WASHINGTON - Bankers and community groups are more optimistic than ever that they can convince legislators to force credit unions next year to adopt requirements like those in the Community Reinvestment Act.
Rep. Barney Frank, who is expected to chair the House Financial Services Committee next year, said last year that the issue should be examined, and several observers said the Democratic-controlled Congress is likely to favor broadening the requirements.
But a strong lobbying effort by credit unions and an ongoing rift between consumer advocates and the banking industry over the scope of new requirements and tactics for enacting them threaten to slow any momentum the issue might gain, observers said.
Both community groups and bankers argue that the time has come to apply the requirements to credit unions.
"It seems like a no-brainer. … It's time to close the loophole," said Matthew Lee, the executive director of Inner City Press/Fair Finance Watch in New York. "Our side wouldn't be talking about this if we didn't think that there was a reasonable chance to move forward on it."
Consumer advocates said they believe Rep. Frank, D-Mass., and incoming Senate Banking Chairman Christopher Dodd, D-Conn., are sympathetic on the issue. They represent the only two states that already require state-chartered credit unions to follow CRA-like requirements.
"I've learned over the years to never act too confident about these things, but I feel confident in saying that the atmosphere for this to occur is better now than it has been in many years," said John Taylor, the president of the National Community Reinvestment Coalition.
Rep. Frank told a group of Massachusetts bankers last year that the issue "is an appropriate topic," and a spokesman for the lawmaker said he wants to take a broad look at CRA, including "entities not covered by CRA."
A Senate Banking aide said Sen. Dodd has not taken a position on the issue but was a strong CRA supporter and opposed efforts to weaken it during the debate on the Gramm-Leach-Bliley Act.
That is music to the ears of banking groups, which - though they have often complained about their own requirements - have lobbied for years to have them applied to credit unions, as well.
"We believe the credit unions that engage in the same activities as banks ought to be subject to the same requirements, and that definitely includes CRA," said Patricia Milon, America's Community Bankers' chief legal officer.
Credit unions argue that, since they already are focused on the communities they serve, any new restrictions are unnecessary.
"The banks continue to lie, incorrectly claiming that credit unions were created to serve people of just modest means. That is wrong. We serve all consumers, including those of modest means," said Dillon Shea, a director of political affairs for the National Association of Federal Credit Unions.
Credit union opposition could be difficult to overcome. They have a strong grassroots base, and in the past they have generated thousands of letters on issues affecting the industry.
Dean Sagar, a lobbyist for the Credit Union National Association and a former House Financial Services aide, said the only way he can foresee credit unions' being forced to take on CRA-like requirements is if they are granted other powers in exchange. "But we have no plans to bargain on that."
An example of a bill to grant credit unions more power could be the Credit Union Improvements Act, sponsored by Rep. Paul Kanjorski, the No. 2 Democrat on House Financial Services, that would increase business lending and other powers for credit unions.
"If we are looking for a big package, we are going to have to deal with that. … And I'm not sure the banks would let us have a big bill like that, even with or without CRA," Mr. Sagar said. "Barney, I think, favors CRA, because it currently exists in Massachusetts, but Barney is very good about not forcing his views on other people. I know he's told consumer group advocates, 'You get me the 200 votes I need, and maybe we can talk about it.' He's very much a realist."
Another possible impediment is that the community groups that support applying CRA-style rules to credit unions are advocating contrasting approaches, while bankers refuse to discuss the issue without bringing up their ultimate goal: forcing credit unions to relinquish their tax-exempt status.
Robert Gnaizda, the policy director and general counsel with the Greenlining Institute, said that he supports CRA-like rules for credit unions that have $1 billion or more of assets, for "political" reasons. "We'd rather have only 80 opponents than 2,000 opponents, and it might be too much paperwork for those at the low end."
Mr. Taylor said he believes the requirements should have a "commensurate relationship" to those set for the banking industry, which has a staggered set of requirements depending on asset size. But he said community development credit unions should be exempt.
"It shouldn't be for community development credit unions. We're not looking to fine these community-based credit unions that are really primarily serving low-income" people, he said.
But Stephen Brobeck, the executive director of the Consumer Federation of America, said, "Most of those credit unions with community-wide charters have a potential to serve a much more economically and ethnically diverse population."
As a result, "it seems reasonable that they should be subject to some kind of reasonable CRA requirement," he said.
While community groups debate what the requirements should be, they have had problems joining forces with bankers, who insist on linking the issue to credit unions' tax-exempt status. Community groups oppose attempts to tax credit unions, and the effort has virtually no support on Capitol Hill from either political party.
Mr. Gnaizda said he tried last year to foster a compromise between the banking trade groups and credit unions.
"We met with some credit unions, … but the credit unions were adamant they don't want any changes," he said. "We also talked to the American Bankers Association and community bankers, … and they were adamant they don't want a compromise. Greenlining is opposed to taxing the credit unions, and I've made that clear to the banks."
Floyd Stoner, the lead lobbyist for the American Bankers Association, said, "Our concern has always been with the aggressive nature of a small number of credit unions that want to have all of the benefits of being a bank - none of the restrictions, none of the requirements for a demonstrated return to the community - and they want to keep their tax exemption."
Regulatory efforts to establish CRA-like requirements for credit unions have also fallen flat.
The NCUA made a regulatory change in 2000 requiring credit unions to lend more to lower-income individuals, but it was repealed in 2001, weeks before it took effect. Norm D'Amours, a former Democratic congressman and the NCUA's head from 1993 to 2000, said he believes Rep. Frank and Sen. Dodd are sympathetic to applying CRA-like standards to credit unions but said it could prove too big a fight.
"You would think with Democrats in control, they would say, 'Hey, you know, we believe in trying to help disadvantaged people, low-income people,' but they can never seem to get over that hump of all that mail they get, which is very cleverly generated," Mr. D'Amours said.
