Study Finds CUs Failing in Mission to Serve People of Small Means

Politico's Morning Money newsletter on June 25 reported that a new research study found that credit unions are not meeting their public policy mission of serving people of small means.

The research report, The Credit Union Equality Commitment: An Analytical Assessment, was conducted by Federal Financial Analytics, a Washington, D.C.-based public policy think tank.

This study is different from most recent studies examining the credit union industry because it is focused on whether credit unions are fulfilling their mission rather than looking at competitive imbalances in the financial services industry arising from the credit union tax exemption.

Small credit unions and those credit unions that continue to adhere to their social mission should pay careful attention to the findings of this study because many larger, profit-motivated credit unions are tarnishing the reputation of the industry.

The study found that credit union members are disproportionately comprised of middle- and upper-income households.

It also stated that some credit unions have engaged in risky and predatory lending practices harming vulnerable borrowers, despite the requirement to extend credit for provident and productive purposes.

The paper also held the industry's regulator, the National Credit Union Administration (NCUA), responsible for the industry's failure to fulfill their mission. The report noted that NCUA maintains no data on credit unions’ effectiveness at providing financial services to people of “small means.”

Furthermore, the study found NCUA's definition of “low-income” is far more expansive than that used by other federal agencies. As a result, these designated low-income credit unions simply replace community bank credit instead of providing new credit.

The report argued that credit unions have used their regulatory-arbitrage advantages to transform themselves from mission-driven financial service providers to for-profit financial institutions.

This lack of mission compliance -- the paper concluded -- has contributed to the deepening of inequality in the United States.

These troubling findings should be of interest to policymakers.

The paper was funded by the American Bankers Association.

Read the report.