In response to a study from the National Community Reinvestment Coalition (NCRC) that claimed credit unions do not do as well as banks in lending to lower income and minority borrowers-and that therefore credit unions should be subject to the Community Reinvestment Act (CRA) - CUNA has sent letters to Congress arguing the opposite (see related story, page 1).
CUNA said that the NCRC's data was based on on Home Mortgage Disclosure Act (HMDA) data for the years 2001, 2002 and 2003, and that an "objective analysis" of that same data "leads to very different conclusions about credit union lending to minority and lower income borrowers."
"Credit unions have made great progress in lending to low and moderate income (LMI) and minority borrowers, and outperform other lenders in lending to these groups," said CUNA CEO Dan Mica.
Specifically, said CUNA, the latest available HMDA data from the Federal Reserve reveal the following:
1. In 2003, credit unions made a greater proportion of their loans to LMI borrowers (24.2%) than did banking institutions (23.2).
2. In 2003, an LMI borrower was far more likely to have his or her loan application approved at a credit union (75%) than at a banking institution (47%).
3. The growth of loans to LMI and minority borrowers at credit unions far exceeded the growth of such lending at banking institutions during the two-year period ending in 2003.
CUNA said the NCRC's errors lie in basing conclusions on comparisons of the percentage of loans to various subgroups of low- and moderate-income and minority borrowers at credit unions to the similarly computed percentages at banks and thrifts.
"They also use a 'denial disparity ratio' to suggest that credit unions deny applications from lower income or minority applicants more frequently than do banks and thrifts," CUNA said. "In terms of percentage of loans to various target groups, NCRC begrudgingly admits that credit unions have shown improved performance over the three years of analysis, but insists on strongly indicting credit unions based largely on the performance of the first two years.
Other Clouds
"They also cloud the issue by reporting on a number of overlapping subgroups: LMI, African Americans, Hispanics, women, LMI minorities, LMI women, minority tracts, LMI tracts, etc. Use of so many categories and subcategories can be misleading because the sample sizes in some of the cells can get very small, especially at the state level. (They excluded from their analysis cells with fewer than 20 observations, an extremely low cut off. A rigorous statistical analysis would no doubt show that many of the results they report for cells with over 20 observations were not statistically significant.)
"What really matters is comparing bank and credit union performance in lending to the following three major groups: Low and Moderate Income, African American and Hispanic households," CUNA continued. Such a comparison...documents the strong progress credit unions have made in directing an increasing proportion of their loans to LMI and minority applicants from 2001 to 2003. It also shows that by 2003, credit unions made a greater proportion of their loans to LMI and African American borrowers than did banking institutions."
