Groups Say Flawed Data, 'Bank Bias' Evident In Study

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CUNA, NAFCU and NASCUS have banded together to issue a joint response to the General Accounting Office's recent report on credit unions.

The three groups, represented by CUNA CEO Dan Mica, NAFCU CEO Fred Becker and NASCUS Acting CEO Mary Martha Fortney, have sent a letter to GAO Comptroller David Walker outlining some technical flaws in the report, as well as raise what they criticize as a banker bias seeping into the study. While all three trade groups were careful to point out that a good deal of the GAO's report was favorable toward credit unions, they also had serious concerns about the way GAO gathered intelligence.

"The GAO has perpetuated a misinterpretation put forward by the banker groups that the law always requires creating a new credit union rather than allowing a new group to be added to an existing credit union," said CUNA Assistant General Counsel Mary Dunn. "We also want to point out who the GAO looked to for information for this report. GAO has never contacted credit unions about banks when it has been doing a report on the banking industry, yet we do know that GAO did contact the banks about this report on credit unions."

CUNA Economist Bill Hampel suggested that if the purpose of the GAO study was to determine what effect credit unions have on the banking industry, then it would have been appropriate for the banks to be involved in the study. But he said that was never a stated reason for the report, which was conducted at the request of Maryland Sen. Paul Sarbanes, the CU groups questioned why the American Bankers' Association was even asked to participate at all.

In their joint letter, the three credit union groups wrote, "We are concerned that credit unions not be viewed by the GAO, the Congress or others who read this report through a lens provided by the ABA." Hampel said CUNA shared its concerns on this score with GAO last summer.

But there were other, more technical concerns about the actual data used by GAO to assess how well credit unions are serving the underserved. In relying on data required by the Home Mortgage Disclosure Act, the GAO set itself up for a flawed report because many credit unions do not meet the mortgage thresholds that would require them to report HMDA data, the trade groups suggested. Moreover, the groups noted credit unions that don't make mortgage loans still provide service to the underserved, yet they were not included in the analysis.

At the very least, the trade groups offered, if HMDA data is to be used, GAO should look at the loan approval rate, rather than the proportion of total loans granted to low- and moderate-income applicants. This, they said, would be "a better indicator of the extent to which credit unions provide service to such applicants. That is because loan approval rates do not depend on field of membership type or geographical area served."

The CU trades also expressed concern that "the inquiry [into underserved outreach efforts] seems to reinforce a mischaracterization that credit unions should only serve the underserved," the three groups said. "While credit unions do serve the underserved, the relevant federal and state laws are clear that credit union services are not limited to that group alone."

Indeed, NASCUS' Brian Knight pointed out that "serving the underserved" isn't necessarily part and parcel of every state CU chartering statute. "There are 48 different credit union acts at the state level, and while some do discuss serving the underserved, some of them have focused primarily on promoting thrift among a credit union's membership," he explained.

NASCUS, NAFCU and CUNA were careful to laud the GAO for some of the credit union-friendly outcomes in the report as well, noting "there are very few recommendations for change either to regulations or legislation in the report, indicating credit unions and the Share Insurance Fund are doing a superior job managing risk."

But those bright spots were overshadowed by the CU concern that the GAO, which is supposed to be a neutral observer, has somehow bought into banker rhetoric that credit unions are becoming too "bank like."

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