CUNA gripes about ABA's role in GAO report

Northwestern Financial Review, Jan 15-Jan 31, 2004 by Bengtson, Tom

The U.S. General Accounting Office makes some very mild observations about the credit union industry in its October 27 report, "Credit Unions: Financial Condition has improved, but Opportunities Exist to Enhance Oversight and Share Insurance Management." In the 183-page report, the GAO states: "a growing concentration of industry assets in large credit unions creates a need for greater risk management on the part of NCUA." The report further states: "our analysis of limited available data suggested that credit unions served a slightly lower proportion of low and moderate-income households than banks."

The GAO recommends the NCUA "use tangible indicators to determine whether credit unions are serving people in underserved areas." Furthermore, the GAO says: "Congress may wish to consider making credit unions subject to internal control reporting and attestation requirements applicable to banks and thrift."

The American Bankers Association and the Independent Community Bankers of America hailed the report, but the Credit Union National Association was less enthusiastic. Although CUNA Senior Vice President of Government Affairs John McKechnie said, "We're very pleased by the content and the tone of the report," he also shared some gripes with the Credit Union Times.

"The study is based on the premise that recent legislative and regulatory changes have 'blurred some distinctions between credit unions' and others, such as banks. This is typical banker rhetoric that purposefully ignores the fundamental structural differences between credit unions, banks and other financials to muddle and blur the uniqueness of credit unions," McKechnie is quoted in the Nov. 19 edition of the weekly publication.

McKechnie further tells the Times: "I think that comes from the fact that they, in my opinion, made an error in judgment by consulting the ABA for this study in a way that I think is highly inappropriate. We've conveyed that to GAO before and we're going to be conveying that to lawmakers as well. The ABA really has no business being asked to comment on the credit union movement any more than anybody else."

Regardless of the reaction from industry representatives, the most important reaction to the GAO report is that of Congress. At this point, I haven't heard that anyone in Congress is proposing to act on the report. That's too bad. While you may have been able to make a credible argument in the 1930s about the need for consumer-oriented tax-exempt financial institutions, it is pretty difficult to make that argument today.

. . . Consumer groups reacted positively to the early December announcement by Freddie Mac that it would no longer invest in subprime mortgages that contain mandatory arbitration clauses.

"Mandatory arbitration clauses undermine hard won consumer protections by barring homeowners from obtaining judicial scrutiny of their loans," said Chris Hansen , the associate executive director of AARP.

"Unscrupulous lenders have used mandatory arbitration to close the courtroom door to minority, low-income and female-headed households, who too often unknowingly waive their constitutional right to a civil jury trial," said Wade Henderson, executive director of the Leadership Conference on Civil Rights.

"Mandatory arbitration is one of the most cynical practices we see in corporate practice today," commented Ira Rheingold, executive director of the National Association of Consumer Advocates. "It allows unscrupulous lenders to deceive consumers and commit fraud without fear of people using our centuries-old justice system to right these wrongs."

Freddie Mac's new policy becomes effective August 1, 2004.

. . . The 100th Group One meeting of the Wisconsin Bankers Association is set for Feb. 13-14 at the Radisson Plaza Hotel in Minneapolis. Susan Gilbert of First National Bank of Hudson is set to become Group One's first female president at the meeting.

. . .Open Solutions, Inc., the Glastonbury, Conn., company that has more than 1,300 financial institution customers across the country, has completed its initial public offering. The company sold 5,750,000 shares of common stock between Nov. 26 and Dec. 2. At $17 per share, the company raised $88 million, which it will use for working capital, in addition to reducing debt and possible acquisitions. Bear, Stearns & Co., Friedman, Billings, Ramsey & Co., Inc., and U.S. Bancorp Piper Jaffray Inc., acted as managing underwriters for the offering.