CUNA Comment Letter

Revision of the Definition of Small Credit Union

February 3, 2003

Ms. Becky Baker
Secretary to the NCUA Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428

RE: Proposed IRPS 02-4, Revision of the Definition of Small Credit Union

Dear Ms. Baker:

The Credit Union National Association appreciates this opportunity to comment on the proposed Interpretive Ruling and Policy Statement (IRPS) 02-4, which would amend provisions implementing the Regulatory Flexibility Act in IRPS 87-2, Developing and Reviewing Government Regulations. More specifically, the proposal would redefine "small entity-- for purposes of requiring NCUA to prepare analyses on the impact of proposed and final rules on such entities. The proposal would raise the threshold for the size of credit unions classified as "small entities-- from less than $1 million in assets to those with less than $10 million in assets. The proposal would also clarify that NCUA will review one-third of existing agency regulations every year and that the public will receive notice of the rules that will be subject to review. CUNA represents over 90% of our nation's more than 10,100 state and federal credit unions.

Summary of CUNA's Position

Revision of the Definition of Small Credit Union

CUNA strongly supports the interests and fair presentation of all credit unions, including smaller ones. We believe CUNA is the only credit union trade group that has established a Small Credit Union Committee to ensure there is a focal point within the credit union system to champion the concerns of smaller credit unions, along with their larger counterparts.

Building on the work and focus of our Small Credit Union Committee, CUNA strongly agrees with NCUA that it is appropriate to review its definition of small credit unions, as it relates to the Regulatory Flexibility Act, and we commend the agency for undertaking this effort.

When NCUA approved the current definition of "small entities-- for purposes of RF Act analyses twenty-two years ago, the definition included about 63% of all federally insured credit unions. Today, the definition only includes about 12%.

This factor alone, however, is not sufficient to raise the threshold. Nonetheless, we believe there is a range of compelling reasons, based on our review of the RF Act and its legislative history, credit unions' resources, other agencies' definitions of "small entities-- and other factors, which supports a significant increase in the threshold.

In 1980, recognizing the debilitating effect that needless regulations can have on the small business community, Congress enacted the RF Act to encourage agencies to work within the confines of the Administrative Procedures Act to consider whether regulatory burdens could be reduced for "small entities.-- The legislative history demonstrates that Congress felt strongly that smaller entities often do not have the resources, including staff, to absorb compliance responsibilities and that regulators must be mindful of those inadequate resources when developing new regulatory directives.

According to CUNA's 2001 Credit Union Services Profile Report, only 10% of credit unions with assets of up to $20 million have staff dedicated exclusively to compliance responsibilities, and only 16% of credit unions with less than $50 million in assets have such a compliance officer. (About 31%% of credit unions with assets of $50 million to $100 million have a compliance director while approximately 47% of credit unions with assets of $100 million to $150 have a compliance staff member. About 66% of credit unions with assets of $150 million or more have compliance staff.) These statistics help confirm that while credit unions diligently seek to meet their regulatory responsibilities, resource allocation for compliance purposes is an issue, particularly for credit unions with assets of less than $50 million.

For purposes of considering the appropriate level of the threshold for the RF Act analyses, we feel it is also appropriate to consider how other federal agencies define smaller entities, including credit unions, and whether the NCUA can expand its definition in a similar manner. For example, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the Small Business Administration have all set the threshold for smaller entities under the RF Act at $150 million in assets. This definition applies to all institutions under these regulators' purview, including community banks, which often seek to analogize themselves to credit unions.

In 2000, the U.S. Department of the Treasury issued a study at the direction of Congress, which reviewed the regulation of credit unions. As NCUA and state regulators are well aware, credit unions work very hard to meet all their legal and regulatory responsibilities. The Treasury Department's study of credit unions clearly demonstrated that the regulatory burden borne by credit unions, with the exception of the federal Community Reinvestment Act, is essentially the same as that for banks, which generally have much greater assets and resources. (Regarding CRA, some credit unions, including state chartered credit unions in states such as Massachusetts meet CRA-type requirements.)

As the Treasury study showed, in some areas, such as member business lending, credit unions are under a greater burden than the banks face. Also, credit unions must meet much higher net worth standards under prompt corrective action than do the banks or thrifts.

Thus, we believe that in consideration of the RF Act's intended purpose and objectives and in light of the distribution of regulatory resources within the credit union system, an increase to at least $50 million in assets is justified.

Another important aspect of the agency's review of this issue, we believe, is deliberation on how often the agency should reconsider the appropriateness of the threshold, given the RF Act's purpose and goals. In that connection, CUNA urges NCUA to announce it will conduct a review of the new definition after it has been in place for one year. We also recommend the Board plan to reconsider the threshold every year thereafter. This process will ensure that the agency is fully complying with the intent of the RF Act to provide special consideration to small entities so that regulatory compliance does not needlessly impair their ability to perform their primary function – which in the case of credit unions is to serve their members.

Like the NCUA Board, CUNA believes that it is important that the form of RF Act compliance not be more important than its substance. In that regard, CUNA urges the agency to make the details of its RF Act analysis available to credit unions as part of a proposal or final rule. For example, in the past the agency has determined that certain regulations would not burden small credit unions and has foregone an RF Act analysis. We urge the agency, even if it determines the RF Act does not apply, to provide its analysis of the applicability of the RF Act with the proposal or final rule.

While the RF Act is important for assessing the impact of each individual rule, it does not require an assessment of the cumulative impact of rules on credit unions operations. CUNA has long advocated that NCUA establish a process under which the aggregate affect of rules can be assessed by NCUA for all credit unions. Thus, we urge the agency to consider a process under which it will consider not only the added burden of a new proposal on smaller credit unions, but also an assessment of the total compliance obligations on all credit unions, which would be issued with each new proposal and final rule.

NCUA's Rolling Review of Existing Agency Regulations

CUNA supports the proposed provision for NCUA to provide notice of the one-third of the agency rules undergoing review every year so that credit unions may have an opportunity to provide feedback to the agency. This is a very positive approach, which we believe will help credit unions feel they have an even greater stake in the development of regulations from NCUA.

We would like to make some recommendations that we believe could help facilitate the achievement of these objectives. We encourage NCUA to establish a process to achieve wider distribution of the review schedule and help obtain greater public comments. In addition to continuing the publication of the semi-annual review of regulations in the Federal Register, we recommend the agency announce at its December meeting the rules that will be under review for the following year, including what specific aspects of the rules are under consideration for change. We recommend the agency publish the document in the Register and on its website. Of course, this would not limit the agency's ability in any way to develop new proposals that are not contemplated by December of the previous year.

Thank you for the opportunity to share our comments. If you have any further questions, please feel free to contact me at (202) 508-6736.


Mary Mitchell Dunn
Senior Vice President and
Associate General Counsel