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CUNA says NCRC report on CU lending flawed
MADISON, Wis. (9/11/09)--The Credit Union National Association (CUNA) says a National Community Reinvestment Coalition (NCRC) report unfavorably comparing credit union lending practices to that of banks is flawed and should be dismissed by policymakers. The NCRC analyzed Home Mortgage Disclosure Act (HMDA) data for credit unions and banks. The report claims that credit unions lag behind banks on 64% of the fair lending indicators examined and concludes that credit unions should therefore be placed under Community Reinvestment Act (CRA) rules. “While we haven’t concluded our evaluation, it’s clear that the NCRC report isn’t worth the paper it’s printed on,” Mike Schenk, CUNA vice president of economics and statistics, told News Now. There are a handful of obvious fatal flaws in the NCRC analysis, Schenk said. First, NCRC acknowledges but makes no attempt to statistically adjust for the fact that credit unions and banks--from a legal standpoint--cannot serve the same groups of people. “Banks and thrifts can serve anyone. But one-third of credit unions serving 20% of all credit union members have single-group occupational charters,” Schenk explained. “By definition, credit union membership fields cannot and will not perfectly reflect the income or racial make-up of the geographic community in which they are located,” he added. “While it’s true that about one-quarter of credit unions have community charters, many of these institutions have just recently converted to the wider charter. What does the NCRC analysis do to account for these fundamental differences? Nothing.” A second flaw in the NCRC analysis is that it focuses only on “prime” loans--a glaring oversight for a study that presumes to gauge the effectiveness of lending to lower-income individuals, Schenk said. A third flaw is that the NCRC study uses “disparity ratios” to measure lender effectiveness, he said. Disparity ratios are esentially statistics that are attained by dividing a denial (or approval) rate for a target group (e.g., low-income people) by the denial (or approval) rate for all other applicants. “But disparity ratios are a horrible metric--they simply do not measure lender effectiveness,” Schenk added. “For example, using disparity ratios, NCRC’s 2007 analysis finds that banks outperform credit unions in 23 of 42 disparity metrics they published,” he said. “But, the underlying data NCRC used to produce these disparity ratios clearly shows that credit unions outperform banks: it shows that credit unions approve mortgage loan applications at higher rates--usually much higher rates--and they deny applications at lower rates-- usually much lower rates--compared to banks. “This is true in almost every single demographic group analyzed, among every loan type analyzed and across each of the three years of data it analyzed,” Schenk added. Specifically, looking at 2007 approval and denial rates, NCRC data shows that credit unions outperform banks in 64 out of 72 of these metrics--89% of the total, Schenk said. “Of course, NCRC benefits directly and indirectly when it increases the number of institutions that are subject to CRA,” Schenk explained. “Many of its member organizations receive significant funding from banks as part of the banks’ CRA investment obligations. In addition, the NCRC has formed a strategic partnership with the nation’s ‘top banks.’ “It would not surprise me if these considerations influenced the study’s methods and conclusions,” he added.


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