwoman ROUKEMA. Thank you very much.

    I am going to call on Mr. Bereuter for the first question, and then we will go to Mr. Kanjorski.

    Mr. BEREUTER. Thank you very much, Madam Chairwoman. Sorry, I was pulled away, and I gave your apologies for missing the North Atlantic Assembly meeting, but I explained why you were absent. I'm sorry that I was not here to introduce my distinguished constituent, Harley Bergmeyer, who is a banker and a public service-oriented citizen of our State and past president of Nebraska Bankers Association, as well as treasurer of the American Bankers Association—and his wife.

    Welcome to you, Harley, and to all of you, for helping us sort through what actions we think should be appropriate, based upon the rules that have been promulgated or that are pending.

    I think I would like to begin with you, Mr. Curtin. In listening to your testimony and glancing over the written testimony, I would ask, do you believe that the 5,100 credit unions having less than $5 million in assets pose a significant safety and soundness risk to the fund? That is the first question.
 Page 107       PREV PAGE       TOP OF DOC

    The second part of the question is, should the NCUA try to bolster these institutions' safety and soundness by encouraging groups to join their field of membership?

    Mr. CURTIN. The first question, the 5,100 credit unions that are under $5 million?

    Mr. BEREUTER. Yes.

    Mr. CURTIN. I think the NCUA does a good job in examining them, and I would think, by and large, they are not a problem for the fund.

    Mr. BEREUTER. So you think they do not at this point generally, or almost exclusively, pose safety and soundness problems?

    Mr. CURTIN. I would say that, yes. The second question you asked, should NCUA take an active role in bolstering the membership of these credit unions?

    Mr. BEREUTER. Yes.

    Mr. CURTIN. I think over the last 15 years when credit unions have been able to take on SEGs or member companies, that has generally been done by those member companies coming to credit unions or credit unions going to those member companies and asking if they would be interested. I would like to see that continue. I think it would be difficult for the NCUA to step into that role and take a very active role in bringing companies to credit unions.
 Page 108       PREV PAGE       TOP OF DOC

    The way we have taken companies on is that we have gone to them. We have gotten to know them a little bit; they've gotten comfortable with who we are and what we do, and then they have joined us. I think it would be difficult for NCUA to do that.

    Mr. BEREUTER. Mr. Curtin, I would like to ask you, or any other member of the panel, to respond to a point that is shared by many Members, but enunciated very emphatically by Mr. LaFalce, and that is, that he feels that the current regulations issued or promulgated, and waiting to be placed in force, discourage the formation of small credit unions—a point that would be, of course, contrary to the intent of the House and the Senate.

    Ms. ROBERTS. I would like to respond to that.

    Mr. BEREUTER. Yes, Ms. Roberts.

    Ms. ROBERTS. CUNA has taken some steps to support small credit unions, has formed a small credit union task force to look at credit unions—the size of them, to support the smaller credit unions, and to do everything they can for existing small credit unions, as well as look at ways that small credit unions could be formed. So, trade associations, I believe, rather than the regulator, are where this responsibility should lie.

    Mr. BEREUTER. That's commendable, but the question I really do have is, do the regulations, in effect, on balance discourage the formation? Even though you have a special effort to help, are the rules and regulations promulgated or pending really moving in the opposite direction?
 Page 109       PREV PAGE       TOP OF DOC

    Ms. ROBERTS. I don't believe that they do. I've been in the credit union industry for almost 25 years, 17 of which I've been at my credit union. I've been involved with other small credit unions and people who have formed credit unions. Back in the days of the early 1980's, it was just as difficult to form a small credit union as it is with the new laws. I don't believe that they are restrictive. I believe that they are just as uniform and looking at all of the things for safety and soundness that they had to back in the 1980's, as they do now.

    Mr. BEREUTER. Thank you. We have quite a bit of contrary views on the subcommittee, apparently, and I think I am among them. Mr. Bergmeyer, I have read your full testimony. Is there anything you would like to add with respect to the immediate family or household definition?

    Mr. BERGMEYER. Well, as you know—and thank you for your time Congressman Bereuter, I appreciate that—I live in a very small community. I have a very small bank, and as you know, it is very difficult for me to compete with a large credit union in my neighborhood. When you talk about 2 percent of market share that the credit unions have, in my community those percentages rise significantly. I can't compete. They are taking—they're eating my lunch on a daily basis. They quote rates lower on their loans than my cost of funds; it is not a level playing field for me. That's why I am concerned. That's why I am concerned about the numbers. All I'm asking for is a level playing field, and we don't have it now.

