110th CONGRESS, LEGISLATIVE ISSUES A - Z
FIELD OF MEMBERSHIP
Credit Union Services in Financially Underserved Areas
ISSUE: The National Credit Union Administration (NCUA) revised its field of membership regulations on June 22, 2006, to limit the addition of financially underserved areas within the field of membership of federal credit unions 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. It would also preclude over 200 credit unions that currently serve some 800 underserved areas throughout the nation from serving new underserved areas or communities in the future.
NCUA’s action was a 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 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, however, has permitted varying interpretations of this section as expressing Congress’ intent either to limit all additions of underserved areas only to multiple common bond credit unions, or to provide new multiple common bond credit unions with equal authority to serve underserved areas, as all prior credit unions under existing NCUA policy.
Rep. Paul Kanjorski (D-PA), an original sponsor of the CUMAA legislation, sought to dispel any confusion on this point during House floor consideration of the legislation, remarking that Congress was “not in any way restricting the ability of NCUA to allow community and single group credit unions to include underserved areas in their field of membership.” Precluding community credit unions from serving underserved “would be contrary to their reason for existence,” Kanjorski noted, and precluding either type of credit union from serving underserved areas “was never intended, and would make no sense.”
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 that meet required thresholds of poverty, economic distress and lack of alternative financial services under various federal statutes. A March 2006 survey of these credit unions by the Credit Union National Association estimated that 1.6 million actual credit union members had been served in these underserved areas at a total investment to the credit unions of $1.3 billion. The credit unions have provided an estimated 315 branch offices within underserved areas and 153 braches near underserved areas, 142 shared service centers within or near underserved areas, and have placed more than 1,200 ATM machines within or near these 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.
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.
All three members of the NCUA Board have expressed support for Congressional action to address the problem. According to NCUA Chairman JoAnn Johnson, “to fail to act expeditiously and decisively would send a message that Americans who live in underserved communities do not deserve broad access and choice in financial services.”
CUNA POSITION: CUNA supports a legislative remedy that would allow NCUA to consider all federal credit union charter applications that seek to expand credit unions’ fields of membership to include underserved areas.
STATUS/OUTLOOK: The Credit Union Regulatory Improvements Act of 2007 (CURIA) was introduced in the House of Representatives on March 15, 2007. A provision in Title II of the bill would allow NCUA to consider any application by a federally chartered credit union to add to its field of membership.
In order to enhance the ability of credit unions to assist underserved communities with their economic revitalization efforts, CURIA would make three important changes in current law. First, it would revise a provision of the 1998 Credit Union Membership Access Act that has been incorrectly interpreted as expressing Congressional intent that only multiple group credit unions are eligible to expand credit union services to areas with high unemployment and below median income that have traditionally been underserved by other traditional depository institutions. CURIA would provide all Federal credit unions with an equal opportunity to expand services to individuals and groups working or residing in areas that meet the income, unemployment and other distress criteria identified by the Treasury Department.
Second, it would allow a credit union to lease space in a building, or on property in an underserved area in which it maintains an office, branch or other physical presence, to other parties, including commercial businesses, on a more permanent basis. The provision is intended to allow a credit union branch or facility to become a focus point and catalyst for broader commercial and economic development in the area.
Third, CURIA would expand the criteria for determining whether a community or rural area qualifies as an underserved area. The bill's definition of a qualified underserved area includes not only areas currently eligible as "investment areas" under the Treasury Department's Community Development Financial Institutions (CDFI) program, but also census tracts qualifying as "low income areas" under the New Markets Tax Credit targeting formula adopted by Congress in 2000.
Another piece of legislation that would lift the NCUA moratorium on non-multiple common bond credit unions from applying for underserved additions to their fields of membership is H.R. 3113, a bill introduced in the House of Representatives on July 19, 2007 by Rep. Jose Serrano (D-NY). The Affordable Financial Services Enhancement Act (H.R. 3113) would strike a reference to multiple common bond credit unions in the Federal Credit Union Act that has allowed the banker lobby to argue that Congress intended Sec. 109 of the law to apply only to those types of credit unions.
CUNA strongly supports both pieces of legislation as a means to fix this problem created by banker- initiated and funded lawsuits. With well over 100 cosponsors, it appears that CURIA backers have built the momentum behind this bill as the likely vehicle for Congress to finally remedy this unwarranted restriction on federal credit unions.
CONTACT: John Hildreth, (202) 508-6724, jhildreth@cuna.coop
