WASHINGTON -- Even as the question of whether credit unions should have a community reinvestment component to their regulation reappears on the national agenda, credit unions remain unified in responding "no."
"Credit unions were not included under CRA [the Community Reinvestment Act] because there has never been any evidence that credit unions have engaged in these illegal and abhorrent activities," wrote NAFCU CEO Fred Becker to the House Financial Services Committee on the eve of a mid-February hearing the committee held on the 30th anniversary of the act.
"Credit unions are inherently invested in their communities, operating unlike other depository institutions with a not-for-profit cooperative structure and a common bond membership," Becker wrote, adding, "As many have wisely noted, if all financial institutions acted like credit unions, there would be no need for CRA."
CUNA did not write a letter to the Committee, but CUNA CEO Dan Mica spoke out even before the committee confirmed the hearing on its schedule.
"This hearing is being held to mark the 30th anniversary of the passage of the Community Reinvestment Act," Mica said. "Chairman [Barney] Frank (D-Mass.) as early as last summer, has made it clear he intends a review of the CRA and that it would be unfair to exclude any financial institutions. However, he has also said that if every financial institution were similar to a credit union, CRA would be unnecessary. To be clear, CUNA is opposed to including credit unions under provisions of CRA."
But unlike the last round of CRA fights from the early part of the decade, if the issue continues to heat up credit unions will face a far different fight and a far different CRA than they did then, according to a mix of sources familiar with both the act and with credit unions.
"Over the years I have learned to be an observer of events like the CRA fight than to take positions on them," explained Edward Kramer, an executive vice president with compliance software developer and consultant Wolters Kluwer Financial Services. "And from the perspective of observing the trends I think the question has subtly become not 'why should credit unions have CRA' but, instead, 'why shouldn't all significant lenders have some sort of CRA?'"
Kramer pointed out that as CRA has gradually had a demonstrable beneficial impact on communities across the country there has also been a growing awareness of the impact of lending generally -- and alongside the two trends a growing tendency to ask why far different categories of lenders should not also have their activity monitored for its community impact.
"After all, mortgage lenders have taken a much larger part of the mortgage market in the last few years and it has become very clear how much of an impact their lending patterns have had. And if the pool of CRA regulation continues to expand it may get more and more difficult to make a case that CUs should be singular in not being part of it," he said.
Kramer's comments resonate with those of some observers of the House Financial Services hearing who noted that CRA expansion -- not just to CUs but to many different branches of the financial services industry -- was clearly on the mind of several legislators.
Kramer has helped guide Wolters Kluwer's regulatory compliance work in the CRA and mortgage lending areas and he acknowledged that if CRA were to expand, his firm would likely stand to benefit. But he also pointed out that a whole industry has evolved over the years to help financial institutions meet their obligations under the act while spending less time and resources doing so.
"CRA compliance today has changed enormously in the years since the act came into effect," Kramer explained. When he was a banking executive, Kramer said, many of the things that that needed to be recorded for a CRA exam had to be recorded by hand in huge ledgers and in a very time consuming way. Now, by contrast, CRA recording and other compliance reporting can be integrated into a financial institution's core processing and lending system.
"There will always be some component of CRA which involves compliance and exams and reporting," Kramer said. "But over the years those components have been made simply a part of being a lender in communities and not as much of a regulatory burden as it once was."
There are other indications, too, that if regulators were to have to begin to examine credit union consumer lending, it would not be with the same requirements that they use when evaluating banks.
The only two states in the United States where credit unions face a community lending reporting or exam requirement are Massachusetts, home state of Chairman Frank who is a major proponent of CRA, and Connecticut. Those two states show what at least one model of CRA and credit unions might include.
Rob Kimmett, senior vice president of marketing for the Massachusetts Credit Union League was careful to say that even though 95 Massachusetts chartered credit unions live with CRA reporting requirements and examinations, they don't advocate that other credit unions around the country should face or need to face similar requirements.
"CRA is not something we believe credit unions need generally even though it is part of the way we do business in Massachusetts," Kimmett said.
But Kimmett also explained that after 26 years -- Massachusetts CUs have had a CRA requirement since 1982 -- the industry and regulators have come to something of an understanding about how the requirements need to be administered when it comes to credit unions.
Credit unions are examined on CRA every 18-24 months and face a similar rating system to banks with classifications of Outstanding, High Satisfactory, Satisfactory, Needs To Improve, and Substantial Noncompliance. In the latest data, 6.3% had Outstanding ratings, 10.5% had High Satisfactory ratings and 83.2% had a Satisfactory Rating. No credit union received a Needs Improvement or Substantially Noncompliant rating.
But its important to examine the details of what makes up those ratings, Kimmett explained.
For example, the credit union CRA exams and requirements are not the same as those banks face, although they are similar. The implementation on CRA, for example, recognizes the limits of credit union's lending ability imposed by SEGs or other field of membership restrictions. Other things taken into account include scale and size of a credit union and any statutory or regulatory limits on credit union activity, for example, member business lending.
He added that, essentially, the examinations look at how effectively the 95 Massachusetts CU's use their resources to make loans to their members.
In the case of Connecticut, no one from the Connecticut Credit Union Association was available to comment on the issue, but Howard Pitkin, commissioner of the Connecticut Department of Banking, told the House Financial Services CRA hearing that the state also differentiates how it applies CRA to credit unions.
In Connecticut, Pitkin explained, only credit unions with community charters face a CRA requirement at all.
In the course of the hearing, Pitkin and other witnesses alluded to the gradual development of what could loosely be described as a "CRA culture"--a way of looking at the activity of a lender which takes for granted that there would be a community-development component to what a financial institution does and how it does it.
Kramer said he was unfamiliar with the term but added that he could see how the attitude has developed among banks in particular, as banks have widely used CRA involvement and their CRA score to differentiate themselves from their competitors.
"Everyone wants that top CRA score and everyone wants to be able to say they have it--particularly when the maybe bigger bank down the street doesn't have it. CRA scores have become a kind of seal of approval for a lender's activity in a given market," he said--"a way of demonstrating in a singular way the broad scope of what a bank or credit union may be doing."