    Mr. BEREUTER. Thank you, Madam Chairwoman.

 Page 110       PREV PAGE       TOP OF DOC
    Mr. GARRISON. May I——

    Mr. BEREUTER. Yes, sir.

    Chairwoman ROUKEMA. Yes, we will give you a moment.

    Mr. GARRISON. It will be quick. Additional paperwork——

    Chairwoman ROUKEMA. This is a central question, and I'll reserve my own questioning to hear more comments on this question.

    Mr. GARRISON. OK. There is definitely more paperwork with regard to the branch application or the application to charter. I believe, as far as the small credit unions are concerned, it's an additional burden. I have more to say, but I'll end it there.

    Mr. CURTIN. Yes, I would like respond about the formation of small credit unions. I was a banker up until about three-and-a-half years ago. And when I came to our credit union, I was amazed at the amount of volunteer involvement. I have spoken to some of our volunteers, one of whom goes back to about the time our credit union was formed in 1950. The credit union was run out of someone's home for the first 10 or 15 years, and I think it was almost 20 years before they had a sufficient size to hire an employee. So I was very impressed with the amount of time and effort that the volunteer group had to put in back in that time to get the credit union up and running.

 Page 111       PREV PAGE       TOP OF DOC
    And, I just would like to show you—these were the Federal credit union rules and regulations in 1969; these are the credit union rules and regulations today. The complexity of starting up a successful credit union has increased in this area, in the technology area—I think it is very difficult to start up a credit union these days.

    Chairwoman ROUKEMA. Would IBAA want to make a final comment before I turn it over to Mr. Kanjorski? No? All right, Mr. Kanjorski.

    Mr. KANJORSKI. Thank you very much, Madam Chairwoman. Maybe I will first talk to the bankers, because I identify particularly with Mr. Bergmeyer regarding his suggestion that he cannot compete. How much—given each end of the modernization of financial services in the country—is this regulation going to have an impact on your size bank?

    Mr. BERGMEYER. I hope that it will allow me to offer more products that I can't offer now. That is important to me. But, bank modernization that we're looking for is for the entire industry, not only my small bank. But the point is that, for me to be competitive, I need more products and I need to do those things to be competitive with all of the financial institutions.

    Mr. BEREUTER. In listening to your objection—and I understand your objections—somebody down the street that's a credit union, you feel they can be more competitive than you can. How are we going to draft legislation to take care of every sphere of influence of unfair competitiveness, as determined by the banking community?

    I mean, we might as well, as a national policy, send everything to the States to be regulated and then just provide blanket insurance or the form of insurance we have, and let the State do it because every State has a different problem. I mean, if you would have come to me 20 years ago, when I came to the Congress, I had 60 banks in my congressional district; today I have 6.
 Page 112       PREV PAGE       TOP OF DOC

    Now, if you ask my average consumer ''Are you as well received in your local bank as you were 15 years ago?'', they are going to tell you: ''Look, they don't even want my account there. They're charging me exorbitant fees for everything I do. They're not in the business of small banking.'' Now, in areas like Pennsylvania, we have lost an awful lot of community small banks as a result of that. We are sympathetic to that, but, on the other hand, you are talking for the American Bankers Association and you are saying ''Here, hey, let us become conglomerates, pass this new modernization act, and we can take over the world in banking.''

    On the other hand, I hear my friends from the Independent Bankers Association come in and say, ''Hey, we don't want H.R. 10 because they are going to beat our brains out,'' and they are right. We have a changing financial market. If what you are asking us to do is customized for every competitive situation that may occur across the country where someone feels put upon, the small guy in the game is the credit union, 2 percent of the whole darned industry. Everybody wants to stomp him to death, when, in reality, the financial services industry has changed. Some community banks are going to disappear. In my district, large community banks disappeared; even regional banks are disappearing. Pennsylvania is about to lose its two major regional banks one of these days, within the next year or two. Why do you think we should be doing something about that in the free enterprise system? When, in reality, yes, credit unions were people that got together in the 1930's that needed an ability to get money without collateralized security to make their lives better, and they have grown naturally with the current. They were 2 percent 15 years ago, and they are 2 percent today; they haven't changed.

