Banking trade groups are aiming to use a Government Accountability Office report to bolster their case before Congress that the Community Reinvestment Act should be applied to credit unions.
The report, released Dec. 1, concluded that banks serve a higher proportion of people of modest means than credit unions do. The finding was a blow to the credit union industry, which has long justified its tax exemption by arguing that it caters to the less-affluent communities that banks traditionally have neglected.
But credit union representatives argued that the banking industry’s recent litigation blocking credit union expansion has made it tougher for their institutions to reach underserved communities.
“The statistics are not quite where they should be vis-a-vis banks,” said Dan Mica, the president and chief executive officer of the Credit Union National Association. “However, we must remember that we’ve only had the authority through community charters for a limited period of time,” and “the minute we started reaching out, the banks filed suit to stop us.”
National Credit Union Administration Chairman Joann M. Johnson said that Congress could help credit unions serve low- and moderate-income consumers by easing the limits on expansion.
“I believe in allowing all credit unions, at a minimum, to adopt underserved areas,” Ms. Johnson said. “It would allow more people of modest means to be served.”
The GAO report was released two weeks after an NCUA report concluded that 44% of federal credit union members make less than the median family income in their metropolitan statistical area.
The NCUA had trumpeted its report as empirical proof of credit unions’ success in serving people of modest means, but others disagreed.
“The NCUA and industry associations have overstated the strength of the results of the report,” said House Ways and Means Committee Chairman Bill Thomas, R-Calif. “It would be premature to draw sweeping conclusions from the NCUA’s preliminary analysis.”
“Given a report that suggests that credit unions’ track record of serving low- and moderate-income … communities is not as good as it could be, I think it strengthens the hand to have CRA applied to credit unions,” said Diane Casey-Landry, the president and chief executive officer of America’s Community Bankers.
Both reports were initiated after Rep. Thomas expressed concerns in a November 2005 hearing that the NCUA was not doing enough to document its efforts to serve people of modest means. (He will retire this year.)
Using data from the Federal Reserve Board’s 2004 Survey of Consumer Finances, the GAO report found that about 41% of bank customers were people of modest means, as opposed to about 31% of credit union members.
The report also found the percentage of low- and moderate-income credit union members had decreased, from 35.7% in 2001 to 31.1% in 2004.
Over the same period the percentage of bank customers with low or moderate income also declined — but not as precipitously — from 41.8% to 40.6%.
Keith Leggett, a senior economist at the American Bankers Association, said that the GAO’s findings demonstrate that credit unions are abandoning less-affluent consumers in search of a more profitable customer base.
“What they’re interested in is wallet share,” Mr. Leggett said. “And where is wallet share? It’s not with people of modest means.”
Within credit unions, the percentage of upper-income members grew from 42.6% to 48.8% from 2001 to 2004, the GAO said.
Ms. Johnson argued that the data used by the GAO was not as comprehensive as the data used in the NCUA study.
“We had over 14 million [account] records, and it’s the most comprehensive data that’s ever been collected on credit union members and income,” she said. “I think our data is far more statistically accurate and valuable than any other information that’s out there.”
Ms. Casey-Landry defended the GAO’s data source.
“You know, it takes a lot of guts for a federal agency to start talking about that survey — which has been around for a really long time — as being unreliable,” she said.
The GAO recommended that the NCUA create a systematized data-collection process to enable the agency to track credit unions’ progress in serving low- and moderate-income consumers.
Ms. Johnson said that she takes that recommendation seriously, and that she has appointed Gigi Hyland, a member of the agency’s board, to spearhead a task force exploring the idea.
“We want to evaluate more fully how credit unions are serving their membership,” Ms. Johnson said.
Mr. Leggett said that even though the data-collection effort would be a good first step, the GAO report could build momentum for more significant changes.
“They’re clearly going to have to start collecting this data,” he said. “But I think this also raises even further arguments for CRA, and it also raises questions that at least some credit unions maybe don’t warrant their tax exemption.”
But Fred R. Becker, the president and chief executive officer of the National Association of Federal Credit Unions, argued that it is what the GAO did not include in its report that is most telling.
“The GAO did not recommend the taxation of credit unions or that credit unions be subject to CRA,” Mr. Becker said.
