July 12, 2019

Policy analyst: Expanding CRA to CUs would be 'mistake'

Capitol HillContrary to arguments of bank lobbyists, a new policy report from the Cato Institute reinforces NAFCU's position that the Community Reinvestment Act (CRA) should not be expanded to credit unions as it would be a "mistake" and "counterproductive."

NAFCU has strongly opposed extending CRA regulations to credit unions. The association consistently works to set the record straight on the differences between credit unions and banks as the banking industry continues to lobby to have their requirements relaxed while trying to put those same requirements on credit unions.

Diego Zuluaga, policy analyst at Cato's Center for Monetary and Financial Alternatives, explains the restrictions the Federal Credit Union Act (FCUA) places on credit unions "that make them fundamentally different, for the CRA's purposes, than banks."

"Both acts are similar in that they aim to ensure that lending institutions serve their constituents," Zuluaga writes. "Yet the FCUA's provisions would make enforcing the CRA among credit unions impossible: whereas CRA compliance relates to a bank's lending activities within a given geographic region, the common bond that credit union members share under the FCUA may be professional, social, or demographic instead of geographic.

"Thus, credit unions are an example of the type of institutions that [Acting Comptroller of the Currency Robert] Bloom, during the 1977 hearings, feared the CRA would undermine."

Zuluaga also shares "evidence that credit unions already serve CRA-targeted populations," including the industry's strong rate of mortgage originations to low- and moderate-income borrowers.

"Credit unions appear to be achieving the CRA's policy goals without being subject to its regulations," Zuluaga argues. "Applying the CRA to credit unions would impose substantial new compliance costs that are both unnecessary and incompatible with the nature of credit unions themselves. If policymakers are concerned about the changing business model of credit unions – particularly larger ones – the appropriate route to address such concerns is to revise the FCUA."

NAFCU has repeatedly highlighted that credit unions have not engaged in the illegal and discriminatory practices of banks, including redlining, because credit unions were established to offer provident credit to any member in their field of membership.

The association will continue to advocate in the best interest of credit unions and against expanding the CRA or CRA-like requirements to the industry.