U.S. Rep. Janelle Bynum, D-Ore., and Rep. Young Kim, R-Calif., recently introduced bipartisan legislation that would expand the types of investments federal credit unions can make, a change supporters say could give the institutions greater flexibility to offer competitive savings rates and lending products to their members.
The Credit Union Investment Authority Act would amend the Federal Credit Union Act to allow federally chartered credit unions to invest in corporate debt and asset-backed securities, expanding investment options that are currently more limited than those available to some other financial institutions. The legislation would also establish safeguards governing those investments.
More than 144 million Americans are members of credit unions, according to information provided by Bynum’s office. Supporters of the legislation say expanding investment authority could help credit unions strengthen their balance sheets and return some of those benefits to members through lending and savings products.
“Hard-working families and business owners need more ways to make their money go further so that they can build a stronger financial future,” said Bynum. “That starts with making sure that people have access to services that allow them to get more from the money they put in their accounts. Giving credit unions better investment options will help expand loan opportunities, make payments more manageable, and put more financial opportunity on the table for Americans.”
Under the legislation, federal credit unions would be permitted to purchase corporate bonds and other qualifying debt instruments. The bill would limit a credit union’s investment in the obligations of any single issuer to no more than 10% of its paid-in unimpaired capital and surplus.
The proposal would also authorize federal credit unions to invest in asset-backed securities, financial instruments backed by pools of underlying assets. The National Credit Union Administration Board would be required to develop regulations governing those investments within one year of the legislation becoming law.
Those regulations would have to establish requirements addressing the minimum size of an asset-backed securities issue, the minimum aggregate sale price and the investment grade of the securities.
Kim said existing federal restrictions limit credit unions’ ability to compete and provide financial benefits to their members.
“Credit unions serve over 250,000 people right here in California’s 40th District. Yet outdated federal restrictions limit their ability to invest and deliver the competitive rates their members deserve,” said Kim. “That’s why I am proud to introduce the bipartisan Credit Union Investment Authorities Act to modernize these rules so credit unions can diversify their portfolios and offer more affordable loans. This common-sense reform puts more money back in the pockets of hardworking Californians.”
The proposal could have implications for credit union members in Oregon, where industry representatives say federally chartered institutions face investment restrictions that do not apply in the same way to state-chartered and corporate credit unions.
“Expanding investment opportunities for federally-chartered credit unions will produce lasting financial benefits for millions of members across Oregon and the entire six-state GoWest region,” said the GoWest Credit Union Association in a statement. “Because credit union members are also owners, stronger investment options directly support the financial well-being of the institutions they rely on. Allowing the sorts of investment opportunities available to other financial institutions, including state-chartered and corporate credit unions, will strengthen federal credit unions and increase the financial stability of their members and the communities they serve. On behalf of these members, we thank Rep. Bynum for her leadership in advancing this much-needed change to support the financial strength and security of credit union members, in Oregon and across the six-state GoWest region.”
America’s Credit Unions, a national industry trade organization, also endorsed the proposal, arguing that federal law has not kept pace with changes in the financial services industry.
“To continue operating safely and soundly while offering affordable financial products to their members, federal credit unions need laws that reflect the modern financial services landscape. Antiquated laws currently limit the investment options for credit unions,” said Kathleen Coulombe, chief advocacy officer for America’s Credit Unions. “America’s Credit Unions thanks Representatives Janelle Bynum and Young Kim for recognizing this disparity and introducing the Credit Union Investment Authority Act. Modernizing the Federal Credit Union Act will give credit unions much needed flexibility to diversify their investments, helping them manage their balance sheets, to maintain safety and soundness, and continue providing the most affordable financial services in the country. We will continue to advocate for modernized regulatory practices and hope Congress moves quickly to pass this legislation.”
If approved by Congress and signed into law, the measure would expand federal credit unions’ investment authority while leaving the NCUA responsible for developing regulations governing investments in asset-backed securities.
