BACKGROUND & DETAILS

A 21^ST Century ‘Federal Credit Union Act’
As mentioned above, 2022 has been a very active year in legislating for credit union advancements.

Even in this hyper-partisan environment within Congress, our legislative issues have stood out to become not only bipartisan but post-partisan. Consensus exists in modernizing the charter. However, there is still work to be concluded, and that is where we begin.

The first point to note — while we are advocating for modernizations to the federal charter — is that state-chartered credit unions already have most of these powers. Thus, the state charter participation is key to demonstrate that any modernizations are effective, consumer friendly, and exist to aid the cooperative in further growth.

The last time Congress overhauled the Federal Credit Union Act was in 1998. The way people access and use their money has come a long way, and it’s time to let credit unions serve our members with 21st-Century solutions.

With several pieces at various stages of the legislative process, it is good to have a full picture of what action remains.

H.R. 7003
The Expanding Financial Access for Underserved Communities Act:

• Authors: House Financial Services Committee Chairwoman Maxine Waters (D-CA) and Rep. Ed Perlmutter (D-CO).
• Status: Advanced from the House Financial Services Committee and was rolled into H.R. 2543, a larger package on racial equity as it relates to financial services. That bill is pending in the Senate. Credit unions are advocating only the passage of H.R. 7003 in the Senate and not the remaining elements. We are currently working with various senators to have Senate introduction, which can then be conferred back to the House.

Policy details: Currently, field-of-membership restrictions could have a credit union refuse services to individuals, especially those in rural, low-income, or traditionally underserved communities. This legislation removes that barrier by allowing a credit union to grant membership to individuals if they meet one of the following criteria:

• Reside in a poverty zone as defined by the Community Development Financial Institutions Act.
• Reside in a low-income community as defined by the New Markets Tax Credit Program.
• Reside 10 miles from the closest financial institution branch, which makes up a considerable portion of rural and banking deserts across the nation.

The bill also permits unlimited business lending authority for all credit unions (both state and federally) in these areas.

Credit unions have a proven track record of serving these diverse groups within our respective fields of membership:

• More than 50 percent of credit unions focus on serving low-income individuals according to the National Credit Union Administration (NCUA).
• More than half of credit union-originated home loans go to borrowers earning middle income or less according to the Consumer Financial Protection Bureau (CFPB).
• 3.6-times as many credit unions versus banks serve specific minority communities according to the NCUA, Federal Deposit Insurance Corp. (FDIC), and Credit Union National Association (CUNA).
• 70 percent of credit union branches are located in middle, moderate, and low-income communities according to the NCUA, U.S. Census Bureau, University of Wisconsin’s Applied Population Laboratory, and CUNA.
• 35 percent of credit unions are in Community Development Financial Institution (CDFI) investment areas according to the NCUA, U.S. Census Bureau, University of Wisconsin’s Applied Population Laboratory, CUNA, and CDFI.

The first credit union in the United States was established to serve loggers who had been denied service by a local bank. Serving the underserved is the core of our mission, and our member-owned structure keeps us accountable to the communities we operate in. We know that together, we can build a stronger and more inclusive financial future. To create a more equitable and inclusive financial system, Congress must expand access to trusted, regulated, and proven financial partners. Credit unions stand ready to fill that role, just as we always have.

H.R. 5189 / S.762
Member Business Loan Expansion Act and the Expanding Access to Lending Options Act:

• Authors (House): Reps. Vicente Gonzales (D-TX) and Brian Fitzpatrick (R-PA).
• Authors (Senate): Sens. Tim Scott (R-SC) and Catherine Cortez Masto (D-NV).

Policy details: While these are different bills addressing the same issue, they allow covered credit unions to increase and offer certain loan products with maturities of 20 years or greater. Currently, almost all state-chartered credit unions have this authority; however, federally chartered credit unions do not. There is no rhyme or reason for this maturity limit. Both California and Nevada state-charted credit unions can, and do, make these loans above the existing cap. The ability to provide up to 30-year terms allows for lower payments and participation in the marketplace. These loans typically apply to non-owner-occupied residential mortgages, boat or recreational vehicles, agricultural loans, and student loans.

This bill is a market-based solution that simply requires Congress to grant the authority, with no cost to the taxpayer.

