NCUA's repeal of CAP sends the wrong message

<p>On December 13, the opponents of NCUA’s Community Action Plan (CAP) regulation rejoiced over a stunningly quick victory, as the NCUA Board aborted the rule before it became effective. The victory may not come cheaply, however. In our view, the credit union movement may lose credibility and political support as a result of this hasty action. On pragmatic grounds, NCUA and the credit union movement should reconsider its repeal of CAP while it is still possible to minimize the damage. By its actions, NCUA did little to promote its image as a judicious, professional regulatory agency. As departed NCUA Board Member Yolanda Wheat argued, the NCUA Board violated administrative procedures by repealing the unborn CAP rule. This is not a good precedent for any federal agency – and certainly not for an agency whose stature was much diminished in the stormy D’Amours years. To even a casual observer, Mr. Bacino’s eleventh-hour introduction of the CAP repeal looked like cynical opportunism, motivated by a desperate desire to cling to a long-sought sinecure. Neither is NCUA well-served by the lame “evidence” argued by Bacino and repeated by NCUA in its steady stream of press releases. NCUA now regularly boasts of the tens of millions of people in “underserved” areas who have been made “eligible” for credit union services thanks to the streamlining of field-of-member expansions. But these statistics are patently meaningless, because they provide absolutely no information about people who are actually being served. Have any of these many millions of new potential members opened accounts? Received loans? Were these new credit union members low- or moderate-income? Minority group members? Or did they come from carefully chosen employee groups (SEGs) or pockets of prosperity within otherwise “underbanked” communities? NCUA doesn’t know. The credit unions involved may or may not know. Congress doesn’t know, but at some point they will want to find out. In the meanwhile, NCUA would be well advised to stop trumpeting this empty statistic. Massive expansion into “underserved” areas is a double-edged sword – and the sword’s sharper edge should worry the credit union movement. When credit unions have limited fields-of-membership, it is easy to make the case that they should not be subject to the Community Reinvestment Act (CRA); for example, it would be absurd to argue that a credit union serving orthodontists should be subject to CRA. But it’s quite a different matter when credit unions apply for and receive the right to serve entire cities. If a credit union and a bank each have a charter that permits them to serve, for example, all of Dallas, why shouldn’t the credit union be held accountable for service to all sectors of the community – including low- and moderate-income segments – just as the bank is? How long can we expect Congress to keep ignoring this obvious question – especially, if they have the banking industry to remind them? It seems to us that CAP could delay that day of reckoning. If CAP is implemented, the credit union movement will at least be able to point to specific plans to serve the underserved, enforced by existing regulation. This would enable credit union allies in Congress to argue that additional regulation was unnecessary. Instead, by their virulent opposition to CAP, the opponents of this modest rule are vexing their friends and goading those who think a full-scale CRA for credit unions is, in fact, necessary. On the eve of Mr. Bacino’s proposed repeal of CAP, nine members of Congress sent the agency a letter of protest about its irregular handling of CAP. They wrote that they “find it disgraceful that this small step in the right direction might be reversed.” As another Congressional staffer (not a signatory to the letter) recently put it, “The credit union movement just doesn’t seem to get it. They’re giving ammunition to the bank lobby.” CAP is as diluted and weak as any community-service regulation could ever be. It does not oblige credit unions to provide any particular level of service – indeed, any service at all – to low-income people. It is not “CRA lite” – not even close. By rising up angrily every time community service is mentioned, the credit union movement is fanning suspicion that it has something to hide. If there is some unpleasant reality involving unequal service to low-income people and/or minority communities, then it’s simply wrong to cover it up and hide behind a fear of “excessive regulation” or paperwork. If there is no dirty little secret – if credit unions do, indeed, provide fair, equal, and responsive service to all members regardless of income and race – then it’s time to document that service and tell the story, not anecdotally but with hard numbers. It would be nice to think that extensive, reliable data could be obtained through an entirely voluntary, choose-your-own-method approach. But that’s not very likely. By engaging the regulatory agency, CAP – as weak as it is – would provide some incentive for systematic data collection. It would be a small but significant step toward putting the debate to rest. Enlightened self-interest as well as a commitment to economic justice should encourage the credit union movement and NCUA to accept CAP, then make it work to benefit the movement, its members, and their communities. Cliff Rosenthal Executive Director National Federation of Community Development Credit Unions New York</p>