Chairman D'Amato, Senator Sarbanes, members of the committee, as the chief Democratic sponsor of H.R. 1151, the bipartisan LaTourette-Kanjorski Credit Union Membership Access Act, I appreciate the opportunity to testify here today.
Yesterday the House of Representatives passed the Credit Union Membership Access Act, H.R. 1151, by an overwhelming, bipartisan vote of 411 to 8.
The House firmly, and forcefully, rejected the specious arguments of some of the people you will hear from today that this is about unfair competition.
The House understood that the Credit Union Membership Access Act is legislation to protect one of the most basic and cherished principles of our republic the right of free association, and the right of the people to select a financial service provider of their choice.
When you hear cries of anguish today about alleged "unfair competition" please remember that if anyone suffers from "unfair competition" it is credit unions, and not other financial institutions. While representatives of other institutions will harp on the one or two advantages credit unions have they will conveniently ignore the many advantages that their institutions have over credit unions.
So Mr. Chairman, until other institutions are willing to give up these and many other advantages they have over credit unions, do not listen to their siren songs of complaint. Please ask today's witnesses whether they are willing to repeal the Interstate Banking Act, the Bank Holding Company Act, and many other acts, before you take their complaints seriously. Also ask them whether they will support legislation to allow the FDIC to raise the reserve ratio on the Bank Insurance Fund (BIF) by 20% to 1.5%, because that is what H.R. 1151 allows the NCUA to do to the credit union share insurance fund.
I might add, Mr. Chairman, that the complainers cannot have it both ways. On the one hand, they complain that existing field-of-membership restrictions and other restrictions we place on credit unions are not significant. On the other hand, if these restrictions are not significant, and if the advantages credit unions have are so great, we would expect that other institutions would be dropping their charters in droves and applying for credit union charters. The simple fact is that they are not, first because the restrictions we impose on credit unions are meaningful, and second, because they like the many profit-making advantages that accompany their existing charters.
This explains why even after more than 15 years of allowing multiple employee group credit unions they still are not a significant threat to other financial intermediaries. Credit unions still only have a minuscule 2% market share.
And Mr. Chairman, please ask the representatives of the thrift industry how they can have the gall and hypocrisy to complain about unfair government subsidies when credit union members, and all U.S. taxpayers, will be paying out $341 BILLION to bail-out failed thrift institutions. Mr. Chairman, the bailout of the thrift industry will cost U.S. taxpayers more money than all of the deposits in all 12,000 of the nation's credit unions combined.
Mr. Chairman, a great deal has happened since 1934. In 1934 we did not have interstate banking and branching the way we do today. In 1934 national banks could not branch outside the town, city or village they were headquartered in, and in many places they either could not branch at all or could only have one branch.
Credit unions and their supporters do not come to you today to ask you to roll-bank bank and thrift powers to 1934. We are not asking you to repeal interstate banking and branching, to prohibit holding companies, to ban unitary thrifts, or to prohibit banks and thrifts from underwriting municipal securities or engaging in any of the other powers they have that credit unions do not have.
We are not asking you to restrict the commercial lending authority of banks and thrifts. We are not asking you to prohibit banks and thrifts from paying their boards of directors. All we are asking you to do is to update the 1934 credit union statute as we have done with the banking statutes over the years.
I want to reiterate Mr. Chairman that we are not asking you to repeal all the advantages that banks and thrifts have, or have had over the years. All we are asking is for you to continue to allow credit unions to serve Americans who work for businesses that are too small to start their own credit union.
In 1934, before the advent of computers, ATMs and the internet, it was possible to start a viable credit union with as few as 500 members. Today that is not possible. To start a viable credit union, with enough funds to hire a single teller, a single loan officer who can comply with federal banking laws and regulations, and to have a single ATM, probably requires at least 7,500 members. Since credit unions' "penetration ratios" the rate at which potential members become actual members are in the 30%-35% range, this means that in order to start a viable credit union you need a potential field of membership of 20,000 or more individuals. This is why we must permit multiple common bonds, because otherwise tens of millions of Americans will be denied the right to choose a credit union for their financial services.
As passed by the House, H.R. 1151, sets a cap of 3,000 on Select Employee Groups (SEGs) unless those groups are unable to establish their own credit union. According to the NCUA, only 21% of credit unions whose primary field-of-membership is less than 3,000 offer share draft accounts. Less than 20% of these credit unions offer home mortgages, and only 15% offer credit cards. Credit unions with fewer that 1,000 members offer even fewer services. Only 11% offer share draft accounts, only 13% offer home mortgages, and only 10% offer credit cards. So when someone tells you that they want a SEG cap of 1,000 or 500, what they are really saying is that they want to keep credit unions so small that they cannot offer any meaningful competition.
I should also note Mr. Chairman that H.R. 1151 as passed by the House also requires that all additional Select Employee Groups must be within "reasonable proximity" of the credit union they join. No similar restrictions are imposed on any other financial institution.
Passage of H.R. 1151 is also a safety and soundness issue because it includes important Prompt Corrective Action (PCA) requirements based on recommendations from the Treasury Department. Furthermore, as those of us who lived through the Savings and Loan crisis recall, concentration increases risk while diversity reduces risk. This is one of the major reasons why the NCUA began allowing multiple employee groups in 1982, because that practice reduces the risk of losses for credit unions, the share insurance fund, and taxpayers.
Mr. Chairman, I have been a Member of Congress for 14 years. You have been a member of the Senate for even longer, and I want to particularly commend you for your leadership in opposing unreasonable ATM fees. In all that time not a single constituent, other than individuals employed by other financial service providers, has asked me, or I suspect ever asked you, to rollback the powers and authorities of credit unions. No one writes to me and asks me to, "Stop credit unions before they lend again." No one calls me to complain that credit unions' loan rates are too low or savings' rates are too high. No one stands-up at my town meetings to complain that their credit unions do not charge ATM fees.
Mr. Chairman, I have here with me more than 100 newspaper columns and editorials from all across our nation in support of broader access to credit union services for American consumers. I would ask unanimous consent to insert these columns and editorials into the record. I am also pleased to report that the Consumer Federation of America and Consumers' Union also support the Credit Union Membership Access Act.
Yesterday, the House of Representatives struck a strong blow for consumer choice by passing
H.R. 1151 by a vote of 411 to 8. The United States Senate can demonstrate that this support is
bicameral as well as bipartisan, by quickly passing this important legislation.
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