H.R. 6889 / S. 4325
The Credit Union Board Modernization Act:

• Authors: Reps. Juan Vargas (D-CA) and Anthony Gonzalez (R-OH).
• Status: Pending on the House Floor. On July 27^th, the House Financial Services Committee advanced the bill to the House Floor by voice-vote.
• Co-Sponsors: 90 bipartisan members of Congress, including all four from Nevada and 28 of 53 from California.

Policy details: This bill provides parity with state-chartered credit unions by allowing federally chartered credit unions to remove the monthly board meeting requirement and move to one per quarter, and no fewer than six per year. This is simply an outdated provision that has been adjusted in states but not by Congress.

The bill exempts De Novo Credit Unions in their first five years of operations, as well as credit unions with a low CAMELS score (Capital Adequacy / Asset Quality / Management / Earnings / Liquidity / Asset-Liability Management / Sensitivity to Market Risk). A qualifying credit union must also have high marks on the “Management” portion of the score.

Our “Ask” of Congress: 

• Please support our legislative package, as we have made considerable strides in working to modernize the federal charter. Please co-sponsor, vote in favor, and inform your leadership of your support for these bills.

Securing Consumers’ Data
There can be no data privacy until there is data security.

There are multiple issues surrounding this topic, including a national data privacy/security bill and a bill regulating credit card interchange. The facts are simple:

• Consumers try to protect their finances and are frustrated with endless headlines of data breaches.
• Merchants, physical and online, want access to endless consumer data. However, they take little responsibility to secure this information, including their method of payments.
• Consumers blame their financial institution when a breach occurs since the institution is responsible for making the consumer whole.
• The merchant and retail lobby continues to mislead Congress into thinking that the convenience fees they pay to accept payment cards should be shifted to financial institutions.
• Congress is currently considering data privacy and credit card interchange measures (separately), which both greatly impact our view that there can be no data privacy until there is data security.

Below outlines the two issues and how they are co-mingled.

H.R. 8152
The American Data Privacy and Protection Act (ADPPA):

• Authors: Reps. Frank Pallone (D-NJ) and Cathy McMorris Rodgers (R-WA) — respectively, Chair and Ranking Member of the House Energy and Commerce Committee.
• Status: Pending on the House Floor. On July 20^th, the bill advanced from the House Energy and Commerce Committee by a vote of 53-2. Of California’s seven seats on the committee, all but two representatives (Anna Eshoo and Nanette Barragan from California) objected. Nevada does not have a representative on this committee.

Policy details: Credit unions strongly support the enactment of a national data security and data privacy law that includes robust security standards that apply to all who collect or hold personal data and is preemptive of state laws.

Credit unions support the approach of this bill; however, there are concerns with the current bill that we would like to see addressed.

H.R. 8152 advanced out of the House Energy and Commerce Committee on July 20^th, 2022. The next stop is a full House vote, which has not yet been scheduled.

This bill has the support of Reps. Frank Pallone and Cathy McMorris Rodgers, as well as Sen. Roger Wicker of the Senate Commerce Committee. However, Sen. Maria Cantwell, the Chair of the Senate Commerce Committee, remains strongly opposed, thus severely dampening its prospects of moving through the Senate.

Credit unions support the approach of this bicameral, bipartisan bill (ADPPA) that addresses both data security and data privacy. There can be no data privacy until there is strong data security.

Credit unions support the broad inclusion of all entities handling consumer data and the use of enforcement measures to hold bad actors accountable.

Changes to the ADPPA that would benefit credit unions include:

• Expanding The Graham-Leach-Bliley Act (GLBA) Exemption: The existing GLBA requires credit unions to comply with stringent information security and privacy practices to protect member data. Credit unions are reviewed for these practices on their annual safety and soundness examination. These requirements are strengthened via strict oversight by state and federal regulators and robust enforcement for violations.

  The requirements of H.R. 8152 are duplicative of the protections provided by the GLBA and would compound the regulatory burden on credit unions. We ask that compliance with the strong security and privacy standards of the GLBA and its implementing regulations be deemed compliant with H.R. 8152.

• Completely Preempting State Privacy Law: It is crucial that a comprehensive national framework is preemptive of state data privacy laws. The current patchwork of state laws perpetuates a security system littered with weak links and leaves entities and consumers on unequal footing in protecting data. All state privacy laws should be completely preempted to ensure a single rule of the road that allows for clear guidance and authority to which covered entities are subject and to prevent confusion as to the rights of consumers.

