The issue of serving "unbanked" populations, or those in low-income communities, has long been a point of contention within the industry, although at no time has it been as universally accepted as when the industry first came into being.
No one can deny that the credit union arose at the turn of the last century as a movement and as America's response to a growing population of working poor that had been increasingly ignored by traditional banks, and repeatedly abused by predatory financial groups. Yet, as the industry has evolved it has struggled with a historical disconnect with its own humble beginnings, as new immigrant groups and long standing neglected segments of society have confronted the same issues.
It stands to reason that this discourse can never be ignored since it emanates from our own sense of who we are, and it represents the very determinant as to whether we are ultimately an industry or a movement.
Over the many decades, CUs have evolved fairly homogenously with distinct common bonds and little need to feel obligated to the greater society. With the community charter and the resulting surge in large credit unions, we've further evolved but have also become increasingly vulnerable to challenges as to our inclusiveness and tax-exempt status, especially from other financial institutions.
The issue most recently came to the forefront during the Congressional hearings in 2007 as the banking industry challenged our tax-exempt status and the integrity of the industry's contention that it continued to serve people of "modest means." The debate was intense with the community development credit unions (CDCUs) eventually becoming the pivotal factor in convincing Congress that CUs had remained consistent with their very essence.
We had won a battle, but definitely not the war. Questions continue to be raised as to whether we've truly continued to serve the diverse sectors of society. With banks abandoning low-income communities, credit unions will continue to be challenged as to how they are attempting to meet this void, and as to what concrete steps have been taken to assist these communities do develop economically. These are questions that we must be prepared to respond too since they are at the very heart of the CRA debate.
I personally feel that far too many CUs do not recognize any level of obligation to serve the working poor. In fact, it's been my experience that most fail to realize that this obligation is an innate part of a social contract with society that emanates from the original enabling federal legislation, which stressed the credit union structure was established to assure that "all" sectors would have access to financial services. With the face of America changing over the decades, this focus has been obscured by the need to adjust to a competitive marketplace. This inconsistency precipitated the need for NCUA to eventually create the "low income certification." Early on it experimented with the established of hundreds of credit unions in working class communities, although only five continue to exist.
Obsessed with the Status Quo
We are now confronted with legislation proposed by U.S. Rep. Bernice Johnson of Texas that would impose CRA compliance on CUs. We have almost universally opposed such legislation, professing that CRA is unnecessary for credit unions. I can't help but feel that we've become too obsessed with defending the status quo, even though most CUs are far too small to even be concerned about CRA enforcement. The issue becomes even more complex when you consider that an increasingly larger portion of assets are being concentrated in a fewer number of credit unions.
We are all aware that the trend for the last several years is that we lose one credit union per day-most of them small CUs, and often those that serve low-income communities. Yes, we have changed with the times, and have broadened our scope and horizons. But this growth makes it even more crucial that we be able to respond to questions of inclusiveness and the implications of a societal mandate. These questions will be at the very heart of any prevailing case we may present against the proposed CRA legislation and it should be the larger credit unions that must be at the forefront.
No one can deny the fact that credit unions have a long history of putting people before profits. However, CRA is much broader, requiring that financial institutions demonstrate a commitment to providing financial services and opportunities for economic development to neglected sectors of society. Ironically, this in itself is the very burden we carry forth from the originating legislation that gave us birth. But we still find that the vast majority of credit unions refuse to recognize any level of CRA comparable responsibility.
I would be remiss if I didn't recognize that there are credit unions that have met this challenge. At the forefront are the Community Development Credit that have traditionally been committed to providing the working poor access to the American's credit structure. Most struggle from year to year to meet this burden, taking on risk that other credit unions avoid, and yet, receiving little support from traditional credit unions. Despite this, they remain committed to the cooperative spirit, and continue to be cited as evidence that credit unions continue to meet the needs of all sectors of society. Ironically, many of these CDCUs will have disappeared due to the current economic crisis, increasing our burden tenfold, and stifling our capacity to oppose CRA legislation.
It's often argued by the majority that we are greatly restricted from helping people of modest means. It is held that federal regulations effectively prevent credit unions from serving low income communities outside their FOM. But is this really true? While some restrictions have been imposed by recent court decisions regarding low-income designations, we must recognize that there is no law that keeps credit unions from supporting the work of CDCUs. In fact, most CUs can become members of other CUs, and low-income designated credit unions can receive non-member deposits. Despite this latitude, CDCUs have historically received most of their support from the banking industry as CRA investments.
In the final analysis, if we are to survive and thrive as a "movement," we must become more responsive to our society. The times are changing, societal resources are increasingly austere and there are few sectors that remain beyond reproach. This is a fact that can't be ignored. CRA is the societal standard, and the true test is in our action. Unless we begin to exam our own sense of historical identity and hold ourselves accountable for our own performance, we can be assured that society will.
Raul Pickett is CEO of El Futuro Credit Union, Porterville, Calif.
