Former NCUA Chairman Norm D'Amours was critical of many large credit unions and credit union trade associations in recent remarks delivered before the Iowa Bankers Association's annual meeting.
Below are excerpts of the comments delivered by D'Amours, which were also distributed in a magazine published by the IBA.
You can't generalize about credit unions. All big credit unions aren't bad; and small credit unions aren't always great. I've seen some big credit unions doing a magnificent job reaching out to low-income people. Unfortunately, their numbers aren't large.
The credit union industry is controlled by well-paid insiders of a few trade groups, which themselves are controlled by a relatively small minority of very large dues-paying credit unions. It is the smaller credit unions that tend to stick to their original mission, which is to help low-income people get fair access to financial services. But many of these smaller CUs have enormous needs that are not being met. Many of the large credit union CEOs have little or no interest in helping low-income people or their smaller brethren.
Understanding Credit Unions
In order to better understand the makeup of the credit union industry today, consider there are 10,000 credit unions holding $630 billion in assets. Credit unions with more than $100 million in assets make up only 11% of the industry but control 75% of the industry's assets.
The large credit unions are running the show because the trade groups are controlling federal and state legislative agendas, regulatory lobbying and everything else that is credit union related. The largest and most dominant credit union trade group is the Credit Union National Association. The prime motivation of the trade groups is the dues and services income they receive from credit unions. The larger the credit union the greater the amount of dues assessed and services provided.
The theory is that credit unions are not-for-profit institutions and, technically, that is correct. But let me tell you, there are an awful lot of people in the credit union system who are profiting very handsomely from the credit union movement. For example, many were shocked a few years ago to find out that the person who was running CUNA was earning more money than his counterpart at the American Bankers Association.
In November 2003, the General Accounting Office issued a study saying three important things. It said the difference between banks and credit unions is fading. It said credit union performance in meeting their objective of serving low-income people was in doubt and should be surveyed. And it said banks are doing a better job than credit unions of serving low-income people.
Wow! The highly principled founders of the credit union movement would have been deeply embarrassed.
CUNA, however, said the report was biased. They said it was outrageous. In other words, they followed their usual pattern of ignoring the facts and castigating and demonizing anyone who challenges or disagrees with them.
Banks have been losing almost every battle they've engaged in with credit unions. The usual complaint that banks bring to legislators is that credit unions have all the powers banks have but are given competitive advantages. Well, that approach hasn't gotten banks very far. In my opinion, banks are not going to win that fight because, in fact, there are still some things banks can do that credit unions can't do. And, most people don't really care about such fine distinctions anyway. But what people and legislators do care about is whether CUs are doing what they are supposed to be doing.
A New Approach
Let me suggest a new approach. There are a number of what we call "low-income designated" credit unions. These credit unions can raise secondary capital, which means they can accept deposits from non-members, including banks. In addition, banks frequently offer back-office support for small, struggling credit unions, regardless of whether they are designated "low-income."
The truth is that banks, because of their CRA requirement and a sense of social commitment, have been helping credit unions in these manners for a number of years. But they don't measure these efforts and they don't structure them in any way that I have been made aware of. In my view, these efforts by banks should be intensified.
I think that would make banks much more effective when they go to Congress, because they would have with them some credit union people who would say: "we really need these bankers, they are a great help to us."
The GAO said you are doing better than credit unions in serving low-income people. I believe that because empirical evidence I have seen attests to that fact. But hardly anyone knows that. Why are you keeping it a secret?
