WASHINGTON–A new research paper funded by the American Bankers Association claims credit unions are not just falling short of their mission to serve households of “small means,” but CU members are disproportionately from middle- and upper-income households and credit unions’ lack of “mission compliance” deepens U.S. economic inequality.
The ABA is calling on policymakers to recognize credit unions are “increasingly using their tax advantage to expand membership with higher-income customers,
make high-risk loans without adequate capital, and even buy up tax-paying community banks.”
The report was authored by Karen Shaw Petrou, who runs the firm Federal Financial Analytics, which describes itself as a proprietary think tank providing analytical and advisory services on legislative, regulatory, and public-policy issues affecting global financial-services companies. It includes a footnote acknowledging the ABA funding, but also stating the association was not granted editorial authority over the paper’s content, methodology, or findings.
The report was released in conjunction with the 85th anniversary of the Federal Credit Union Act.
‘Far More Expansive’
The report states it found NCUA maintains no data on credit unions’ effectiveness at providing financial services to people of small means, and that its definition of “low-income” is “far more expansive than that used by other federal agencies.”
As a result, the ABA said in releasing the report, the conclusion is “designated low-income credit unions simply replace community bank credit instead of providing new credit.”
Moreover, the report further suggests credit unions “evade” the FCU Act’s mandate to provide credit for “provident or productive purposes” by making risky and even “predatory” loans—including subprime auto loans and, notoriously, taxi medallion loans that resulted in several CU failures and saddled vulnerable borrowers with massive debts, the American Bankers Association said in its analysis. It did not note several banks were also involved in taxi medallion lending.
Call for Public Discussion
The ABA said the report recommends renewed policymaker and public attention to the credit union mission and effective enforcement to ensure that it is meaningfully and materially achieved.
“The in-depth analysis conducted by Federal Financial Analytics reveals troubling details about today’s credit unions,” said ABA President and CEO Rob Nichols in a statement accompanying release of the report. “The report should serve as a wake-up call to regulators and lawmakers that this $1.5 trillion dollar industry no longer meets its statutory mission to serve low- and moderate-income households. Instead, credit unions are increasingly using their tax advantage to expand membership with higher-income customers, make high-risk loans without adequate capital, and even buy up tax-paying community banks. As the report makes clear, a lax regulatory framework is allowing this to happen, and the biggest losers are taxpayers and people of modest means whom credit unions were created to serve.”
Policymaker Should Judge For Themselves
“We strongly encourage policymakers to read this report, so they can judge for themselves if today’s credit union industry is meeting the mission Congress intended, and whether the NCUA is providing the regulatory oversight consumers deserve,” Nichols added. “Any fair reading will conclude that major reforms are needed.”
The full 38-page report can be found here.