WASHINGTON -- On the heels of NCUA's own report on credit unionservice and executive compensation, the Government AccountabilityOffice has issued a similar report with a bonus study on theobjectivity of NCUA, both of which each side has put in differentlights.

Responses from credit union and bank groups, as well as Ways andMeans Committee Chairman Bill Thomas (R-Calif.) who requested thestudies, to the GAO's reports on NCUA and credit unions releasedpublicly Dec. 1, have been predictably conflicting and pointed.

The credit union trade associations and NCUA have highlightedthe report's look at credit union versus bank product and servicepricing.

"Our analysis of interest rates for 15 loan and savings productsindicated that credit unions seem to offer more favorable ratesthan those of comparably sized banks, particularly for consumerloans," GAO's report read. "For example, rates that credit unionscharged for car loans averaged about 1 to 2 percentage points lowerthan rates offered by similarly sized banks, and credit union ratesaveraged 0.4 percentage points higher for regular savings accounts.This difference was slightly more pronounced as the size of theinstitutions increased."

The report also noted that mortgage rates were virtually thesame at similarly sized banks and credit unions. "However, ouranalysis of deposit and loan rate data does not fully identify howthe tax-exemption of credit unions might benefit credit unionmembers. For example, tax-exemption may enable credit unions toreduce fees they charge for services provided to members," itstated.

CUNA Chief Economist Bill Hampel said that credit union closingcosts are indeed lower than banks' on mortgages. The reason therates are the same is because nearly all mortgages are sold on thesecondary market and have to be priced accordingly.

Of the pricing comparisons, NAFCU President/CEO Fred Beckerindicated, "In this regard, the GAO has largely ignored what shouldhave been the focus of its analysis, how credit unions serve theirmembers better than other financial institutions."

NCUA highlighted a number of places where GAO agreed that itmight not have complete enough information to draw accurateconclusions, including member income, which GAO based on theFederal Reserve's Survey of Consumer Finances. "The data used bythe Government Accountability Office does not provide as complete apicture of credit union member income as that gathered by NCUA inits Member Service Assessment Program," NCUA Chairman JoAnn Johnsonsaid, which included more than 14 million member records.

NAFCU Director of Political Affairs Dillon Shea pointed out thatthe GAO report was based on the Fed's SCF, which was not designedfor income comparisons and does not account for cost of livingvariances. He explained that NAFCU staff met with GAO during theirstudy and laid out the group's analysis of the recently releasedHome Mortgage Disclosure Act data, "which shows a very differentand more accurate picture," but GAO did not use it for theirreport.

"As NAFCU has said previously, we welcome a careful and balancedexamination of the services credit unions provide," Becker added."Unfortunately, today's reports do not shed much light on creditunion services. We are especially puzzled that the GAO did not takeinto account the HMDA data and did not include a more in-depthanalysis of how credit unions are serving their members."

The GAO report even stated that loan rates alone couldn'tdetermine the use of the tax-exemption. "Loan rates may differbecause of differences in borrower characteristics, such ascreditworthiness, or because of geographic market differences. Inaddition, tax-exemption may benefit members in other ways thanthrough loan and deposit rates," GAO said, lower fees being one ofthose benefits.

By contrast, the banking groups and Chairman Thomas touted thestatistics at face value. Thomas stated, "One of the reasons citedfor the need for credit union tax-exemption is that they wouldserve those of modest means, yet GAO found that banks continue toserve a higher percentage of low- and moderate-income householdsthan credit unions."

American Bankers Association President/CEO Ed Yingling alsopointed out, "The GAO found that, despite their tax-exemption,credit unions lag banks in serving low- and moderate-incomeindividuals. Specifically, the GAO found that while 41 percent ofhouseholds that primarily use banks are of modest means, only 31percent of credit union households fall into the low- tomoderate-income category. What's more disturbing is the fact thatthis shows a decline in credit unions' service from 2001, when 36percent of members were of modest means. Meanwhile, the proportionof upper-income customers at credit unions has increased from 43 to49 percent.

"If banks do a better job serving people of modest means, why doall credit unions continue to enjoy a tax-exemption?" he continued."ABA believes it's time to distinguish traditional credit unionsfrom those that have strayed from their mission."

ICBA President/CEO Camden R. Fine agreed. "ICBA commends the GAOfor its comprehensive study examining the credit union industry.The report highlights that tax-paying banks are better serving low-and moderate-income people than tax-exempt credit unions...Thecredit unions do not even have any solid data to support theirmandated role to serve people of modest means. Notably, the creditunions are not subject to the Community Reinvestment Act (CRA) asare banks. Taxpayers and policymakers should be extremely concernedthat more than $31 billion in lost tax revenues will benefit creditunions in the next decade while they are not fulfilling theirfundamental mission of serving low- and moderate-incomefamilies."

CUNA President/CEO Dan Mica fired back, "Although the GAO reportnotes that credit unions serve a lower proportion of low- andmoderate-income members than do other financial institutions, italso notes that credit unions are subject to numerous field ofmembership restrictions. The effect of these restrictions resultsin credit unions serving a greater proportion of moderate andmiddle-income members than do banks. That is just who Congressintends credit unions to serve: Working Americans living paycheckto paycheck." He also noted the comparative pricing data, wherecredit unions were indicated as a better deal than banks in allcategories but mortgages.

