Federation Hopes Seminar Helps Start Conversation About the Underserved
The National Federation has long opposed requiring credit unions to conform with the Community Reinvestment Act in favor of credit unions voluntarily documenting and improving upon their work in these areas. The seminar, in part, will highlight some of those areas.
"We believe there is tremendous upside for credit unions to do more to serve the people neglected or abused by traditional banks," said National Federation CEO Clifford Rosenthal. Our seminar will present best practices of credit unions like Pentagon Federal Credit Union and HarborOne Credit Union, which have been industry leaders."
Rosenthal acknowledged that requiring credit unions to comply with CRA and whether credit unions have been reaching out to underserved communities has been controversial within the credit union community.
"Our goal is to help credit unions stay ahead of the curve," said Rosenthal. "Legislation to extend CRA beyond banks to other financial institutions, including credit unions, has more than 50 co-sponsors and will be debated in Congress in 2010. NCUA is also nearing completion of a year-long data collection initiative, so while the financial crisis has pushed these issues into the background in 2009, we think that will begin to change next year, and we want credit unions to be prepared with the facts."
The seminar will include a point-counterpoint debate about CRA, moderated by Credit Union Times Editor-in-Chief Sarah Snell Cooke and featuring John Taylor, president of the National Community Reinvestment Coalition, and CRA critic New York University Professor Lawrence White. But Rosenthal emphasized that "the seminar is primarily an educational event, focusing on facts, resources and strategies that credit unions can utilize to adapt to a changing legislative and regulatory environment."
Seminar topics range from CRA 101, which will examine existing federal and state regulations as well as proposed changes to the legislation to a discussion of the NCUA's data gathering efforts on credit union service to the underserved. There will also be a detailed analysis by CUNA and NAFCU economists on existing data about credit union demographics and service. The federation will also present a variety of tools it has co-developed to assess and expand credit union service to the underserved, as well as new certification standards to enhance the credit union brand and position in the mortgage marketplace.
Bill Zavarello, a staffer on the House Financial Services Committee, will provide a legislative perspective on these issues, and credit union speakers include Frank Pollack (Pentagon FCU), Jim Blake (HarborOne CU) and Ed Jacob (North Side Community FCU). Bill Hampel, chief economist with CUNA, and Tun Wai, chief economist with NAFCU will discuss existing demographic and economic data on credit union services. Regulators from the Federal Reserve Board, the NCUA and the Massachusetts Division of Banks will also address the meeting.
Rosenthal observed that even though the current economic crisis has discouraged some credit unions from efforts to improve service to underserved communities, it has also elevated the question of how well credit unions are serving underserved communities.
"Credit unions exist to serve people and people need them now more than ever," Rosenthal pointed out. He argued that the nation's unemployment rate of 10.2% and increasing credit pressures, credit unions members need their credit unions. Helping them is who we are, he said.
But as credit unions begin the discussion of CRA and their role in reaching out to underserved communities, they may also have to more clearly define their mission and, to some extent, reorganize their operations to do this sort of outreach. For example, according to NCUA records, only 1,182 credit unions have moved from charters defined by SEGs or association groups to charters defined by a geographic community. Community charters are considered more open to enabling outreach to lower income people since they would include those in the community who lack regular employment. Further, only 1,090 credit unions are designated as serving lower income communities, and, according to NCUA records, only 405 have added underserved areas since 2004.
Hampel said that, from a historical perspective, the core mission of credit unions is to provide a cooperative alternative to for-profit firms providing banking and financial services. Included in that have been certain other social and organizational structures, such as the statement in the first Federal Credit Union Act that said that credit unions existed to serve "people of modest means" and the notion that credit unions did not exist to serve everyone but instead defined fields of membership.
Hampel argued that a comparison of the first credit union act with other landmark legislation from the 1930s, such as the act that established Social Security, shows that Congress intended "people of modest means" to include many more people who now would be considered middle class and not just those living on the economic margin. "People who are critical of credit unions sometimes like to argue that Congress meant people of modest means to include really the most marginal, but there really isn't the evidence to support that," Hampel said.
He also described the fields of membership that have come to define the focus of the majority of credit unions as more or less accidents of history. Hampel described fields of membership as an early way of trying to protect then-fledgling credit unions that were trying to make loans without a strong credit reporting system to rely on.
"Credit unions exist to make loans to their members, but how could they be protected from making loans that could be too risky at that time," Hampel asked. "One solution was to only make loans to people they knew, people they worked with and their families." Hampel added, "I think its reasonable to suppose that if there had been a strong credit reporting system available when credit unions began, they would have never had fields of membership."