Credit unions would be interested in banking more underserved consumers, but they do not want to do it under the Community Reinvestment Act.
Massachusetts Sen. Elizabeth Warren recently proposed legislation to subject credit unions and and other mortgage originators to the act, aiming to make housing more affordable for lower-income families. The CRA, which is aimed at ensuring that banks are serving low- and moderate-income communities, currently only applies to companies that are insured by the Federal Deposit Insurance Corp.
First Technology FCU President and CEO Gregory Mitchell told S&P Global Market Intelligence that while most business leaders are "painfully" aware of affordable housing issues, Warren's attempt to expand CRA requirements is "misguided" and would likely serve to reduce the amount of funds available as a result of increased regulatory costs. "As a former banker, I am keenly aware of the costs and benefits of the CRA," he said. "I've also seen how it can be abused by politicians and aggressive community groups."
National Credit Union Administration Chairman J. Mark McWatters recently suggested a different way to achieve the same goal.
While speaking before the Senate Committee on Banking, Housing, and Urban Affairs on Oct. 2, McWatters said the Federal Credit Union Act only permits federal credit unions with multiple common-bond charters to add underserved areas to their fields of membership. Modifying the act so that all types of credit unions can add underserved areas would open up access to credit union membership for many more unbanked and underbanked households, he said.
Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors, said in an interview the group is still analyzing Warren's bill. But she said credit unions — by design and by law and regulation — only serve their member-owners and do not engage in the "redlining" practices that led to the Community Reinvestment Act. "As such, subjecting credit unions to the Community Reinvestment Act is a burden and cost without added benefit," she said.
Ito said she supports McWatters' suggested modification to the Federal Credit Union Act because it would expand access to financial services for the underserved.
Credit union consultant and former NCUA Chairman Dennis Dollar said in an interview credit unions can only serve people within their fields of membership, so applying a geographic based quota system for lending and organizational contributions would be impossible to enforce. "Unlike banks, credit unions cannot serve just anyone who walks in the door," he said.
The CRA was a congressional response in 1977 to redlining and discrimination in lending by the banking industry, Dollar said. There has been no proven history of credit union redlining or institutionalized discrimination in lending because credit unions can only serve their members regardless of where they live or what their income level may be, he said.
"Anyone proposing to apply CRA to credit unions with no justification of bank-like historical redlining seems to be either wanting to provide a 'misery loves company' concession to CRA-covered banks or just loves the extension of government regulation — whether it is needed or not," he said.
But proponents of the legislation disagree, saying that credit unions need more oversight. Shamus Roller, executive director of the National Housing Law Project, said many credit unions increasingly look like corporate banks "and I imagine that many have some history of redlining."
Kevin Stein, deputy director for the California Reinvestment Coalition, pointed to research by the National Community Reinvestment Coalition. A 2009 study by the National Community Reinvestment Coalition said that banks performed better than credit unions in 65% of fair lending indicators between 2005 and 2007.
"Credit union associations at the federal and state level often oppose legislation and policy reform that would better protect consumers, small businesses and communities," he said.