110th CONGRESS, LEGISLATIVE ISSUES A - Z

The National Credit Union Administration (NCUA) revised its field of membership regulations on June 22, 2006, to limit the addition of financially underserved areas only to credit unions with multiple common-bond charters. The action effectively prohibits 56% of federal credit unions with single-group and community charters from extending credit union services to lower-income areas and groups that are not adequately served by other traditional financial institutions.

NCUA’s action was in response to litigation initiated by the banking industry in 2005 urging the federal courts to very narrowly interpret language in the Federal Credit Union Act to restrict NCUA’s authority to approve new underserved area expansions only to multiple common bond credit unions. The language in question was added by Congress in the Credit Union Membership Access Act of 1998 (CUMAA) to codify and encourage use of an existing (1994) NCUA policy of permitting federal credit unions “of any type” to include low-income groups within their field of membership as part of the credit unions’ broader mission “to ensure that adequate credit union services are provided to all persons in the community.”

Section 101 of CUMAA authorized a new category of the federal credit union charter, the multiple common bond credit union, and specifically permitted these credit unions to include persons and groups residing in underserved communities, neighborhoods or rural districts within their field of membership. The absence of detailed report language to clarify congressional intent to continue to allow credit unions of all charter types to add underserved areas, however, has permitted varying interpretations of this section.

Since 2001, some 220 single-group and community charter credit unions have received approval from NCUA to serve individuals and groups in more than 800 areas. While NCUA’s revised regulation would apply prospectively and would not affect credit union services in previously approved underserved areas, the continued uncertainty surrounding Congress’ intent in adopting Section 101 of CUMAA will inevitably subject these programs to continued legal challenge by the banks. At stake is not only the loss of substantial investment by the participating credit unions, but the potential loss for millions of lower income families of their only alternative to the high cost financial products provided by unregulated check chasers, payday lending, finance companies and pawn shops.

A March 2006 CUNA survey of these credit unions estimated that 1.6 million members had been served in these underserved areas at a total investment to the credit unions of $1.3 billion. There are an estimated 315 credit union branch offices within underserved areas, while there are153 braches located near these areas. Additionally, 142 shared service centers reside within or near underserved areas. As of year-end 2005, credit union members residing in underserved areas had an estimated $4 billion in outstanding loans and $3.4 billion in savings deposits with their credit unions.

All three members of the NCUA Board have expressed support for Congressional action to address the problem.

Copyright © 2008 - Credit Union National Association, Inc.