Credit unions and how they serve the low-income is once again a hot-button issue, but why?

ARLINGTON, Va. – After simmering for many years, the question of how credit unions serve low-income communities has received increased interest lately, appearing again on trade association committee agendas and in regulators’ remarks. But it would be a misunderstanding to attribute that interest solely to congressional signals or a need to respond to political pressure, according to NCUA Board Chairman Dennis Dollar and a mix of credit union and banking trade association officials. In mid-June, Dollar warned credit union attendees at CUNA Mutual’s Discovery Conference, in New Orleans, that credit unions need to maintain congressional support and educate members of Congress about how credit unions serve their entire memberships – including those with low-incomes. Bank lobbyists and others are “gunning” for credit unions, he told the meeting, adding that “it’s your challenge – not ours [NCUA's] to demonstrate why Congress shouldn’t put credit unions under CRA [Community Reinvestment Act].” Recently Dollar clarified that his warning had not been in response to any specific congressional signal or message from Congress or a perception that credit unions’ congressional strength might be waning. Instead, he pointed to the long history the debate about credit unions and CRA has had in Congress, dating back to when Congress imposed a CRA requirement on banks in 1977 and running through the battle over the Credit Union Membership Access Act (CUMAA) in 1998. “I think the folks who would like to put CRA on credit unions have always been there,” Dollar said, “and they’re still there. In my remarks I was urging credit unions not to let them get the upper hand.” Dollar used a familiar analogy of the carrot and stick, pointing out that there had long been two schools of thought about whether it was better to address regulatory problems with a carrot (represented as incentives) or a stick (represented as regulation). “I think we can get there using the carrot approach, but if credit unions don’t better explain how they are responding to the incentives they strengthen the hand of those who advocate using the stick,” Dollar said. Dollar suggested that the issue of credit unions and low-income communities has gotten greater attention recently because, paradoxically, both the NCUA and credit unions are being more public about their attempts to address it and their activities have helped raise the issue’s profile. In this he contrasted, NCUA under his chairmanship and the agency under his predecessor Norman D’Amours. Under D’Amours, Dollar suggested, the agency had often talked about credit unions reaching out to low-income communities and sought to impose a regulatory stick (the Community Action Plan or CAP regulation), even as it admitted that there was no evidence to suggest it needed to do so. By contrast, the agency under his leadership has begun to take action to address the problem through the Access Across America (AAA) initiative and by urging credit unions to partner with other federal agencies already involved in efforts to serve Americans with lower incomes. It is partially this increased level of activity that has continually pushed the issue into the headlines, Dollar said. Dollar also said that NCUA actions like passing, and then rescinding, the CAP regulation had also served to keep the issue percolating. But Keith Leggett, senior economist with the American Bankers Association approached the question from a different angle. Although the long-time credit union critic agreed somewhat with Dollar and credit union officials that increased congressional interest was not the only thing keeping the low-income issue alive, he sharply differed with them on the source of that interest. Leggett laid responsibility for the increased congressional interest at the feet of CUNA’s Renaissance Commission that, he said, released the first draft of its report to Congress before CUNA’s Governmental Affairs Committee studied and approved it. That report downplayed credit unions’ mission to work with people of modest means, Leggett said, and even though that language was struck from the final version it was enough to startle members of Congress, he maintained. The release of the draft had startled some on Capitol Hill and served as a focal point around which unease about a variety of credit union issues could coalesce, he said, almost like a spark in an area where flammable vapors are already present. But Jonathan Lindley, NASCUS vice president for national advocacy, with over 25 years working on Capitol Hill for credit unions, flatly rejected Leggett’s explanation. “That’s a banker blaming credit unions for a situation the bankers helped create,” Lindley said. A more accurate explanation, Lindley said, is that credit unions find themselves caught between two conflicting congressional ideologies and, as a result, need to define themselves more clearly when it comes to debates about public policy. In Lindley’s opinion, congressional conservatives are concerned about the perception that credit unions are growing out of the relatively narrow original fields of membership and away from their roots serving primarily men and women of modest means. “Congressional conservatives, such as Senator Phil Gramm (R-Texas) worry that credit unions are moving away from the relatively limited role they traditionally played,” Lindley said. “They are concerned about the growth of larger credit unions and things like credit union mergers,” he added. In many ways their concerns mirror the traditional bankers line, he added. By contrast congressional liberals understand that credit unions need to serve more than low-income folks in order to be able to serve the low-income better, Lindley explained. “Fields of membership are generally not a problem for them,” he said. But congressional liberals, such as [Senate Banking Committee Chair] Paul Sarbanes (D-Md.) worry more about what credit unions are doing than whom they are doing it for, Lindley said. They worry about people of modest means being lost in the shuffle as credit unions reach out to serve larger fields of membership and they worry about credit unions becoming just like any other financial institution. “If you re-read Sarbanes’ comments at [Board Members] Matz and Johnson’s confirmation hearings you will see that the Chairman is very concerned about what it is that credit unions are doing,” Lindley observed. Part of the solution, in Lindley’s view, would require credit unions to do more to differentiate themselves from other financial institutions on the public policy stage. Lindley used as an example the early 1960′s fight over the first truth in lending laws, which credit unions supported early and firmly. “The banks hated those proposals and credit unions backed them from the beginning,” Lindley noted. “That clearly differentiated credit unions from banks and that differentiation served credit unions quite well in the following decade,” he said. But NAFCU generally downplayed the role of politics in building interest in the issue, making the point that, in many ways, congressional issues do not closely mirror industry issues. Brad Thaler, NAFCU’s director of legislative and political affairs, pointed out that credit unions have never been as strong on Capitol Hill as they sometimes like to think they have been and that there has been a tendency to “mythologize” the 1998 fight to pass CUMAA. People tend to forget, Thaler said, how much lobbying credit unions had to do in support of that bill and that credit unions were forced in that fight to call on allies that they could not take for granted either before or after it. Bill Donovan, NAFCU’s SVP/general counsel, pointed out as well that, to some extent, every Capitol Hill fight is unique and credit unions have, in a sense, renew their friendships with members of Congress with every fight. He pointed out that positions taken in the past on credit union political issues could not be relied upon to entirely predict future political positions. “If you look at Congressman Spencer Bachus (R-Ala.) you will see he did not support credit unions on 1151 [CUMAA], yet he has supported credit union positions in the proposed regulatory relief bill.” CUNA Senior Vice President Gary Kohn admitted that increased congressional interest has helped fuel the heightened interest in credit unions’ service to low-income people, but put that interest firmly in the context of a long-running interest that has many facets. He cited NCUA’s CAP controversy, along with the “fresh perspective” that NCUA Board Member Debrorah Matz brings to the topic for helping to fuel the interest. Like Dollar, Kohn cited credit union activity, particularly the way credit unions have lobbied Capitol Hill in support to certain parts of the regulatory relief bill, for keeping the subject of low-income people and credit unions in front of congressional eyes. [email protected]