As the battle over credit union expansion simmers at the U.S. Supreme Court and Capitol Hill, one question keeps popping up: Do credit unions have a better record serving low-income consumers than banks?

The answer is not trivial. One reason the government exempted credit unions from taxes was because they are supposed to provide affordable banking services to low-income consumers. They risk losing this $800 million annual tax savings-and their ability to serve employees at multiple companies-if they are seen as the financial playground of middle- and upper-income people.

"Credit unions must demonstrate that the subsidy is money well spent," said Karen Shaw Petrou, president of the industry consulting firm ISD/Shaw Inc. "If it isn't well spent, then the subsidy should be removed and they should pay taxes like other insured depositories."

Congress may be considering this question soon. Lobbyists are asking lawmakers to override a federal appeals court decision and let occupation- based credit unions serve employees at more than one company. This could reopen the entire debate over the industry's tax status, experts said.

Perhaps in anticipation of this political battle, National Credit Union Administration Chairman Norman E. D'Amours has argued since July that credit unions need the ability to expand so they may serve more low-income customers.

"It is critically important for credit unions to be able to serve these low-income consumers because no one else will," Mr. D'Amours said in a recent interview. "Banks have abandoned these people. They have no alternative."

Mr. D'Amours said 74 occupation-based credit unions have received special permission to serve low-income areas. The number would be closer to 300 if the banking industry had not won a lawsuit challenging credit union expansions, he said.

Bankers, however, dismiss credit union claims that they serve low-income consumers. They charge that credit unions are a subsidy for middle-class and wealthy consumers drawn to the lower loan rates that these tax-exempt nonprofits may offer.

"Credit unions were created to encourage thrift and make loans to people of small means," said James H. Chessen, chief economist at the American Bankers Association. "They are not doing that as well as other institutions despite their government subsidy."

Are credit unions better than banks at serving low-income consumers? Like most policy debates, there is little raw data but lots of hyperbole.

Surveys, including a Gallup poll conducted for American Banker, find that a higher proportion of credit union customers come from low-income and middle-class families. But other studies show that banks make far more loans to poor people and make a higher percentage of their mortgages to low-income consumers.

The Gallup survey found that the average annual income of a credit union customer was $46,623, nearly $5,000 less than the average bank customer's earnings. Also, 45% of credit union members make under $40,000 a year compared with 40% of bank customers.

Still, credit unions do not come close to serving as many low-income mortgage borrowers as banks. An American Bankers Association review of Home Mortgage Disclosure Act data found that banks made 130,898 mortgages to low-income borrowers; credit unions made 7,656 home loans to low-income borrowers.

Banks also make a larger percentage of their mortgage loans to low- income consumers. The ABA found that banks makes 26% of their home loans in poor census tracts; credit unions, 21%.

In fact, banks control a larger share of the low-income mortgage market than of the middle- and upper-income market-26.5% compared with 23.7%. Credit unions, however, have a lower share of the low-income market then they do of the higher end-1.5% compared with 1.8%.

On the liability side, the ABA found that 41% of a community bank's deposits were owned by consumers with less than $30,000 in income compared with 37% for credit unions.

"They are not doing as much as the banking industry for low-income communities," Mr. Chessen argued.

But Keith Peterson, vice president for economics and statistics at the Credit Union National Association, discounted the mortgage data. Many credit unions do not offer mortgages, he said. Also, not all homebuyers belong to credit unions, he said.

The liability numbers also are misleading because the ABA excluded big banks that attract the largest deposits, he said. "This is not apples to apples because they are comparing two different numbers," he said. (ABA said the comparison is valid because it is comparing similarly sized institutions.)

Mr. Peterson said CUNA does not have comparable statistics. But he noted that credit unions exert a competitive pressure on banks that help all consumers.

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