Congress Must Act to Lift Restrictions on Consumer Choice and Access to Credit in the Market
by Horace Cooper
Much has been written about the over-reach of Dodd-Frank and the drag that law and its progeny will have on the financial services sector, the economic recovery, and job creation. Evidence continues to mount that the specter of over-regulation is crowding out free market solutions and restricting credit in the markets. Worse, the negative effects of government interference in the financial services industry extend well beyond large commercial banks deemed “too big to fail.” A case in point is credit unions.
Credit unions serve an important source of credit for consumers and small businesses. Historically this has been especially true during economic downturns, when the banking industry either tightened or in other ways limited credit.
Credit union lending helps stimulate the economic recovery and jobs by facilitating consumer purchases (consumer loans, car loans, home loans) and small business starts. This is a good thing. Step-by-step these modest loans help to ensure that market downturns do not spiral into economic downturns.
Unfortunately, due to restrictions imposed by Congress many healthy credit unions have been prevented from fully assisting in the economic recovery. This is because under current law retail credit unions, unlike all other federally insured depository institutions, cannot raise capital. Without access to capital, otherwise healthy credit unions are penalized for growing to meet the needs of the communities they serve. Existing law forces some healthy credit unions to discourage deposits and pare back on member service offerings. As a result, consumers and small businesses do not have access to affordable credit. While credit unions are needed now more than they’ve been needed in a generation, the capitalization rules keep them out of reach for millions of Americans. That’s billions of dollars for new purchases and new business startups that can’t happen. This makes no sense.
While comprehensive reform, including the repeal of Dodd-Frank, may require more time, there are a number of common sense, Main Street, pro-growth measures that ought to be adopted immediately to jump start lending and help stimulate the economic recovery. One such measure is H.R. 3993, the Capital Access for Small Businesses and Jobs Act.
H.R. 3993 would authorize the National Credit Union Administration (NCUA) to allow qualified credit unions to accept supplemental capital. Supplemental capital is a tool that would help well-managed credit unions, large and small, meet their members’ demands for affordable financial services.
The Capital Access for Small Businesses and Jobs Act would give credit unions access to supplemental capital so that credit unions can continue to serve their members by opening deposit accounts, making loans, opening new branch locations, and expanding service offerings. Modernizing the capital standards for credit unions would give more Americans access to affordable retail financial services and consumer credit. By expanding the availability of affordable credit, H.R. 3993 benefits consumers, small businesses, and the economic recovery, thereby facilitating job growth. H.R. 3993 is clearly necessary as a regulatory reform measure. Granting the NCUA the authority to regulate capital standards would give it the very same authority that has been granted to every other federal banking regulator.
We need to keep our focus on the big issues. But we also need to build an economic recovery brick-by-brick. Passage of H.R. 3993 is an important step that Congress can take right now to help stimulate the economic recovery and help create jobs. Now more than ever Americans need access to affordable financial services and access to new sources of credit.
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Horace Cooper is a senior fellow with Frontiers of Freedom’s Center for Economic Liberty and Property Rights