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From the March-20, 2002 issue of Credit Union Times Magazine • Subscribe!
Lawsuits, statistics, misconceptions; what's really going on with CUs and the underserved?
<p>NCUA's repeal of CAP in December did not sit well with those special interest groups that favor extending Community Reinvestment Act (CRA) requirements to credit unions. Hence, the lawsuit filed against NCUA by the National Community Reinvestment Coalition (NCRC) and the appearance recently of several "studies" purporting to show that credit unions aren't really reaching out to the underserved. These groups obviously have an agenda, but they are also operating under some fundamental misunderstandings about credit unions that need to be corrected. As a community, we need to work together to counter these misconceptions and to champion what credit unions have been doing remarkably well for nearly a century-serving and educating people of modest means. First, we need to make clear that unlike banks, credit unions don't serve the general public. In fact, credit unions are strictly limited to serving only those individuals in their designated fields of membership. Thus, a credit union's FOM (such as the employees of a single sponsoring organization) may include only a finite number of minorities and low-income persons. You can't penalize credit unions for not being able to control the percentage of underserved persons in their FOM. But when you consider those factors they do have control over-for instance what percentage of low-income loan applicants walk out of their credit union holding an approval-credit unions consistently do better than banks and thrifts. According to HMDA data, credit unions approved 84% of all mortgage applicants with household incomes of $40,000 or less in 2000. Banks and thrifts approved just 62% and 72% respectively. Looking at minority applicants, credit unions approved 70% of the loans of those with household incomes of $40,000 or less, while banks and thrifts approved just 56% and 63% respectively. When one looks specifically at HMDA data for the Chicago area (the same area that the Woodstock Institute recently looked at), the results are similar. Applicants at Chicago credit unions whose incomes were below 80% of the median household income (i.e, meeting the definition of "low income") fared better than those applying for loans at a Chicago thrift or bank. Nearly 79% had their loans approved at credit unions, versus 73.7% at thrifts and 67.8% at banks. In 2001, credit unions also added underserved areas to their FOMs at record rates. Claims that credit unions are adding low-income groups "for show" once again highlight lack of knowledge of the credit union universe. The process, despite NCUA Board Chairman Dennis Dollar's streamlining, is no walk in the park. Why would a successful credit union take the time and go to the expense of adopting an underserved area unless they intended to serve it? The answer is, they wouldn't. CUs that seek to add an underserved area to their FOM do so out of a genuine desire to extend their services into communities neglected by the banking industry. Take just one real-life example, that of Three Rivers Federal Credit Union, in Fort Wayne, Indiana, run by Jim Mills, NAFCU's chairman. Five years ago, Three Rivers chose to take in an underserved area in downtown Fort Wayne. Today, 12% of Three Rivers' savings and 28% of its loans originate from this depressed downtown area. Three Rivers is doing exactly what it is supposed to be doing, taking in savings from its SEGs and redistributing it to the underserved area by way of loans. Misconceptions about what constitutes an underserved area also abound. Keith Leggett of the ABA has recently stated that many of the residents in areas NCUA designated as "underserved and low income" in 2001 are not in fact low-income. Leggett's analysis shows that 19.3% of residents in underserved areas have incomes above $50,000 and that another 15.5% have incomes between $35,000 and $50,000. The income criterion that NCUA uses for designating an area as underserved-which, by the way, is set by law and further defined by the Department of Treasury-is based on the median family income of the area. With fully 65% of residents in these areas making less than $35,000, I'd say that credit unions are more than meeting the standards set by the government for an underserved area. In addition, income is not the only determinant in qualifying for an underserved "investment area." Other criteria, such as high unemployment, loss of population or distressed housing, may be used to address a targeted area, none of which are pegged to median income. Again, these criteria are set by the federal government, and they apply to all financial institutions, not just credit unions. And then there is the question of those members who credit unions have given the tools-through financial education-to steer themselves directly to the middle class. How do you want to count those people? They aren't low-income now, but they were before credit unions got to them. One way to count them is to ask congressional staffers to tally up the flood of letters they receive from individuals saying, "My credit union saved my life," or "I couldn't get work without a car, until my credit union helped me get a loan-and my first real job." Sure, credit unions can compete on the statistics, but credit unions are not statistics. They are non-profit financial institutions democratically run by a volunteer board of directors. And they make a real difference in people's lives. On a daily basis they are already a part of the solution. Credit unions don't posture, they just get the job done.</p>
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