    It's money that has changed. The world has changed in wealth, certainly America has, but I'm not sure that is a sympathetic argument that you come and say, ''Write something that won't allow this entity down the street to compete with me.'' If you're going to ask us to do that—there is no way we can write a piece of legislation.
 Page 113       PREV PAGE       TOP OF DOC

    But, I wanted to make the point to you, how about the 60 percent of small businesses who have employee forces that want to have benefits and access to credit unions? They are not getting it. If we don't change this legislation and allow those SEG groups to go over and join credit unions, they are not going to have the benefits. So, 40 percent of the employees in the United States are going to have more competitive services for their needs, but 60 percent are going to be denied and forced either by the large banks, regional, or community banks. Why is that fair?

    Mr. BERGMEYER. May I reply?

    Chairwoman ROUKEMA. That sounds like a question for a whole additional hearing. But, I will let Mr. Bergmeyer—and then, if Mr. Stenehjem would like to comment, I'll let that happen. But, I'll tell you that we have to do it quickly because the full Banking Committee is coming in here momentarily.

    Mr. BERGMEYER. I don't want to argue the entire industry's bank modernization issue. What I am saying is about the level playing field. I am already having difficulty competing. What I am saying now, and what this hearing is about, I believe, is that you folks put a lot of work and a lot of time into making H.R. 1151, which you felt was the best law for all of us. What we are saying is that we believe that NCUA violated the law. That's what we are here about, and the clear intent of Congress was not what has happened here. So, yes, I am concerned about a level playing field, but what has happened here is making it more difficult for me to compete, and so it is of concern to me and all of the bankers.

 Page 114       PREV PAGE       TOP OF DOC
    Chairwoman ROUKEMA. Yes, Mr. Garrison.

    Mr. GARRISON. Quickly, I am the last mutual and savings bank in my county. My biggest competitor in the same type of business with the same services is a billion dollar credit union—a billion dollars. They made almost a million dollars profit. I can go on and on and on, but what I'm merely saying to you, I think, is that the industry requires equity—the banking and the credit unions.

    We are not talking about the small guys. I have been here twice before testifying. We are not talking about the small credit unions; we supported them; we worked with them. They are afraid of what is happening in the credit union industry today. They are afraid of CUNA, all of those other things that they are afraid of. My point is that we need equity of law, and that we can possibly get with H.R. 10.

    Mr. STENEHJEM. Thank you. Just very briefly, Mr. Kanjorski, I appreciate the breadth of your comments, and I don't know if I can respond to all of them, but maybe I can make just two or three points.

    One, as Mr. Bergmeyer mentioned, when you talk about the credit unions, their market share and their ability to compete and our ability to compete, I think it is important to take it down to the individual level; take it down to a small town in Nebraska; take it down to Fargo, Nebraska—take it to Fargo, North Dakota; take it to the town in Pennsylvania. I think that is what you have to do and bring these big numbers down to the local level.

 Page 115       PREV PAGE       TOP OF DOC
    We seem to have had a policy in this country over many years now that bigger is better; expansion is good; consolidation is good. As an association, we have been resisting that over the years, and we continue to resist that because we think that is bad public policy for the country, not just that it is bad for us. As an individual community bank, we have done pretty well competing against the big banks. But, I hear what you're saying, when you have the big banks, because I would agree with you, they seem to lose their interest in serving the consumer.

    I can assure you, Madam Chairwoman and Mr. Kanjorski, that every day we work hard to hang on to every customer that we have, and we work hard to get customers from the other entities who we are competing against. I guess that is all that I have, Madam Chairwoman and Mr. Kanjorski.

    Chairwoman ROUKEMA. All right, thank you. We'll have to conclude this, but I'll say to my colleague and to this panel that a lot of these questions reopen the whole CUMAA legislation that we passed. As I acknowledged in my introductory statement earlier this morning, not everybody got everything they wanted, but we tried to create that level playing field.

    Now, whether or not the NCUA is consistent—and that is the issue before this subcommittee and that is the issue before the court—with Congressional intent. We are not trying to rewrite or go through that same debate again. We had considerably different positions. But what we do want to do in H.R. 10, where we are dealing with banks and economic forces, both national and international, the issues forcing us to deal with financial institution modernization are related somewhat to credit unions, but essentially different.
 Page 116       PREV PAGE       TOP OF DOC

    The credit unions have certain benefits, which is OK. They have certain benefits which are justifiable with respect to regulatory requirements and taxation issues that affect them, as long as they are consistent with both the original and the updated Congressional intent for those credit unions. I think reasonable people can come to an acceptable resolution. I hope so. We can't give everybody everything, but, hopefully, the consumer in the end and the average person have what they need in their community and in their State. This is the beginning of a debate which will continue.

    Thank you very much. We greatly appreciate it.

    [Whereupon, at 2:24 p.m., the hearing was adjourned.]