WASHINGTON -
The on-again/off-again battle over the Community Reinvestment Act for credit unions emerged again last week, with leading members of Congress saying they plan legislation which would expand the reach of the law requiring banks and thrifts to show concrete efforts to invest in low-income and inner-city communities.
While lawmakers were mum on their plans for credit unions, several industry critics again urged that CRA be expanded to include a variety of financial service providers, including credit unions.
John Taylor, president of the National Community Reinvestment Coalition, said during last week’s CRA hearing before the House Financial Services Committee that the law could be used as a vehicle to help alleviate the current mortgage crisis by requiring all participants in the mortgage market–including credit unions, insurers, investment banks and mortgage companies–to serve the low-income and inner city communities that have been hardest hit by the rising loan defaults and foreclosures.
Taylor said a 2005 study conducted by his group and subsequent review shows that credit unions lag behind banks and thrifts in serving low- and moderate-income communities and applying CRA to credit unions could remedy this.
He acknowledged that traditional field of membership restrictions had limited credit union efforts to reach these groups in the past, but said recent trends, including the proliferation of broad-based and community FOMs have provided ample opportunity for credit unions to serve these underserved markets.
“The industry has reached enough of a point where it should never lag the banks and thrifts, but should be far ahead of banks and thrifts in providing credit to low-income and minority groups, particularly because of the tax benefits (exemption),” said Taylor.
The call for CRA for credit unions was predictably joined by the banking lobby when Cynthia Blankenship chairman of Bank of the West, who was representing the Independent Community Bankers Association, also urged the committee to extend CRA to credit unions. “We strongly recommend Congress require credit unions to comply with CRA, just like banks and thrifts,” she said.
She noted that NCUA passed its own CRA-like regulation for community charters in 2000 because the NCUA Board saw the need, but the proposal, called a Community Action Plan, was repealed because of widespread opposition by credit unions.
Both CUNA and NAFCU said last week they will fight vigorously against any effort to extend CRA to credit unions.
Brad Thaler, senior lobbyist for NAFCU, said they believe Taylor and his group has misinterpreted data, including that collected under the Home Mortgage Disclosure Act, to arrive at their conclusions. The HMDA data regular shows that credit unions have a lower denial rate for all borrower groups–whites, blacks, Hispanics and Asians–but that the denial rate for the minority groups compared to the denial rate for whites is far higher than the discrepancy for banks and thrifts.
Strong Disagreement
The group’s study says this indicates credit unions lag in serving these groups and that credit unions need to address the discrepancy
“Taylor’s comments have no basis in fact,” said Thaler, who focused on the data showing that credit unions have a lower denial rate–therefore a higher approval rate–for minority mortgages.
CUNA also noted that credit unions make a higher rate of mortgage loans than banks and thrifts to low- and moderate-income families.
“CUNA opposes the imposition of CRA requirements on credit unions for the simple reason that credit unions may only lend to their members, who are the sources of their deposits, and therefore by their very nature, comply with the spirit of the act,” said Pat Keefe, spokesperson for the trade group. “In fact, as the number of credit unions serving communities has grown, a large body of evidence is being compiled showing that credit unions significantly outperform others in lending to low- and moderate-income and minority borrowers.”
Lawmakers were reluctant to show their hands last week, but Barney Frank, the Massachusetts Democrat who chairs the Financial Services Committee, said it his intention to expand the CRA and tighten its monitoring. While Frank did not address the issue of CRA for credit unions, in the past he has noted that his state is the only one with a CRA for state- chartered credit unions and it has drawn little or no opposition from the industry.
At least one bill has been introduced in the House to expand CRA but it doesn’t name credit unions, yet.
CRA was passed in 1978 to force banks and thrifts that were drawing deposits from poor inner city communities to make efforts to provide services to those impoverished communities. The banks have responded by providing millions of dollars in grants and loans to organizations, mostly non-profits, that provide work in those poor communities. Ironically, in many cases, that has included funding community development credit unions with grants and non-member deposits. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com
