Bill would help credit unions to expand services in underserved areas

Controversy is brewing on Capitol Hill over legislation backed by Democrats that would allow credit unions to expand their membership and lift business lending caps in underserved areas.

The measure would allow credit unions to apply to the National Credit Union Administration to let them expand their service into areas that may not have adequate access to financial branches, including areas that lack a depository institution within 10 miles. Lending in these areas would not be subject to lending caps under the proposal.

Credit unions contend that the bill, passed by the House Financial Services Committee in May on a party-line vote, is needed in places where banks have closed their branches and left town. Banks argue that the legislation does not provide enough oversight for credit unions, which already get significant legislative benefits. They also say the measure could potentially allow credit unions to finance high-cost development in low-income areas.

The two sides are bracing as the clock winds down for legislation prior to midterm elections in the fall. As is, the bill faces intense opposition by the banking industry.

"We opposed that bill in committee and will oppose it if and when it moves to the floor," Steve Keen, vice president of congressional relations for the Independent Community Bankers of America, said in an interview.

Credit unions are "trying to expand their commercial lending powers in areas where you could say the area is low-income," Keen said. "It allows them to look at these sorts of lending opportunities without being subject to caps."

Banking deserts

At the same time, credit unions say low-income areas are increasingly becoming "banking deserts," and the industry will continue to seek any opportunity to move the bill ahead.

"We want to go in and meet the needs of these communities," Brad Thaler, vice president of legislative affairs for the National Association of Federally-Insured Credit Unions, told S&P Global Market Intelligence. "We've seen acceleration of banks closing branches. That has accelerated during the pandemic, and it's going at a much faster pace."

Thaler said the road ahead in Congress remains uncertain, but "we're hopeful that it has a path forward. More than likely it would have to move into a package that's going to pass this year."

House Financial Services Committee Chairwoman Maxine Waters, D-Calif., who proposed the measure, rejected bankers' complaints that it unfairly favors credit unions.

"I understand banks have concerns with this bill, but it would not prevent them from reopening branches in areas with few branches, and I encourage them to do so," Waters said during a May 17 markup of the legislation. "This bill is not about favoring credit unions over banks. This is about expanding access and opportunity for those who are not being appropriately served by any financial institutions."

Rep. Andy Barr, R-Ky., said he supports Waters' goal but criticized her bill's structure. Barr urged support for his own measure, which focuses on the creation of de novo charters in areas without adequate banking services.

"The [Waters] bill doesn't specify that a credit union would actually need to serve low- and moderate-income people within the underserved areas," Barr said. "And that's one of the problems that I have with the bill. ... This bill would give larger, more prosperous credit unions preferential treatment in underserved areas."

Barr said he wants credit unions, financial technology companies, big banks and nonbank lenders to all be engaged in underserved areas.

"What we don't want is an unfair playing field," Barr said.

Blended approach ahead?

Credit union industry representatives left the door ajar for an approach that would both benefit credit unions and encourage more banks to move into areas that need financial services.

"One way to address this could also be to have more banks," said Ryan Donovan, Credit Union National Association executive vice president and chief advocacy officer. "We don't think this would be an either-or proposition. We're not opposed."

The debate on that approach leaves open the possibility for bipartisanship, according to Jeremy Empol, vice president of federal government affairs for the California & Nevada Credit Union Leagues.

Barr has to present a package to Chairwoman Waters for possible consideration, and "the bank issues are for him to advocate," Empol said.

As is, the banking industry will continue to oppose the bill.

The measure would create "a major new loophole" in the credit union business lending cap, the American Banking Association argued in a letter prior to the markup, contending that credit unions are increasingly serving wealthy communities.

In addition, "Field of membership is no longer a serious limiting factor for many credit unions," the ABA contended. The trend of credit unions buying banks shows that banks and credit unions compete for customers exactly the same way "because, literally, anyone can join a credit union," the group said.