The ABA's lawsuit to block a Utah credit union from serving an underserved area, and NCUA's moratorium and proposed rule to permit only multiple common-bond federal credit unions to add new areas, has raised many concerns about the future of the agency's long-standing policy of promoting credit union access to low- and moderate-income communities.
Will such charter limitations have a chilling effect on the significant efforts credit unions are making to reach those very segments of the population that our critics say we are not doing enough to serve? Or will credit unions be able to find other ways of reaching out to those in our society who most need low-cost financial services?
As a result of the ABA's lawsuit, the NCUA board is considering permitting only multiple common-bond credit unions to add underserved areas. Single-sponsor and community-chartered credit unions would no longer be allowed to add them. Fortunately, the NCUA's proposal is prospective, and the community and single-sponsor credit unions that already have underserved areas would not be affected by the rule.
So how damaging is this to credit union growth and our community's attempts to reach people of modest means?
In answering this question, it may be useful to look at some of the data on credit unions that have added underserved areas. Multiple common-bond credit unions have certainly been the most active, followed by community charters and then single-sponsor charters.
What The Data Show
From January 2000 through September 2005, 1,413 underserved areas were added to federal credit union fields of membership. Over three-quarters, or 1,113, of those were added to multiple common-bond federal credit unions, 235 to community charters and 60 to single sponsors. So under the NCUA's proposed rule, much of the recent growth in underserved areas would be able to continue-at least via multiple common-bond credit unions.
Second, the data show that the pace at which federal credit unions have been adding underserved areas accelerated through 2002 but then slowed over the last few years. In 2000, 50 underserved areas were added, then it jumped dramatically to 279 in 2001, up to a record 425 in 2002, back down to 269 in 2003 and then to 240 in 2004. Complete data is not yet available for 2005, but as of last September there had been 150 underserved areas added.
Perhaps the most telling statistics, though, have to do with loan and membership growth at federal credit unions that have taken on underserved areas. While it has varied from year to year, in some years over half of all potential new members have come from underserved areas. For 2005, we estimate there were close to 29 million new potential federal credit union members from underserved areas.
What's more, in each of the last five years, loan growth at credit unions with underserved areas has outpaced the loan growth of all federal credit unions. In the early part of this decade, the rate of loan growth at federal credit unions that had underserved areas was nearly double that of all FCUs, but by last year the gap between the two had narrowed to a little over one percentage point, with those serving underserved areas at 11.2 percent versus 9.9 percent for all federal credit unions.
The NCUA board has noted that one of the primary purposes of the Credit Union Membership Access Act was to establish the legality of multiple common-bond credit unions. NCUA believes that CUMAA also reflected Congress' intent to make clear that this new charter type was authorized to add underserved areas and not, as the bankers argue, to prohibit the other two federal charter types from doing so.
As Rep. Paul Kanjorski (D-PA) indicated during the debate leading up to the passage of CUMAA, Congress was aware of the agency's long-standing policy allowing all federal charters to serve communities and groups in need of additional financial services.
"Providing service to underserved areas, which are defined in the bill and by NCUA regulations, helps all credit unions fulfill their mandate to serve persons of small means," Kanjorski stated.
So What To Do Going Forward?
In my opinion, we must first fight to preserve what we have. The proposed changes are prospective, meaning that community and single-sponsor charters may continue to serve existing underserved areas. We should not give ground to the bankers on that point.
In releasing its proposed rule for comment, NCUA asked the industry for its input on a number questions.
It is vitally important for credit union leaders to thoughtfully review these and provide NCUA with their input. NAFCU is encouraging its members to comment through its Regulatory Alert system and will be filing its own statement prior to the comment deadline of March 28.
Among the questions NCUA has posed is whether only multiple common-bond credit unions should be allowed to add underserved areas, how much of an impact such a limitation will have on community and single-sponsor credit unions, how much and what types of investments credit unions have made in underserved areas, and what impact further restricting new growth in these areas might have.
The answers to these questions and the degree to which credit unions respond will certainly have a bearing on whether the agency and trade groups like NAFCU believe there is sufficient interest in pursuing this matter through a legislative fix.
I would say that at a time when credit unions are under fire to demonstrate their commitment to serving the underserved, we need to make every effort to ensure that all avenues for serving these groups are available to credit unions, regardless of charter type.
Let's not let one bankers' lawsuit derail our mission. The NCUA proposal may be a necessary and temporary detour, but it shouldn't deter us from getting back on track and advancing our commitment to bring affordable financial services to those of all walks of life.
Fred Becker is president and CEO of the National Association of Federal Credit Unions. He can be reached at fbecker