Johnson also emphasized GAO's acknowledgement of federal creditunions' membership restrictions, which she called "a criticalaspect that merits additional discussion by Congress." GAO's reportdoes mention the ABA lawsuit that required credit unions to scaleback adopting underserved areas.

According to the GAO report, the proportion of credit unionmembers in the upper-income category grew from 43% in 2001 to 49%in 2004. Additionally, there was a decline in the percentage oflow-income households over the same time period. However, GAOnoted, "Additionally, the relatively high percentage of householdsin the moderate- and middle-income categories that used creditunions (37%) in the 2004 SCF may be reflective of credit unionmembership traditionally being based on occupational- oremployer-based fields of membership." Bringing Home the Bacon

The GAO indicated that the issue of executive compensationtransparency has risen in prominence for tax-exempt and publiclyheld companies and recent Securities and Exchange Commissionrulings have illustrated that. "In contrast," GAO wrote, "creditunion executive compensation is not transparent because creditunions are not required to file publicly available reports such asthe IRS Form 990 that disclose executive compensation data."

GAO also noted that credit union directors serve on a volunteerbasis, but may get reimbursed for mileage, travel expenses, andother items. "In contrast, bank boards of directors may receivefees such as an annual retainer for serving on the board, profitsharing, professional fees, and other bonuses. Also, according toone bank survey, about half of the banks that responded indicatedthat their compensation fees were based strictly uponattendance."

Mica commented, "While noting the lack of comparableinformation, the details presented in the report on credit unionand bank executive salaries strongly suggest that credit unionexecutive salaries are consistent with their not-for-profitstatus."

However, ABA's Yingling stuck to his guns: "There's no reason,in the new age of transparent corporate governance, for creditunion executives to shield information on their compensation fromtheir members and the public." Modification Recommendations

The 110-page report boiled down to two recommendations from theGAO to NCUA. First, it suggested, "To help ensure that creditunions are fulfilling their tax-exempt mission of providingfinancial services to their members, especially those of low ormoderate incomes, we recommend that the Chairman of NCUAsystematically obtain information on the income levels of federalcredit union members to allow NCUA to track and monitor theprogress of credit unions in serving low- and moderate-incomepopulations. NCUA's recent pilot survey to measure the income ofcredit union members could serve as a starting point to obtain moredetailed information on credit union member income." The NCUAstaff's report made a similar recommendation. "Ideally" the agencyshould expand the survey so that it is valid by charter-type aswell, monitor actual usage by low- and moderate-income members, andmonitor progress.

Specifically, GAO said NCUA's data should:

(1) Provide benchmark data, such as general population incomestatistics or other appropriate measures, to allow comparisons withthe data collected on the income levels of credit unionmembers;

(2) Obtain data on the extent of services offered by creditunions (e.g., free checking accounts, no charge ATMs, low-cost wiretransfers, etc.) are being used by income category;

(3) Expand the data collection effort to allow the results toapply to various charter types; and

(4) Conduct the study on a systematic or periodic basis toassess the extent of progress over time.

The report noted NCUA's efforts to expand credit unions' serviceto low-income people through the low-income credit uniondesignation and the adoption of underserved areas, but the resultsof such efforts have not been quantified.

While NAFCU was pleased the report did not recommend changes tothe tax-exemption or Community Reinvestment Act-like requirementsfor credit unions, "It did recommend NCUA collect more data overtime," Shea said. "Historically, NAFCU has opposed these addedregulations for credit unions. For a lot of our smallerinstitutions, it will be a burden to have an ongoing NCUA datacollection study."

NAFCU Senior Vice President of Government Affairs Dan Bergeradded, "We believe that this was supposed to be a pilot project, aone-time issue."

On the matter of executive compensation, GAO recommended, "Toincrease the transparency of executive compensation and enhanceaccountability of credit unions, we recommend that the Chairman ofNCUA take action to ensure that information on federal credit unionexecutive compensation is available to credit union members and thepublic for review and inspection." Impact

CUNA Vice President for Legislative Affairs Dean Sagar observed,"Its release in some ways is favorable even if it had been morenegative just because Congress is really looking at its ownleadership, reorganization. It's looking at restructuring; it'smoving offices. It'll be largely overlooked, completely...I thinkit comes at a time when very few people are going to noticeit."

CUNA is looking to use the results of the studies by GAO andNCUA, as well as it own data, to push field of membershiplegislation. "What it really comes down to is that credit unionseffectively offer affordable services to the members who they arelimited in serving," Mica concluded. "Credit unions could serveeven more Americans of modest means if Congress drops or lowers keybarriers that hinder credit union reach to these consumers."

Hampel added that CUNA's own data by charter-type shows "thefewer the field of membership restrictions the credit union has,the lower down the income distribution level its members tend tobe. We think there's a message in that for legislators."[email protected]