WASHINGTON – A study released yesterday concluding that credit unions lag banks in serving people of modest means could mean trouble for credit unions as Congress prepares to hold hearings on expanding the Community Reinvestment Act.
"The evidence in this report, as well as other research, illustrates that large credit unions do not serve people of modest means as well as mainstream banks, which must comply with the requirements of the Community Reinvestment Act," concludes the study, ‘Credit Unions True to Their Mission?' which was issued by the National Community Reinvestment Coalition. The group has been advocating for the expansion of the CRA to credit unions and other financial entities.
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.
CUNA questioned the study’s conclusions. "We are still reviewing the NCRC's latest report, but our past analysis of HMDA data has shown NCRC to be off base before, and that, in fact, both lower-income and minority applicants 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."
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. "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."
"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.
Release of the study comes as the House Financial Services Committee is preparing hearings on proposals to expand the CRA. The hearings are expected to be held as soon as next week.
The CRA was enacted in 1977 in response to Congressional findings that some banks were avoiding certain low-income neighborhoods, or red-lining. The law requires that banks and thrifts make concerted efforts to deliver services and products in those markets they serve. The law does not apply to credit unions, except in Massachusetts and Connecticut, which have their own version of the CRA. The new study uses data from the Massachusetts experience with CRA and compares credit unions’ CRA performance with the banks and thrifts.
