In a strongly worded letter that opposes including credit unions under the Community Reinvestment Act, accompanied by a rebuttal of a recent paper by a group advocating just that, CUNA has made it clear that credit unions should not have to
“pay for the sins of bankers” committed 30 years ago which forced banks under CRA.

Writing to House Financial Services Committee Chairman Barney Frank (D-Mass.), CUNA President and CEO Dan Mica noted the committee will hold a hearing today (Wednesday, Sept. 16) on H.R. 1479, the Community Reinvestment Act Modernization Act of 2009. If enacted, the legislation would include credit unions under CRA. It was introduced earlier this year by Rep. Eddie Bernice Johnson (D-Texas).

“We are puzzled and disappointed by this legislation which seeks to impose significant regulatory burdens on credit unions. From a credit union perspective, this bill is at best unnecessary and possibly harmful to credit unions and their members,” Mica wrote.

Mica pointed out that credit unions have no record of engaging in redlining; that credit unions continue to lend when others have reduced credit availability; that credit unions serve their members at all income levels; and that increasing the regulatory burden on credit unions could prove harmful to member service. “In short, credit unions have done nothing to deserve the regulatory framework that has been rightly imposed on banks for their misdeeds,” Mica wrote.

Attached to the letter was a vigorous refutation of a recently released paper by the National Community Reinvestment Coalition (NCRC), which purported to show how credit unions fail to serve their members of modest means. The paper will likely be addressed during today’s hearing.

CUNA’s rebuttal, Mica wrote, makes clear that publicly available data and credible analysis do not support the group’s claim about credit unions. “Both rather suggest that credit unions serve their members in all ethnic groups and at all income levels despite the statutory barriers preventing many credit unions from serving underserved communities,” Mica wrote.

The complete text of CUNA’s letter to Chairman Frank is below. Click on the link to see CUNA’s rebuttal of the NCRC paper.

http://www.cuna.org/download/091609_frank_cra.pdf

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September 16, 2009

The Honorable Barney Frank
Chairman
Committee on Financial Services
United States House of Representatives
Washington, DC 20515

Dear Chairman Frank,

On behalf of the Credit Union National Association (CUNA), I am writing regarding the hearing entitled, “Proposals to Enhance the Community Reinvestment Act.” We would like to take this opportunity to express our strong opposition to H.R.
1479, the Community Reinvestment Act Modernization Act of 2009, as it applies to credit unions, and to respond to a recent report produced by an organization testifying at today’s hearing. CUNA represents nearly 90% of America’s 8,000 credit unions and their 92 million members.

We greatly appreciate your long history of supporting credit unions and their efforts to serve their members. However,
we are puzzled and disappointed by this legislation which seeks to impose significant regulatory burdens on credit unions.
From a credit union perspective, this bill is at best unnecessary and possibly harmful to credit unions and their members.

H.R. 1479 would extend Community Reinvestment Act of 1977 (CRA) requirements to credit unions. As you have said, if every financial institution were similar to a credit union, CRA would be unnecessary. We must, therefore, oppose this legislation: Credit unions have not – and do not – engage in redlining; credit unions continue to lend when others have reduced credit availability; credit unions serve their members at all income levels; and increasing the regulatory burden on credit unions could prove harmful to member service. In short, credit unions have done nothing to deserve the regulatory framework that has been rightly imposed on banks for their misdeeds.

Credit unions do, however, seek to serve the underserved in a greater capacity. For over a decade, we have asked Congress to enact legislation that clarifies that all credit unions may add underserved areas to their field of membership and restores credit unions’ ability to fully serve their business-owning members, including those operating businesses in underserved areas. The data show that credit unions do a much better job at serving low- and moderate-income borrowers than banks despite these restrictions, but imagine what credit unions could do without these unnecessary statutory restrictions.

The attached white paper describes in detail why credit unions oppose this legislation so strongly, and identifies several significant flaws in the report recently released by the National Community Reinvestment Coalition (NCRC) entitled,
“Credit Unions: True to Their Mission? (Part II).” Finally, we identify structural concerns that we have with H.R. 1479 and the detrimental effect it would have on credit unions and their members.

We expect that the NCRC report will receive considerable consideration at today’s hearing inasmuch as it suggests that credit unions are not fulfilling their statutory mission to serve their members, including those of modest means. Publicly available data and credible analysis do not support this claim, and rather suggest that credit unions serve their members in all ethnic groups and at all income levels despite the statutory barriers preventing many credit unions from serving underserved communities.

The problems with the NCRC report are many, and it deserves considerable scrutiny. The sheer volume of data produced by NCRC helps to hide the essential fact that, compared to banks, credit union make a larger percentage of loans to low/moderate income borrowers. Disparity ratio analysis is well known to produce false or misleading signals of comparative lender effectiveness. Denial and approval rates are far more effective measures to compare performance; and even NCRC’s data show that credit unions consistently approve more and deny fewer lower income and minority applicants than banks do. NCRC’s analysis focuses only on prime loans and fails to statistically adjust for statutory restrictions on credit union service as well as the difference in size of the average-sized bank and the average-sized credit union.
NCRC’s analysis of Massachusetts credit union data is flawed due to substantial compositional problems. The report is conveniently silent on changes in loan volume over time. And finally, NCRC has conflicts of interest which should not be ignored.

Despite the considerable attention we give to the NCRC study, our argument that extending the requirements of the Community Reinvestment Act to credit unions is unnecessary and unwarranted does not stand on the defects of the NCRC report alone. We are confident that credit unions are fulfilling their mission; the data support our confidence; and credit unions would like to be able to do even more. However, we do not believe that credit unions—which have done so much right when everything else in the financial services sector has gone wrong—deserve to pay for the sins of bankers thirty years ago.

On behalf of America’s 92 million credit union members, thank you very much for your consideration.

Sincerely, Daniel A. Mica President & CEO Credit Union Natl. Assn.
Washington, DC