In a potentially embarrassing development, long-time credit union ally the Consumer Federation of America (CFA) denounced the bankruptcy reform bill last week, just as the debate on the credit union- backed measure is scheduled to come to a head.
Though the CFA has long opposed the kind of bankruptcy reform endorsed by banks and credit card companies, the group's latest proclamation comes at a potentially embarrassing juncture for credit unions, which have adopted the public persona as the consumers' best friends among financial institutions.
The CFA last week released new figures that show personal bankruptcies fell dramatically last year by 112,000 nationwide, the most ever, thus reducing the need for bankruptcy reform legislation. "If there ever was an emergency, there isn't now," said Travis Plunkett of the CFA. "If the bankruptcy rate has declined significantly and we have the largest one-year decline on record, then they (the reform advocates) have to accept that the need for the bill has declined, too."
This is not the first time credit unions have split with the nation's leading consumer advocacy group, even as three credit union representatives sit on the CFA board. The CFA supported greater consumer disclosures under enactment of the Truth In Lending Act, which was opposed by credit unions, and more recently the CFA endorsed community reinvestment requirements for community chartered credit unions, also opposed by credit unions. And the CFA has endorsed limits on ATM surcharges, something credit unions have never been able to muster enough support for, even while many credit union groups rail against high ATM surcharges.
A coalition of consumer advocacy groups from around the country, the CFA has been opposing the bankruptcy reform bill for some time, maintaining that the means-test preventing debtors with some financial means from filing for chapter 7 to erase debts falls too much on the backs of lower- income people and will not increase the collections of debtors significantly, anyway.
The CFA's latest pronouncement comes as the Senate is expected to begin final debate on its bankruptcy reform bill as one of the first actions of the new year, before the bill is combined with a separate, but similar, measure already passed by the House.
Larry Blanchard, director of public affairs for CUNA Mutual Group and who sits on the CFA board, acknowledged the public split with CFA, but said credit unions honestly believe they are supporting consumers on this issue because the actions of some consumers abusing the current bankruptcy system are hurting the other consumers/owners of credit unions. "I think it's fairly simple. We looked at it from a credit union operational standpoint and decided that the members end up paying for these losses. It comes out of the pockets of consumers," he said. "We agree to disagree (with the CFA) on this issue. They know we can't support their position and they can't support ours."
Sympathetic To Postion, But...
CFA Executive Director Stephen Brobeck noted the split. "I'm sympathetic to the position of credit unions. The majority of their members end up holding the bag because of the irresponsible behavior of some members. Some of the members take advantage of their credit union. But their loss ratio is so low, it's 1%. So I wonder how strong their commitment to this issue is. We have, I believe, agreed to disagree."
Even though credit unions' loan delinquencies and charge-offs have reached historic lows, credit unions say half of all loan losses are bankruptcy-related. In fact, credit unions lost about $1 billion last year in loans charged-off due to bankruptcies.
By disagreeing with credit unions on a major policy initiative like bankruptcy, Brobeck said it gives CFA greater credibility on other issues on which it joins credit unions.
Brobeck also said credit unions may have hurt their own public image by allying themselves on bankruptcy reform with the credit card companies and banks, whom some in Congress and the public see as partly responsible for the growth in consumer bankruptcies because of their broad extension of credit. CUNA, for example, is part of a lobbying coalition that includes the American Bankers Association, Independent Bankers Association, MasterCard and others that is pushing the bill. "What has happened is they signed on to this with other creditors and the train left the station and they can't get off," said Brobeck.
Jonathan Lindley, a former credit union lobbyist now working for an s&l trade association, said the alliance with their traditional nemesis could pose a long-term threat to the credit union lobby's credibility. "The credit union leadership is going to have to decide whether they're going to go down the line with these credit card companies and major lenders or are they going to continue to pose themselves as something unique," he said. "This does pose a major dilemma for credit unions. Are they going to continue to be little niche players, or are they going to join up with other major lenders and be just like other major financial service providers in this area?"
