WASHINGTON—One analyst with ties to the banking community claims that NCUA’s new field of membership rules could lead to redlining by credit unions.
Keith Leggett, the former senior vice president and senior economist at the ABA, noted in his Credit Union Watch blog, that the final FOM rule passed last week repealed the "core area" requirement when a federal credit union applies for a community charter consisting of a portion of a Core Based Statistical Area (CBSA).
“This could result in the redlining of low-income or minority communities by community chartered credit unions,” stated Leggett.
The issue of potential redlining was raised by NCUA staff at the Oct. 27 board meeting at which the new FOM rules were approved. Staff noted that many commenters expressed concern that some of the changes would essentially allow credit unions to serve wealthier areas while redlining other, lower-income areas.
“We think it is appropriate to hold credit unions accountable for implementation of business and marketing plans,” staff told the board, “in contrast to a requirement forcing a credit union to serve the core area outside the service area or scale of operations.”
Leggett said that when the NCUA board implemented the core area requirement, it noted the primary purpose of this requirement was to acknowledge the "core area" of a Core Based Statistical Area as the typical focal point for common interests and interaction among residents. An additional purpose was to extend FCU services to low-income persons and underserved areas, both typically located in the "core area" of a Core Based Statistical Area, said Leggett.
“However, the NCUA board reversed its position by stating correctly that the Federal Credit Union Act does not require a community charter based upon a CBSA to serve a ‘core area,’” said Leggett. “In justifying the abolition of the ‘core area’ requirement, NCUA stated it ‘has in place a supervisory process to assess management’s efforts to offer service to the entire community an FCU seeks to serve. NCUA holds credit union management accountable for the results of an annual evaluation that encompasses a community FCU’s implementation of its business and marketing plans, extending for three years after the credit union either is chartered, converts or expands.’"
But Leggett claims this supervisory argument is a “red herring.”
“The final rule allows an FCU to now draw its boundaries so as to restrict service to low-income, minority, and underserved communities. The agency's supervisory process will not address this issue; because the ‘core area’ is not part of the credit union's community charter,” said Leggett. “When this field of membership rule goes into effect, community charters should be examined to see if FCUs exclude core areas.”