WASHINGTON - In yet another study, the federal government said that credit unions have been shifting their focus from the underserved to upper-income members since the onset of the massive move to convert to community charters.
The new study was released by the Government Accountability Office just two weeks after NCUA released its own study purporting to show that credit union service is focused mainly on the lower- and middle-class. It is sure to raise the level of debate in Congress on whether credit unions should have some kind of Community Reinvestment Act-like requirement. That is because the GAO study was based on more recent data, from 2004, than NCUA's, which only measured up to 2000-before the massive shift to community charters among credit union took affect.
Even more troubling for credit unions, the GAO study shows a greater portion of the consumers served by banks, than by credit unions, are considered of low- or moderate-income. The GAO found that the portion of credit union members considered low income declined from 16.4% to 14.5% between 2000 and 2004; and the portion considered moderate income fell from 19.3% to 16.6%.
During the same period, when the number of community-chartered credit unions doubled to more than 1,000, the portion of CU members considered upper income rose from 42.6% to 48.8%.
The make-up of the banks' consumers remained about the same during this period. The GAO found that the portion of bank customers considered low- and moderate-income was 41.8% in 2000 and 40.6% in 2004.
Bankers will use that data to support their criticisms that the continuing expansion of CUs has coincided with a shift from their original focus of serving people of modest means, and thus, the bank's efforts to get Congress to apply CRA to CUs.
"You're going to have a huge amount of spin going on, but it basically confirms what we have always known, that banks are doing a better job of serving people of modest means," said Keith Leggett, senior economist for the American Bankers Association and chief nemesis of credit unions.
Banks: CUs 'Have Gotten Worse'
"If you look at the numbers, they (credit unions) have gotten worse in serving people of modest means between 2000 and 2004. This is a period when they've been trying to expand their community outreach," said Leggett, adding the report will be used by the banks to support their case with Congress that credit unions should be required to comply with CRA, just like banks and thrifts. "Remember in 1998, credit unions almost got CRA. I think you're going to see some renewed interest in that, in light of this study."
The CU lobby, however, tried to downplay the conclusions of the government study. Bill Hampel, chief economist for CUNA, repeated the trade group's position that the historical constraints under which credit unions have operated, including occupational fields of membership, have restricted credit unions' ability to reach out to certain segments of the population and more time needs to be given to those 500 or more CUs that have converted to community charters since 2000 to determine how they have responded to the new market (FOM) authority. "We don't think in any way this is a call or a need for CRA for credit unions," said Hampel.
Splintering CU Support
But this new GAO study is just the latest in a number of studies drawing similar conclusions, including a 2003 GAO study, which suggested the same conclusion, and similar reports by non-partisan community groups-some of which are traditional credit union allies-like the Woodstock Institute, National Community Reinvestment Coalition and the Greenline Institute, all of which recommended that CRA be applied to large, diversified CUs.
The new GAO study, combined with a change in control of Congress to the Democrats - many of whom are ardent supporters of CRA-is expected to fuel a switch in strategy by the bankers, from a focus on the tax exemption.
In fact, the bankers are expected to lobby for CRA for credit unions as a condition of any credit union bill, particularly the CU Regulatory Improvements Act. "It plays better with Democrats," said CUNA lobbyist Dean Sagar. "It's a tactic switch."
Signs of this new strategy have already emerged in Missouri, where the Missouri Bankers Association have made a CRA-like requirement a condition to settling a decade-long fight over field of membership.
If credit unions get into a legislative contest over CRA it could alienate some traditional allies, like the Woodstock Institute, and other community groups that have also called for CRA for credit unions. Complicating matters even more are the ongoing efforts by credit unions to return to the good graces of the consumer lobby, which split with credit unions over the long and emotional battle over bankruptcy reform.
