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Recommends requiring CUs to serve low income communities
(MADISON) Taxpayer subsidized credit unions continue to lag taxpaying banks in serving women, minorities and low- and moderate-income borrowers, according to an updated study released by the Washington, DC-based National Community Reinvestment Coalition (NCRC) this week.
“Credit unions as a whole are not meeting the public expectations for institutions that receive tax exemptions and are entrusted with the mission of serving people of modest means,” NCRC states in the study’s executive summary.
The study criticizes the National Credit Union Administration (NCUA), the CU industry’s primary regulator and deposit insurance provider, stating that NCUA “has failed in its regulatory responsibilities.” NCRC claims NCUA “mainly adopts a defensive posture by debating the meaning of the credit unions’ public mission of serving people of modest means. Worse, NCUA has passed regulations that allow credit unions to serve very large geographical areas, including entire cities or counties.”
NCRC also found that credit unions in Massachusetts and Connecticut do a better job of serving lower income populations than their peer institutions in other states because of a state-level community reinvestment requirement. NCRC recommends that Congress place large credit unions under the federal Community Reinvestment Act (CRA), which requires banks to document efforts to serve lower income and minority consumers in the market areas they serve.
The NCRC study, entitled Credit Unions: True to Their Mission II, is a follow up to a 2005 analysis that characterized the CU industry’s outreach to underserved communities as “lackluster.”
“When Congress grants an entire industry a multibillion dollar tax subsidy, taxpayers and policymakers should demand something in return,” commented Kurt R. Bauer, president/CEO of the Wisconsin Bankers Association (WBA). “In the case of credit unions, that something should be providing banking services to what the Federal Credit Union Act of 1934 defines as ‘people of small means.’”
In 2007, WBA released a report showing that the Wisconsin’s largest credit unions are trending away from serving low- and moderate-income populations in favor of upper income customers. In 2008, State Rep. Mark Gottlieb (R-Port Washington) introduced legislation (AB 897) to apply CRA standards to credit unions. A hearing was held on the bill, but not further action was taken.
Bauer said that the NCRC follow up study along with similar studies, including one by the federal Government Accountability Office, offer overwhelming evidence that credit unions are ignoring their social mission at the expense of taxpayers and underserved populations. He urged state and federal policymakers to read the study, which is available at http://www.aba.com/aba/documents/news/NCRCReport9709.pdf.
The Wisconsin Bankers Association is the state’s largest financial industry trade association, representing 300 commercial banks and savings institutions, their nearly 2,300 branch offices and 30,000 employees.