By Cliff Rosenthal
Twenty-vice years ago, as the campaign for HR 1151 was approaching its climax, I was CEO of the National Federation of Community Development Credit Unions (now known as Inclusiv), the association for credit unions serving low-income members. No question, the stakes for HR 1151 were high—no less than the ability of credit unions to serve broad sectors of the American public.
None of us wanted the credit union movement to be squeezed into a shrinking box. But for the CDCUs of the Federation, the ability to expand was not our main issue. On the contrary, many of our credit unions had been distressed at the incursion of larger credit unions into the turf that had historically been “theirs.”
‘Not Happy’
We were not happy. As a price for expansive fields of membership, the legislation would impose Prompt Corrective Action (PCA) on credit unions for the first time and would require increasingly harsh regulatory actions against credit unions that slid below the “well-capitalized” 7% net-worth standard. I believed that PCA was a fateful step that would undermine the essence of credit unions as member-owned cooperatives.
In particular, I feared that rigid capital standards would potentially devastate CDCUs, who served capital-deprived low-income communities.
The proposed legislation included other problematic provisions, as well, including restrictions on lending for business purposes. This was a problem for many credit unions, but especially for CDCUs, who often provided the only accessible source of loans for small businesses in communities of color.
‘Rumblings of Distress’
Our rumblings of distress drew attention from the industry’s leadership. I recall meeting with Dan Mica, CUNA’s CEO, at a sidewalk café on Washington’s Connecticut Avenue. He acknowledged our concerns and offered support where he could, but emphasized the discipline required of the movement: Credit unions needed to have a united front.
Faced with that undeniable reality, we had no choice. I set about trying to mitigate the damage as best I could. I met with congressional staff and managed to win several changes to the bill. Credit unions that served specific populations or needs—our CDCUs serving low-income communities, certain others like taxi credit unions—would get relief from the proposed business lending restriction. Importantly, start-up credit unions would have up to 10 years to meet the PCA standard—a very necessary change, without which almost no new credit union would ever be chartered (and in fact, very few have been). Those were small victories.
HR 1151 was a big, historic victory for the credit union movement. But as I foresaw, Prompt Corrective Action exacted a heavy toll on CDCUs, who serve the communities that other financial institutions scorn. Since the implementation of PCA in 2000, scores if not hundreds of credit unions serving low-income communities and communities of color have been lost.
Although the regulatory and policy atmosphere today is far more favorable toward these credit unions, what has been lost will never be regained.
Cliff Rosenthal is the retired president of the National Federation of CDCUs, which today is known as Inclusiv.