The CRA: Good Intentions, Poor Execution
Jake Cooke, writer for The Credit Union Connection
We know the Community Reinvestment Act (CRA) requires federal banking regulators to encourage financial institutions to help meet the credit needs of the communities they operate in, including low-income and moderate income neighborhoods.
What you might not be aware of is that Sen. Elizabeth Warren (D-Mass.) has introduced a bill to apply the CRA requirements to credit unions. A basic outline of the legislation introduced by Sen. Warren includes:
Extend eligibility for VA home loans for first-time buyers
Increase investments in key housing programs, including the Public Housing Capital Fund, the Native Hawaiian Block Grant Program, and several rural housing programs
Increase scrutiny on credit unions through CRA examinations and public hearings for credit unions with more than 100,000 members
Force credit unions with 75,000 to reconsider expanding membership due to potential mergers and bank acquisitions
Require NCUA to assess the record credit unions with more than 100,000 members in meeting the credit and other financial needs of its entire community, in particular low- and moderate-income people and communities
Subject credit unions to tests that would measure the effectiveness of community development investments
However, as Defense Credit Union Council Chief Advocacy Officer Jason Stverak pointed out, these proposed measures are completely unnecessary, as credit unions are already member-owned organizations.
“We are member-owned institutions that serve our communities incredibly well, and so that has not changed. There's no need for additional government red tape and over-regulation that will do nothing but divert resources from our continual daily mission of serving the communities that banks have left behind,” Stverak said.
The initial goal of the CRA was to ensure that banks would effectively serve the communities they are located in. The difference between banks and credit unions is critical in relation to this legislation, Stverak explained. Banks are privately owned institutions. Whether by shareholders, sole ownership, or other ownership organization, private individuals have control over the way the bank does business. This can result in problems with access to credit for people who are economically disadvantaged as they are seen as less reliable for credit. Credit unions, on the other hand, are member-owned, therefore, providing services to those who are members and are dedicated to serving those members.
“We, after consulting with our entire membership, have continued to speak out that now is not the time to impose the burdensome CRA-type additional regulations on credit unions,” said Stverak, “We are strongly encouraging our members all across the country … hold town halls, meet and greets, whatever the terminology is used locally, that they are showing up and being there to advocate on behalf of issues that are important to credit unions, and specifically defense-related credit unions on behalf of active duty servicemen and women as well as veterans.”
According to Stverak, applying CRA standards to credit unions would not only be unnecessary but also actively detrimental. The more red tape credit unions have to deal with, the less they can focus on helping their members. Therefore, it is best that these not be applied to credit unions in order to meet CRA requirements for benefits for low—and moderate-income communities.
