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The Business Council opposes this legislation which would expand the qualifications for membership in a credit union and creates new areas of opportunity for credit union investing. We believe these changes will move credit unions away from the community based concept for which membership was originally based into performing functionally as any other commercial bank.
Credit unions were designed based on the "common bond" concept. It is a way to bank for individuals who share a common bond through working for a common employer, living in the same local community or belonging to the same civic, philanthropic or social organization. These individuals would be far more likely to be supportive of each other's financial needs, more likely to repay loans, and more likely to forego high returns in order to advance their common goals. The tax-exempt status they were provided by law reflected their origins as almost charitable organizations.
This legislation would effectively end the "common bond" concept. No longer would a community-based credit union be required to have roots in a well-defined, local community, neighborhood or rural district. Instead they could be based on anyone who lives, works, worships or goes to school in any geographic area. Essentially this could encompass the entire state of New York. No longer would a credit union be based on a common employer or group of common employers. Instead any person who was a member of any in a series of groups of different occupations could be a member. This bill would destroy the very character of what makes credit unions unique and special to their communities.
Another problem with this bill is that it gives too much authority to the National Credit Union Administration (NCUA) to determine what investment activities and incidental activities a New York State-chartered credit union could engage in. The bill gives a federal authority the unlimited discretion to determine powers for State-chartered entities rather than the New York Department of Financial Services (DFS). The state DFS is in a much better position to regulate state chartered entities than the federal government.
The bill would also eliminate the conditions laid down by the NCUA for federal credit unions to exercise these powers. The bill would grant State credit unions, without conditions, authority to engage in "all investment activities and investments authorized for federal credit unions under 12 CFR Part 703.13 and 703.14." It would also provide the ability "to exercise incidental powers approved by the NCUA as set forth in 12 C.F.R. 721." But these provisions contain limitations adopted by the NCUA to limit the risk to federal credit unions that engage in them. At no point does this legislation state that State-chartered credit unions would be subject to these limitations nor provide to the Department of Financial Services the authority to impose them. This bill does not permit the Department to impose or enforce similar restrictive conditions.
The ability to engage in increased investment activities coupled with the fact that credit unions pay no federal, state or local income taxes, gives them the financial advantages of commercial banks while reaping the tax benefits of a not-for-profit entity. In other words, they make no contributions to the finances of New York State but would receive greatly increased benefits. By contrast, the commercial banks and thrift institutions of New York State are among its largest taxpayers.
This legislation would enable State-chartered credit unions to expand their membership base far beyond that authorized for federal credit unions, would provide them with investment and incidental powers matching their federal counterparts but without their limitations, and would effectively remove the Department of Financial Services from an oversight role in determining the appropriateness of their exercise of these new powers. These expanded measures do not reflect the spirit of the community credit union.
For these reasons, the Business Council recommends the legislature disapprove A.3510 / S.2089.