Last month, the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency issued the 2023 Interagency Final Rule on the Community Reinvestment Act. The long-awaited and massive rulemaking modernizes how federal regulators assess CRA compliance for banks with more than $600 million in assets. One thing you won’t find in the 1500 pages of the final rule is any mention of credit unions having to comply with the requirements. Despite calls to finally apply CRA obligations to credit unions, Congress has failed to do so, despite the fact that credit unions compete directly with banks and offer many of the same services.
This is a mistake.
The exclusion of America’s credit unions from community reinvestment regulatory requirements unfortunately continues a trend from prior rulemakings – and squanders this opportunity for true CRA modernization. For decades, credit union lobbyists have thwarted accountability efforts by touting the industry’s unique mission and structure.
Here’s the crux of their argument: credit unions were created to serve low- and moderate-income (LMI) communities, and given their field of membership limitations, applying CRA-like standards to not-for-profit cooperatives just doesn’t make sense. And yes, they’ve even said, “it’s a solution in search of a problem.”
When the CRA was enacted in 1977, that might have been the case. Times were simpler, and so were credit unions.
But times have changed.
Throughout the last two-and-a-half decades, field of membership – a cornerstone of the credit union movement that has long been used to justify its preferential regulatory and tax treatment – has been rendered meaningless. Whereas membership was historically confined to those of modest means connected through a common bond within a local area, all 340 million Americans are now eligible to join a credit union.
And as Newsweek recently noted, the impact of the final rule might be diminished by the fact that “most of today’s mortgage lenders are non-banks and credit unions, entities not governed by the new mandate.”
While Congress has exercised scant oversight of this $2.2 trillion credit union industry, some state legislators and regulators have stepped up their scrutiny.
Indeed, Consumer Financial Protection Bureau Director Rohit Chopra signaled his support for state-level CRA-like requirements for nonbanks in his statement on the final rule. He even went a step further and singled out nonbanks a category that would include today’s tax-exempt credit unions.
Interestingly, the CFPB released a report on state community reinvestment laws the following week. Among its findings: five states and the District of Columbia have state CRAs that apply to state-chartered credit unions.
While some of those five states enacted those laws within the last few years, others, like Massachusetts, have existed for many years. That means they have data.
And it turns out that the data on credit union performance in the Bay State is quite revealing.
According to the American Banker, 14 of the Commonwealth’s 92 state banks received an “outstanding” CRA rating versus only 3 of its 51 federally insured credit unions. The article quoted a CRA expert who said, “We now have proof that banks do a much better job than others in serving their community as measured by the Massachusetts data and that’s pretty impressive.” He added, “Especially for big credit unions and those that are buying banks, they are taking out the community footprint of a bank with a CRA obligation and replacing it with a credit union that doesn’t have that obligation.”
Experts on consumer protection and tax policy have recently raised alarms about the lack of accountability and transparency as it relates to credit unions and their activities. Likewise, prominent voices from within the credit union industry have acknowledged these red flags.
Consumers agree. A Morning Consult poll found a majority of Americans support CRA reporting requirements for credit unions.
Members of Congress need to take a closer look at credit unions’ real commitment to serving underserved communities and ensure that they face the same CRA requirements as banks. Only by leveling the playing field can we be confident that people in every corner of the country are getting the access to credit that they want and need.
