Proposed legislation that would allow all credit unions — regardless of charter type — to set up shop in low-income neighborhoods has rankled the banking industry.
Rep. Jose E. Serrano, D-N.Y., introduced a bill last week that would give the National Credit Union Administration the authority to let all credit unions add underserved areas to their fields of membership. Under the 1998 Credit Union Membership Access Act, only multiple-common-bond credit unions are permitted to do so.
Rep. Serrano, who represents a district in the Bronx, said the bill is designed to increase access to financial services in low-income communities. The Affordable Financial Services Enhancement Act "would untie the hands of the credit unions to do what they do best: help provide low-cost savings and borrowing services," he said Tuesday in a press release.
But banking industry representatives said the proposal amounts to a back-door attempt by credit unions to slip into more markets and compete for banks' customers.
"Community-chartered credit unions are not serving underserved people within their current chartered areas," said Greg Mesack, a vice president of government relations at America's Community Bankers. "Why should they get a legislative change that lets them go cherry pick wealthy people somewhere else?"
Roughly four months ago Reps. Paul Kanjorski, D-Pa., and Ed Royce, R-Calif., introduced a bill that includes a provision similar to the one in Rep. Serrano's bill allowing community-chartered credit unions to expand into underserved areas.
Both pieces of legislation were drafted in response to a lawsuit the American Bankers Association filed in November 2005 alleging that the NCUA illegally approved a Utah credit union's expansion into underserved areas. The suit was dropped a year ago, but only after the agency rescinded its approval of the credit union's expansion and adopted a rule stipulating that only multiple-common-bond credit unions could expand into underserved areas.
In March the NCUA's chairman, JoAnn Johnson, appeared before the House Appropriations financial services and general government subcommittee — which Rep. Serrano chairs — and asked lawmakers to amend the 1998 legislation that limits credit union expansion into underserved areas. Ms. Johnson argued that changing the legislation would give people of modest means more access to financial services.
"Chairman Serrano clearly has an abiding and well-known interest in getting more mainstream financial institutions, including credit unions, into lower-income communities," Ms. Johnson wrote in an e-mail to American Banker after his bill was introduced.
Credit union industry representatives said the bill reflects growing congressional support for credit union expansion into underserved areas.
"The congressman's action indicates a growing understanding in Congress of the problem and a broadening support to do something about it," Dean Sagar, the vice president of legislative affairs for the Credit Union National Association, wrote in an e-mail to American Banker.
Brad Thaler, the National Association of Federal Credit Unions' legislative affairs director, said in an interview, "This just shows the breadth of support for undoing what the bankers have done and that their arguments for trying to keep credit unions out of underserved areas is falling on deaf ears in Congress."
But Keith Leggett, a senior economist with the ABA, said in an interview that the legislation would do nothing to provide underserved people with more financial services.
He cited a Dec. 1 report by the Government Accountability Office that found that about 41% of bank customers were people of modest means, but only about 31% of credit union members were.
Credit unions need documented proof that they are serving their own low-income members adequately before adding more, Mr. Leggett said. Rep. Serrano's bill "throws the door open for credit unions to continue to add vast geographic areas … without any true measurement of their commitment to serving people of modest means."
Mr. Thaler was upbeat about the bill's chances, but he said he could not provide a time frame for when it might move.
"I think there is a lot of support on this particular issue, and I think that there is a lot of support" for Rep. Kanjorski's bill, for which "we are at 118 co-sponsors in just about four months," Mr. Thaler said.
But a banking lobbyist, who asked not to be identified, was less optimistic.
"The legislative outlook is highly unlikely, because the agenda is too full, and there is already concern that credit unions aren't doing a sufficient job of serving the people in their current charters," the lobbyist said.
