WASHINGTON — Credit unions may be hard-pressed to fend off new efforts to bring them under the Community Reinvestment Act, in light of another study questioning their commitment to serving the underserved.
Last week's release of the study 'Credit Unions True to their Mission?' by the National Community Reinvestment Coalition comes as Congress is to hold hearings this week on expanding the CRA to include credit unions, insurance companies and mortgage firms.
David Berenbaum, EVP of the group that has long advocated to bring CUs under CRA, hopes the study will help convince Congress of the need to expand CRA, the 1977 law requiring banks and thrifts to make concerted efforts to serve people in poor communities. "We hope that CRA modernization is part of the overall effort at regulatory reform, something we think will help rebuild confidence in the marketplace," said Berenbaum.
The study, which analyzes data from the Home Mortgage Disclosure Act, concludes CUs lag behind banks and thrift in serving people of modest means. "The evidence in this report, as well as other research, illustrates that large credit unions do not serve people of modest me ans as well as mainstream banks, which must comply with the requirements of the Community Reinvestment Act," it says.
CUs Not Represented at Hearing
The conclusions are sure to provide ammunition for the bankers, who are scheduled to testify at this week's hearing and have been arguing for years that large, community credit unions should be subject to CRA. Also scheduled to testify at this week's hearing is the commissioner of banking in Massachusetts, one of only two states that applies its own CRA for CUs. The study finds that the CRA-covered state-chartered CUs in the Bay State perform better on fair lending indicators than CRA-exempt federal CUs that operate in Massachusetts. CU reps are not expected to testify at the hearing.
The study says the most recent home loan data for the years 2005 through 2007 reveals that banks perform better than credit unions on 65% of fair lending indicators in home purchase, refinance, and home improvement lending. These fair lending indicators focus on the percentage of loans to women, minorities, and low- and moderate-income borrowers and communities, the target market of the CRA.
Trades Question Conclusions
CUNA questioned the study's conclusions. "Our past analysis of HMDA data has shown NCRC to be off base before, and that, in fact, both lower-income and minority app licants are more likely to have their loans approved at credit unions than at banks," said Mike Schenk, senior economist. "CRA is not a law aimed at credit unions, and to impose its heavy compliance burden on credit unions is simply not justified by the evidence."
NAFCU also rebutted the conclusions. "The 2007 HMDA data show that credit union mortgage loan approval rates are higher among lower income and minorities compared to banks and thrifts," said Tun Wai, chief economist for NAFCU. "The loan approval rate, rather than the proportion of total loans granted to low- and moderate-income applicants, is the best indicator of credit unions providing service to such applicants because it is not biased by the smaller number of loans found at credit unions."
The study says credit unions' past arguments of restricted ability to serve the underserved because of the limits of field of membership have grown weak in recent years because of the proliferation of community charters.
The group criticizes NCUA for dragging its feet in adopting CRA rules. "Instead of providing meaningful regulations and tools to ensure that credit unions are serving low- and moderate-income people, the NCUA often adopts a defensive posture and argues over the meaning of the public mission of "serving people of modest means," says the study.
"Worse, NCUA has adopted regulations that allow credit unions to serve very large geographical areas of entire cities without requiring meaningful levels of branching and service to low- and moderate-income people," said the study. It also suggests applying CRA would "invigorate" the movemens as a whole, encouraging larger CUs to reach out to low-income CUs, for example.
NCRC's Berenbaum said banks and thrifts have found that lending to low- and moderate-income borrowers to be profitable. "Frankly, I don't understand why credit unions are not embracing CRA because it is a profitable service provider," he said.
