Generally Positive GAO Does Send One Message
The credit union movement should be pleased with the recently released report on the industry by the General Accounting Office (CU Journal, Nov. 10).
The report by the well-respected government watchdog concludes that the credit union industry is in healthy financial condition and makes few recommendations that are likely to cause major reforms.
This is in stark contrast to the last time the GAO studied the credit union movement, in 1991, at the height of the worst times in credit union history. That was when, like banks and s&ls, record numbers of institutions were failing. Like the federal deposit insurance funds for banks and s&ls, this put major pressure on the National CU Share Insurance Fund, forcing NCUA to recapitalize the fund with the first, and only, premium. The crisis-like atmosphere was heightened, of course, by the failure of the private deposit insurance system in Rhode Island, known as RISDIC, for Rhode Island Share and Deposit Indemnity Corp., that prompted a dozen or so private insurance systems across the country to fold up shop.
The GAO found this time around that not only are credit unions are in strong financial condition, with high net capital and low numbers of troubled institutions, but a major influx of deposits the last three years has made the industry grow by as much as 30%.
But the 180-page document sends a clear message-one that it was designed to send-to credit unions, and that is that with the expanding markets through community fields of membership comes new responsibilities.
The gist of the report is that there is some question whether credit unions are adequately serving the underserved, a focus many have considered key to the credit union mission. But the report concludes that no one really knows the answer to this question because there is a lack of data being gathered to address the issue.
Ironically, a couple of days after release of the GAO report, a federal court dismissed a suit brought against NCUA for scrapping an initiative to gather data to gauge service to the underserved. The so-called CAP, or Community Action Plan, would have required community chartered credit unions to report to NCUA on their plans and adherence to those plans to serve the underserved. But before the plan, initiated by former NCUA Chairman Norm D'Amours, ever became effective, D'Amours' successors on the NCUA Board voted to repeal the CAP. The federal court ruled that NCUA's actions were legal in its repeal.
The NCUA and court action leaves the federal regulator with an interesting dilemma now that the GAO has recommended that NCUA develop some kind of method to once-again gauge service to the underserved. And that charge comes down to NCUA Chairman Dennis Dollar, the main proponent of repealing the CAP.
Though the GAO, in conducting its study, is supposed to be above politics, nothing done in Washington, D.C., is ever fully devoid of politics. The mere initiation of the study is a case in point. The study was requested by Sen. Paul Sarbanes (D-MD), a proponent of the Community Reinvestment Act, during the brief time Sarbanes was chairman of the Senate Banking Committee. Sarbanes, who was lobbied heavily by the bankers after losing their bid to include a CRA-type requirement in HR 1151, the 1998 CU Membership Access Act, specifically asked the GAO to study whether credit unions are adhering to their historic mission to serve the underserved.
So it was no coincidence that the GAO focused on this point. In fact, the GAO actually consulted the American Bankers Association, the main nemesis of credit unions, when conducting its study. This is a sore point among credit union officials, who are wondering why the credit union enemies were allowed input in a so-called independent and objective study.
But many on the credit union side are also being disingenuous in their own comments. Though it is true that Congress rejected initiatives to add a CRA-like requirement to HR 1151, it was only after major lobbying by credit unions of major opponents of CRA who controlled the legislative process at the time, that the issue was left out of the bill. So, Congress didn't simply decide against including CRA in HR 1151, but they were lobbied heavily to do so.
The Changing FOM Landscape
In addition, the CU landscape has changed remarkably in the more than five years since HR 1151. Ironically, many more credit unions have chosen to eschew the multiple group field of membership powers codified in HR 1151, and opted instead for geographic, or community FOMs. In fact, as many as 20% of credit unions, both federally and state chartered, now have some kind of community component to their membership bases now, according to regulators.
This is the major issued raised by GAO. With broader membership powers comes greater responsibilities, including continued and, even expanded service to communities that may not be as profitable as some. There's much anecdotal evidence to suggest that credit unions are undertaking significant initiatives aimed at accomplishing this. Just visit some of the poorer neighborhoods credit unions have added to their FOMs over the past few years.
But it's going to take much more than anecdotes to convince critics and advocates, as well. That is the major challenge for credit unions.