Credit Union Modernization or Expansion?

In December 2022, over 200 credit union lobbyists descended on Charleston, South Carolina, to plot their advocacy strategy for the year ahead. Since credit unions were created with a mission to serve people of modest financial means, and it’s the justification for their federal tax exemption, you would think that worthy goal would be the hot topic at the Winter Meeting of the American Association of Credit Union Leagues (AACUL). Instead, participants made clear that the credit union industry plans to continue paying lip service to serving low- and moderate-income (LMI) communities, while directing its efforts toward expanding into new affluent markets.

During private briefings, the lobbyists outlined their “legislative and regulatory proposals to help achieve 2023 goals.” This latest batch of priorities reveals just how much the credit union industry has strayed from its original mission–and just how much communities stand to lose. It’s clear now more than ever that the industry regulator, the National Credit Union Administration (NCUA), needs to step up its mission oversight.

While many recent credit union policy proposals have been branded as “modernization” initiatives, it’s more appropriate to classify them as tools for expansion. Throughout the last twenty years, those efforts have helped credit unions grow from $557.1 billion in assets and 81 million members in 2002 to more than $2.1 trillion in assets and 134.3 million members in 2022.  

In October 2003, the Government Accountability Office (GAO) reported that the Credit Union Membership Access Act of 1998 and “subsequent NCUA regulations enabled federally chartered credit unions to expand their membership, serve larger geographic areas, and add underserved areas.”   

The GAO also noted that although “it has been generally accepted that credit unions have a historical emphasis on serving people of modest means,” the “NCUA has not developed indicators to determine if credit union services have reached the underserved.”

Nearly two decades later, neither has changed: legislation and regulation continue to loosen field-of-membership requirements, further fueling credit union expansion, and the NCUA has failed to hold the industry accountable to its mandated mission of serving LMI individuals and communities. The result is an industry that touts its service to those communities while clearly diverting its attention to affluent customers.

So, what’s the credit union lobby focusing on in 2023? More of the same. Their goal is to nullify regulations that exist to ensure that credit unions target and prioritize underserved communities, the very basis for their tax exemption.  

As a reminder, credit unions receive special tax treatment due to their mission and structure, with the intent of helping them serve people of modest means. Field-of-membership criteria, business lending caps, and loan maturity limits are all geared toward that purpose. That is, they serve as a check on credit unions to ensure that they fulfill their mission as nonprofits – serving well-defined local communities and providing a provident source of credit to people of modest means. 

Credit union advocates believe that policymakers should be supportive of their efforts to expand.    

Last Congress, credit union groups championed H.R. 7003, the Expanding Financial Access for Underserved Communities Act, which, despite its name, would facilitate credit unions’ out-of-market expansion and remove business lending cap restrictions without instituting any substantive reporting requirements to ensure these expanded powers are, in fact, providing improved financial access for underserved communities.

But if these rapid expansion efforts aren’t benefiting people in the communities that credit unions were created to serve, who are they benefiting? Taxpayers deserve to know—and it’s the NCUA’s responsibility to find out. 

See the impact on taxes in your state.

Tell Congress: It’s time to reform credit unions.