A new push to loosen credit union investment rules.
Bipartisan legislation would give federally chartered credit unions more latitude to invest, potentially changing how they manage their balance sheets and price financial products.
A bipartisan pair of House lawmakers is seeking to give federally chartered credit unions more freedom to invest their funds, arguing that decades-old restrictions are limiting the financial products and rates they can offer members.
Representatives Janelle Bynum, Democrat of Oregon, and Young Kim, Republican of California, introduced the Credit Union Investment Authorities Act, which would expand the types of investments federal credit unions can make while placing limits on how much they could put into any one issuer.
The bill comes as credit unions serve more than 144 million Americans but operate under investment rules that generally restrict federally chartered institutions to government securities and a limited set of other investments.
The legislation would allow federal credit unions to purchase corporate bonds and invest in asset-backed securities. No more than 10% of a credit union’s capital could be invested in a single issuer, and the National Credit Union Administration would be directed to establish rules governing the investments and related safeguards.
Bynum, whose district includes Oregon communities served by credit unions, said the changes could give families and businesses more ways to benefit from their financial relationships.
“Hard-working families and business owners need more ways to make their money go further so that they can build a stronger financial future,” Bynum said.
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Kim said credit unions serve more than 250,000 people in California’s 40th Congressional District and argued that federal restrictions have not kept pace with the financial services industry.
“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,” Kim said. “This common-sense reform puts more money back in the pockets of hardworking Californians.”
The proposal would apply to federally chartered credit unions, which face investment restrictions that can differ from those governing state-chartered institutions. Supporters say expanding permissible investments would give federal credit unions more flexibility to manage their balance sheets and potentially strengthen the products and services they offer.
America’s Credit Unions, the industry’s largest trade association, backed the legislation.
“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,” said Kathleen Coulombe, the organization’s chief advocacy officer.
Coulombe said current restrictions are “antiquated” and that giving credit unions greater investment flexibility could help them diversify while maintaining safety and soundness.
The GoWest Credit Union Association also supported the legislation, saying broader investment authority could benefit members in Oregon and across its six-state region.
“Because credit union members are also owners, stronger investment options directly support the financial well-being of the institutions they rely on,” the association said in a statement.
The distinction between federal and state charters is central to the proposal. The bill’s supporters argue that federal credit unions should have access to investment opportunities available to other financial institutions, including state-chartered and corporate credit unions.
The legislation would also specifically affect credit unions in Oregon, according to its supporters, by giving them more investment flexibility and potentially allowing them to offer members more affordable interest rates and loan options.
The proposal does not call for unlimited investment authority. Its 10% cap on investments in a single issuer is intended to provide a measure of diversification, while the NCUA would oversee the rules governing investment decisions.
For the credit union industry, the legislation represents an effort to update a piece of the federal regulatory framework that supporters say has not kept pace with the modern financial system. The question for lawmakers will be whether greater flexibility can produce better member products without weakening the safeguards that govern institutions holding consumers’ deposits.
The bill now faces the congressional process, where its bipartisan sponsorship could help give the proposal a broader base of support. Bynum and Kim are presenting it as a relatively straightforward modernization of federal credit union law.
The stakes are potentially broad. With more than 144 million Americans belonging to credit unions, even changes aimed at a specific category of institutions could affect a large portion of the nation’s consumers.
The bill would give federally chartered credit unions more investment choices. Whether those choices translate into better rates, broader lending or stronger balance sheets will depend on how the institutions use the additional authority — and on the rules the NCUA ultimately establishes.
“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.”
– Janelle Bynum
Democratic Representative
Oregon
Ken McCarthy is manager of marketing communications at Tyfone, where he monitors the credit union industry and contributes to conversations shaping its future. He previously covered credit unions and community banking for American Banker and S&P Global Market Intelligence. He holds a journalism degree from Point Park University and has more than 15 years of experience covering financial services. He is also the author of three literary fiction novels.
