WASHINGTON Changes in the industry and poor showings in Home Mortgage Disclosure Act data justify applying CRA to credit unions, Rep. Joseph P. Kennedy 2d said in an interview Tuesday.

Rep. Kennedy will explore extending the Community Reinvestment Act to credit unions in a hearing next week. His inquiry is a rare challenge of the credit union industry, which wields a lot of power on Capitol Hill.

"This issue needs to be delved into by Congress," the Massachusetts Democrat said. "And unless they get voluntary cooperation, Congress may have to enact legislation."

The hearing will be held Thursday by the House Banking subcommittee on consumer credit and insurance, which Rep. Kennedy heads. Representatives of banking and credit union trade groups will testify at the hearing.

"This is the first time this issue has been discussed for quite a while, and I don't expect it will be the last," said David John, a lobbyist for the National Association of Federal Credit Unions. "We could find ourselves facing an extended inquiry."

Jeanne-Marie Murphy, a lobbyist for the Credit Union National Association, said it was essential for the credit unions to make a tough stand in what could be the first battle of a long war.

"We need to establish a real strong hearing record," she said. Credit unions argue that they shouldn't be subject to CRA because by lending only to their members they are fulfilling the intent of the law.

Rep. Kennedy said that argument was justifiable in the past but may now be open to question.

"When credit unions were very small organizations ... the argument that they were already accomplishing the goals of CRA made sense," he said.

Now credit unions are larger and have wider membership bases, and "with that comes a responsibility to meet the needs of the local community," he said. State-chartered credit unions in Massachusetts comply with a state CRA-type law.

Another reason to take a look is the industry's showing in 1992 Home Mortgage Disclosure Act data, Rep. Kennedy said. The data showed that credit unions had a greater minority-to-white application denial rate ratio than banks.

"I thought that was clear evidence that the notion that somehow credit unions should get by without CRA was not the case." Rep. Kennedy said.

Tom Hughes, the president and chief executive of Navy Federal Credit Union, the nation's largest credit union, will testify at the hearing for NAFCU. Mr. Hughes is expected to question the reliability of the disclosure act numhers in showing discrimination.

CRA is also largely inapplicable to the bulk of the industry because it is a geographically based law and most credit unions have an associational or occupational membership base, he said.

Members of Navy Federal are spread around the world, for instance.

Banking trade groups, which want to bring competitors under CRA, think credit unions' invincibility on Capitol Hill might be cracking.

"I think the pendulum hasn't finished swinging in their direction, but it's started to slow down and it will go the other way," said Randy McFarlane, government relations director for the Savings and Community Bankers of America.

But even Mr. McFarlane said CRA is likely to be extended only to community-chartered credit unions or credit unions with many employer groups in one area.

An argument could be made for making community-chartered credit unions comply, but such a piecemeal approach could ultimately hurt the industry, Mr. Hughes argued.

CRA "is a tremendous burden that doesn't fit 93% of credit unions," Mr. Hughes said. "If you're out to destroy the whole damn thing, be my guest, because that's what you're going to do."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.