Overwhelmingly, CUs Want No Changes to 'Underserved' Rule
Credit unions overwhelmingly called on NCUA last week to stand up to the bankers' challenge to the agency's underserved expansions policy and back off a proposed rule eliminating the ability of community chartered credit unions to add underserved communities to their fields of membership.
And if that causes NCUA to lose an ongoing lawsuit with the American Bankers Association, then NCUA and the credit union lobby should ask Congress to amend the Federal CU Act to explicitly allow community credit unions, as well as single common bond charters, to participate in the underserved expansions program - the keystone to NCUA's Access Across America initiative, credit unions insisted.
"While I understand the complexities of re-opening the Federal Credit Union Act, at the moment it doesn't appear that we would have any other choice than to go that route to fix this issue," said Blake Strickland, president of Tennessee Valley FCU, Chattanooga, Tenn., in a comment letter submitted to NCUA on its proposal to permanently bar underserved expansions for community chartered and single group credit unions.
"I strongly encourage the agency to take the steps necessary to allow all credit unions to serve underserved areas, especially in light of the recent attacks of the banking industry and some members of Congress who feel we do not serve the underserved," wrote Richard Hein, president of OSU FCU, Corvallis, Ore.
The NCUA proposal, a response to the ABA's lawsuit in federal court in Utah, comes as credit unions are under increasing pressure in Congress-applied in large part by the bankers-to demonstrate their services to the underserved as a price for retaining their federal tax exemption. In comment letter after comment letter credit union executives pointed out the apparent hypocrisy of the bankers' attempts to limit credit union expansions into underserved communities at the same time they are fueling such criticism in Congress.
What NCUA Is Proposing
NCUA, mindful of a ruling 16 months ago by the same Utah court that it had violated the law-the Federal CU Act-in granting several expansive community charters, is proposing to limit underserved expansions to multiple group credit unions in order to settle the current bankers' suit. The bankers claim HR 1151, the 1998 CU Membership Access Act, amended the law by specifically allowing multiple group credit unions to add underserved expansions.
To be found in violation of the law a second time by a federal court would be a terrible stain on NCUA before Congress, where some members are beginning to question whether NCUA has become little more than a "cheerleader" for credit unions (see related story, page 10). The ABA is waiting to see what NCUA does with the proposed rule before deciding whether to drop its current suit.
But while NCUA hopes to settle the underserved suit, a broad spectrum of the credit union community is urging the agency to stand up to the bankers and not go through with the final rule limiting underserved expansions.
Frank Berrish, president of Visions FCU, a community charter in Endicott, N.Y., said his credit union has invested more than $3 million to open six new branches in underserved communities and to close them or limit their ability to accept new members would be a significant strain on it.
Berrish submitted a comprehensive list of the special programs his credit union has created to target low- and moderate-income residents of those communities, including debt counseling, no minimum balance accounts, small saver certificates, low-balance IRAs, no-surcharge ATMs, financial literacy, low-cost home mortgages and emergency loans.
A survey conducted by CUNA in connection with the comments found that 182 community or single group credit unions that have adopted underserved expansions in apparent violation of the law have made significant investment in those underserved communities, building 315 branches in those communities and 153 branches nearby at a cost of $1.3 billion. So far, those credit unions have added 1.6 million new members and made $4 billion in loans and collected $3.4 billion in savings in those areas.
ABA: Halt Any New Additions
The ABA, in its comment letter, insisted that any final rule enacted by NCUA not only bar new underserved expansions for those credit unions but also prohibit those credit unions from adding any new members in those areas, even while allowing them to serve existing members.
"The ABA submits that a natural and necessary addition to the proposed rule should be to revoke the 'underserved' field of membership expansions that have been previously granted to community charters," wrote Keith Leggett, senior economist for the bankers' group. "In conjunction with this, the ABA also submits that such proposed amendment should nevertheless allow institutions affected by the revocation of their 'underserved' expansion to retain any individual members that have been added to date, but halt any new additions to membership (including potential new members whose link to the credit union would be through individuals who joined under the subsequently revoked expansion) from the "underserved" area."
CUNA, citing its survey, said such a ban would be completely unacceptable. "As part of the final rule, NCUA should permit service to existing underserved areas already approved by the agency to continue, regardless of the charter of the credit union," said Mary Dunn, in the trade group's comment letter.
CUNA supports an effort by NCUA and the credit union lobby to ask Congress to amend the Federal CU Act to specifically allow all types of credit unions to add underserved areas to their FOMs, wrote Dunn.