Some credit unions have expanded to serve entire cities such as Houston, Philadelphia, and Washington by having regulators declare them underserved areas, despite large enclaves of wealthy residents.
Now the National Credit Union Administration is proposing changes in its field of membership rule that would require more justification for defining an area as underserved. Not surprisingly, credit unions are balking, and bankers are saying the changes would not go far enough.
No timetable is in place for NCUA action on the proposed rule change. A comment period ended Monday with 22 letters received from credit union advocates and two from banking trade groups. All expressed concern.
"This proposal has several barriers that would prevent credit unions from serving the underserved," Mary Dunn, a senior vice president and deputy general counsel for the Credit Union National Association, said in an interview Tuesday. "It would mean smaller and fewer areas would be approved."
Both the National Association of Federal Credit Unions and CUNA argued in their letters that requiring submission of extensive data and anecdotal evidence would be burdensome.
Keith Leggett, senior economist at the American Bankers Association, said in an interview Tuesday that the proposal tightens the definition of an underserved area but does not prevent a major city from being designated as one.
"It is still too expansive," Mr. Leggett said. "We do applaud them for trying. However, it doesn't go far enough."
The Independent Community Bankers of America and the ABA said in their comment letters that the regulator should do a better job of making credit unions prove they are serving the needy.
Both the credit union and banking industry advocates also questioned the proposal's timing.
Congress, with the Credit Union, Bank, and Thrift Regulatory Relief Act, is reviewing the definition of underserved areas as it relates to credit union membership. The bill was approved by the House in June and is now in the Senate.
However, Mr. Leggett said that time is running out for the bill to be approved. By September, he said, senators will be returning to their home states as the election draws near.
The current regulation allows credit unions serving multiple membership groups to apply for permission to add underserved areas. Getting an area defined as underserved requires some Community Development Financial Institutions Fund data, including unemployment rates and poverty levels. The proposed changes would require using more extensive CDFI data based on census tracts, which typically cover areas with 1,500 to 8,000 residents. Credit unions also would have to demonstrate that the community's needs are not being met.
