Bill Gives NY CUs Access to Bank Development District Program

The New York Assembly passed legislation (A.3320) allowing credit unions access to the state's Banking Development District Program.

Earlier, the Senate passed the same bill (S.727-A).

The Banking Development District Program was established in 1997 to encourage financial institutions to establish branches in underserved communities throughout New York. Institutions that are approved for a Banking Development District designation are eligible to receive up to $10 million in subsidized public deposits and other benefits, including below market-rate deposits from the state of New York.

The justification to expand the program to credit unions was due to the modest number of applications from banks and other financial institutions.

The bill awaits the signature of Governor Andrew Cuomo.

Read more.

Bill Won't Require CUs to Comply with CRA and Will Allow All FCUs to Add Underserved Areas

Legislation introduced in the House and Senate on March 13, the American Housing and Economic Mobility Act, will exclude credit unions from complying with the Community Reinvestment Act.

Section 203 of the bill, which will be known as The "Community Reinvestment Reform Act of 2019," would strengthen obligations under the Community Reinvestment Act (CRA) to provide credit to low- and moderate-income communities by extending the law to cover more non-bank mortgage companies, promote investment in activities that help poor and moderate-income communities, and strengthen sanctions against institutions that fail to follow the rules.

Jim Nussle, President and CEO of the Credit Union National Association, wrote that the bill "properly recognizes the distinctions that exist between credit unions and banks when meeting community needs."

An earlier version of this bill introduced in the last Congress would have applied CRA to credit unions that did not have a ,ow-income designation.

Section 204 of the bill will allow a federal credit union regardless of common bond type to add underserved areas. Currently, only multiple common-bond credit unions can add underserved areas. The bill would also add reporting requirements for a federal credit union adding an underserved area and require the National Credit Union Administration to annually publish certain information.

The legislation was introduced in the Senate by Senators Elizabeth Warren (D-MA), Kirsten Gillibrand (D-N.Y.), and Edward Markey (D-MA). In the House of Representatives, the bill sponsors were Representatives Cedric Richmond (D-LA), Barbara Lee (D-CA), Gwen Moore (D-WI), Elijah Cummings (D-MD), Mark Pocan (D-WI), Ayanna Pressley (D-MA), Rashida Tlaib (D-MI), Susan Wild (D-PA), Eleanor Holmes Norton (D-D.C.), Steve Cohen (D-TN), Jamie Raskin (D-MD), Ro Khanna (D-CA), Joe Kennedy III (D-MA), and Suzanne Bonamici (D-OR).

Read the text of the bill.

MacArthur Foundation Invests $15 Million in Self-Help FCU

The MacArthur Foundation on August 24 invested $15 million in the form of a low-interest loan to Self-Help Ventures Fund (Durham, NC).

The investment is to support the efforts of Self-Help Federal Credit Union to stabilize and grow the recently acquired operations of Seaway Bank, which historically provided banking services in underserved African-American communities on Chicago's South Side.

Read the press release.

Do Credit Unions Serve the Underserved?

A study by two professors at Nova Southeastern University found that underserved households are less, not more, likely to enjoy the services of credit unions.

Credit unions are exempted from federal taxation, because they have a public policy purpose to serve underserved consumers.

The study used data from the Consumer Finance Monthly (CFM) survey. The time period of the study was 2007 thru 2013.

A question in the survey asked respondents if they have a checking or a savings account. If they answer no, then they are treated as unbanked.

The paper found that only 4.3 percent of the respondents have a credit union membership, but are also unbanked.

According to the paper, more educated and well-off households have a higher likelihood of belonging to a credit union. This finding is consistent with credit union industry research.

The authors state that it is possible small, low-income credit unions may serve the underserved; but on average, credit unions do not.

The paper states that its findings indicate that "there is room for the government to fine tune its credit union tax exemption in order to ensure that subsidies flow to the needy rather than to the generally well-off."

Read the study.

Bill Would Allow All FCUs to Serve Underserved Areas

Representative Gwen Moore (D - WI) introduced a bill (H.R. 4665) that would allow all federal credit unions regardless of common bond type to add underserved areas.

Under current law, only multiple common bond federal credit unions can serve underserved areas.

Representative Paul Cook (R - CA) co-sponsored the bill.

Read the text of the bill.

Underserved Area Bill Adds Reporting Requirement

H.R. 5541 (Financial Services for the Underserved Act of 2016) adds a new reporting requirement for a federal credit union that adds an underserved area.

Currently, only federal credit unions with a multiple common bond charter are permitted to add underserved areas to their fields of membership. However, these multiple common bond credit unions are not required to report information regarding how they are serving those underserved areas.

H.R. 5541 will permit all federal credit unions to add underserved areas to their fields of membership; but requires them to report information on the underserved areas added.

Specifically, a federal credit union that receives an underserved area approval from the National Credit Union Administration (NCUA) will be required to report annually on the number of members who are members due to the underserved area application and the number of offices or facilities maintained by the credit union in the underserved area.

The bill would also require NCUA to publish this information annually.

Read the bill.

Bill Would Allow All CUs to Serve Underserved Areas

Reps. Tim Ryan (D-OH) and Donald Norcross (D-NJ) on Tuesday introduced a bill, H.R. 5541 -- the Financial Services for the Underserved Act, that would allow credit unions of all charter types to add underserved areas to their fields of membership.

Rep. Ann Kirkpatrick (R-AZ) has signed on as a cosponsor of the bill.