  For California, because of the California Consumer Privacy Act (CCPA) and the sizable representation of California members of Congress on the committee, several amendments and conversations went into how to treat CCPA under this measure. The initial concept was to write the bill to the CCPA’s standard; however, to gain bi-partisan support, it was omitted. The current preemption language has a specific carve-out for California’s law. If H.R. 8152 were to become law, it would lead to duplicative compliance. Thus, credit unions support fully preempting all state laws.

• Extending the Cure Period to all Enforcement Actions: Credit unions ask that the 45-day cure period for private rights of action be extended to all enforcement actions, including those brought by the Federal Trade Commission (FTC) and state attorneys general. There will be a learning curve for implementation of this comprehensive national standard, and unintentional violations may occur. Allowances should be made for good-faith efforts by covered entities to cure perceived violations and will aid in adherence to the aims of this act.
• Modifying Data Security and Privacy Officer Requirements: We have serious concerns about the feasibility of implementing this provision and the financial burden it would impose on credit unions. There is already a shortage of qualified employees in this space, and the addition of this requirement would quickly exhaust the system and drive up the market rate for these positions, pricing out not-for-profit credit unions.

S.4674
Regulating credit card interchange fees:

• Authors: Sen. Richard Durbin (D-IL), Chair of the Senate Judiciary Committee, and Sen. Rodger Marshall (R-KS).
• Status: Pending consideration in the Senate Banking Committee. Sen. Richard Durbin is working with a small coalition to seek introduction in the House.

Policy Details: While H.R. 8152 can be amended (see above), S. 4674 is a measure that credit unions outright oppose. Whether it’s the promise of cheaper costs on small businesses or on the consumer, Senator Durbin’s bill is nothing more than shifting one cost and reducing what little data security currently exists.

Credit cards are a fundamentally different product than debit cards. Credit cards are an extension of unsecured credit to a consumer, meaning financial institutions make a loan to a consumer every time a credit card is used to purchase goods or services from a retailer. This credit card network allows retailers to avoid the cost of processing transactions, offering quick guaranteed payment. This increases the number and value of their sales. Interchange is the cost of doing business.

Routing mandates on credit cards will lead to less secure, less innovative, and higher-risk transactions for American consumers. This time, new credit routing mandates are being proposed that would give retailers — not consumers — the power to decide which credit card network is used, all to increase the bottom line of mega-retailers. Consumers, small businesses, and small community financial institutions will lose the most if this happens.

• This legislation will hurt consumers. Consumer choice for credit cards would disappear. Instead of preserving consumers’ choice in their trusted card network, S.4676 would put that decision in the hands of retailers. With only their bottom line as motivation (due to the protections provided by financial institutions through the interchange system), the retailer will choose the cheapest — not the most secure — option. Approximately 86 percent of consumers use credit cards because they feel their information is secure from data breach. Consumers have a wide variety of cards, processors and issuing institutions to choose from, and their choice must be respected.
• Cybersecurity will be at risk. If retailers are allowed to simply choose the cheaper networks that haven’t invested in the latest security technology, consumer payment data will be vulnerable to foreign networks.
• Prices will rise for consumers. Establishing a dual-routing system will represent a significant expense that raises costs for consumers. The Federal Reserve Bank of Richmond determined that over 20 percent of retailers increased their prices following enactment of the Durbin Amendment on debit interchange, and only 1 percent of retailers passed their savings to consumers.
• Exemption failures due to lower interchange. While the initial draft bills appear to exempt financial service providers under $100 billion in assets, credit unions know from the Durbin debit-interchange in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that market forces drive overall interchange lower, and that the exemption will eventually fail.
• This legislation disproportionately harms small financial institutions. Interchange is established as a convenience cost to cover retail data breaches. Smaller financial institutions will see reduced flow of interchange due to this proposal. Recent Federal Reserve data shows community banks and credit unions also face higher costs as a result of these price controls. These institutions typically have a lower number of debit transactions than covered issuers. This means it is more difficult for them to absorb costs compared to larger issuers with a higher number of transactions. Due to their reduced revenue after the Durbin Amendment on debit interchange, community banks and credit unions (the so-called “exempt” issuers) have less funds to mitigate retail data breaches.

Our “Ask” of Congress:

• Data privacy and security is a serious issue, especially when securing the finances of the American public. First, please consider responsible amendments to H.R. 8152. Second, please oppose S. 4674.