Currently, only credit unions with multiple-group charters can add underserved areas to their fields of membership.

Serving the Credit-Invisibles

In a new report Serving the Credit-Invisible, the National Credit Union Administration (NCUA) describes how credit unions can serve people with no or thin credit histories.

“Credit-invisibles” are consumers whose documented credit history is so limited that they don’t have credit scores or their credit scores are not based on a complete history of debt repayment. The Consumer Financial Protection Bureau estimates that 26 million U.S. adults have no credit history with the three national credit bureaus -- TransUnion, Experian, and Equifax.

NCUA notes that if a credit union is going to develop a loan program to serve the credit-invisibles, the credit union will need to put in place stronger loan review processes to properly assess the creditworthiness of an applicant. Factors that may go into the loan underwriting decision may include stability of residency; length of employment; employment income; past judgments, bankruptcies or charge-offs; current debts and payment amounts; and more.

NCUA advises that the loan application must provide enough detail for the underwriter to properly assess the risk of non-payment. In addition, potential credit-invisible borrowers should be interviewed before the credit decision is made.

The credit union will need to have appropriate monitoring and control mechanisms, due to the increased risk of default with credit-invisibles.

For example, NCUA states that a collection program must be established before implementing the credit-invisible loan program. NCUA recommends credit-invisible collection practices should aggressively pursue missed payments. Also, to assist in the collection process, credit unions should consider loss-protection insurance and GAP insurance to protect the credit union against losses.

If an auto loan is made to these individuals, NCUA recommends installing a global positioning system to help with collection efforts.

Of course, the agency advises that the credit union consult with legal counsel before implementing any collection program to ensure that the program complies with state and federal laws.

Redlining Minority and Low-Income Communities?

One provision in the National Credit Union Administration (NCUA) Board proposal to amend its field of membership rules could result in the redlining of low-income, minority, and underserved communities.

The NCUA Board is proposing to repeal the "core area" requirement when a federal credit union (FCU) applies for a community charter consisting of a portion of a Core Based Statistical Area.

A Core Based Statistical Area is either a metropolitan statistical area or a micropolitan statistical area.

As background, NCUA's FOM regulation since 20101 requires that when a FCU applies to serve a community consisting of a portion of a Core Based Statistical Area, that portion must include the Core Based Statistical Area’s “core area.” NCUA defines a "core area" as the most populated county or named municipality in the Core Based Statistical Area.

NCUA noted that 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.

NCUA is proposing to repeal this "core area" requirement; because the agency's review of FCU’s business and marketing plans over the last five years show FCUs are adequately serving low-income persons and underserved areas. In place of the "core area" requirement, NCUA proposes to annually review for three years a FCU's progress in implementing its marketing and business plan.

Unfortunately, the repeal of the "core area" requirement could allow FCUs to design community charters that resemble donuts by serving wealthier suburban counties and excluding markets containing low-income and minority communities that reside in the core area.

NCUA should ensure that community charters do not redline low-income, minority, and underserved communities.

Alaska USA Adds Underserved Area in Arizona

The National Credit Union Administration (NCUA) in October approved Alaska USA Federal Credit Union's addition of 413 underserved census tracts in Maricopa County, Arizona.

This underserved area expansion will allow Alaska USA to serve almost 1.7 million residents in Maricopa County -- further growing the credit union's presence in Arizona.

Alaska USA currently operates in four Western states -- Alaska, Arizona, California, and Washington.

Oregonian: Good Time to Hold A Hearing

The Oregonian Editorial Board called for the state legislature "to hold a hearing and solicit public testimony on how credit unions are carrying out their responsibilities to the community."

While calls to tax credit unions were dismissed by the paper, the editorial stated that "credit unions should assure taxpayers and their customers that they will remain customer-focused," especially the largest credit unions that are behaving "more like banks."

The Oregonian Editorial Board was responding to two bills before the state legislature that would have credit unions document how they are serving low- and moderate-income members and would measure credit union services to underserved areas.

Read the editorial.

Time Magazine: Should CUs Pay Taxes?

In case you missed it, check out a Times Magazine article on Should Credit Unions Have to Pay Income Tax?

The article notes that credit unions were given their tax exempt status because "they were often the sole source of financing for disadvantaged communities whose members had few assets and no way to prove their creditworthiness."

However, the author states "not all credit unions focus intently on bringing banking services to low-income communities" and points out that expanding the credit union business loan cap does nothing to further their public policy purpose.

The author concludes "with so many millions of Americans relying on check-cashing services and payday lenders, shouldn’t Congress be focusing on policies that aid credit unions in helping those folks?"

NuVision Abandons Underserved Community

NuVision's tagline is "Enjoy Life, Bank Easier." For the residents of an underserved East Los Angeles community, this just became a tad more difficult.

NuVision Federal Credit Union announced its intention to close its East Los Angeles branch on Mednick Avenue as of October 31.

The article points out that more than a quarter of the households in this community have incomes at or beneath the poverty level.

NuVision concluded that the branch, which opened 5-1/2 years ago, “is not performing at the expected level for a branch of its size and that has been open for this length of time.” In other words, it was not turning a profit.

The article also noted that the credit union just opened a branch in Costa Mesa. According to geocoding software on the FFIEC's website, the median family income of the census tract of the new branch is 114 percent of the core based statistical area's median family income.

Credit unions talk about putting people before profits, this action does not seem to be the case for this credit union.

Read the article.