Credit union regulator moves to quell redlining fears

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A member of the National Credit Union Administration board is calling on the agency to do a better job of policing consumer protection and fair housing issues.

The NCUA board on Thursday unveiled new proposals aimed at fighting discrimination by credit unions, measures undertaken in response to an appeals court’s concerns regarding a controversial membership regulation that some claimed could invite redlining.

During the meeting, Board Member Todd Harper said the agency devotes far less attention to consumer and housing oversight than other federal banking regulators. While projections for the Federal Deposit Insurance Corp. were not immediately available, Harper said the NCUA is on pace to conduct just 25 fair housing examinations this year.

The NCUA is the primary regulator for the nation’s 3,335 federal credit unions and provides deposit insurance to more than 5,300 credit unions industrywide.

“It’s time to put our money where our mouth is,” Harper said Thursday, adding that he wants the agency to devote more resources toward consumer protection and fair housing exams. In Senate confirmation testimony earlier this year, Harper suggested he would like to see increased consistency among federal regulators, and some critics have claimed credit unions don’t share a level playing field with the rest of the banking industry.

Harper’s comments came a sensitive time for the NCUA. Meeting at its headquarters in Alexandria, Virginia, the board on Thursday proposed a new revision to its much-debated field-of-membership rule. It is aimed primarily at responding to Judge Robert Wilkins’ August 20 decision which upheld a 2016 overhaul of the FOM regulations, save for a provision that would allow credit unions use core-based statistical areas to define membership fields while excluding their urban cores.

Writing for a three-judge panel of the District of Columbia Court of Appeals, Wilkins found merit to the American Bankers Association’s argument that such a provision opened the door for potential redlining. But rather than vacating the provision altogether, he gave the NCUA an opportunity to explain its position more fully. Thursday’s proposal is the agency’s attempt to do so, and the board unanimously approved it for a 30-day comment period.

The NCUA argued that it isn’t tainted with a history of facilitating redlining, as some banking agencies historically were. It noted also core-based statistical areas include many low-income neighborhoods located outside the core region, and the proposed rule is intended to allow credit unions to serve them better.

The NCUA also pointed to several federal consumer protection statutes it is already subject to, including the Equal Credit Opportunity Act of 1974 and the Fair Housing Act of 1968 — the same laws Harper claimed the agency needs to enforce more rigorously.

As a final hedge against discrimination, the Thursday’s proposal includes a provision requiring credit unions to detail how they expect to serve low- and moderate-income segments of a community when applying to serve a field of membership built around a combined statistical or core-based statistical area. It also gives the agency authority to reject applications deemed discriminatory.

As well as addressing the core-based statistical area issue, the new FOM proposal also reinstates a measure permitting credit unions to use all or any contiguous portion of a combined statistical area as a field of membership provided the population doesn’t exceed 2.5 million. That provision was struck down by District Court Judge Dabney Friedrich in March 2018, but her decision was overturned by the appellate court.

As defined by the Office of Management and Budget, combined statistical areas are large regions that can demonstrate some degree of economic or social linkage. Core-based statistical area are smaller units centered on an urban core.

The ABA sparked the field-of-membership litigation in December 2016, when it challenged the field-of-membership regulation the NCUA had approved two months earlier. Unsurprisingly, it was unmoved by the agency’s arguments.

“NCUA’s latest attempt to justify relaxing credit union membership rules does nothing to prevent ever-expanding credit unions from targeting customers in affluent neighborhoods who have no real common bond, while bypassing America’s urban cores,” Ken Clayton, who heads the group’s Office of Legal Counsel, said Thursday. “We don’t think that is what Congress intended when it created the credit union tax exemption which is why we will continue to consider all of our options in responding to NCUA’s failure to do its job.”

Earlier this month, the ABA petitioned for an en banc rehearing before the full Court of Appeals. The NCUA has until Nov. 21 to respond to its motion, a spokesperson said Thursday.

A spokeswoman for the Credit Union National Association credited the agency with a quick response to Wilkins’ mandate.

“We have long supported NCUA using the authority granted by Congress to ensure credit unions are able to serve members throughout the country,” Elizabeth Eurgubian, deputy chief advocacy officer and senior counsel, said Thursday in a press release.

Deposits and cybersecurity

In other business, the board unanimously approved a final rule that permits federal credit unions to accept more deposits from nonmembers. The new threshold for nonmember deposits is the greater of two sums, 50% of capital less any public unit or nonmember deposits or $3 million. The previous threshold was 20% of capital or $3 million.

Credit unions’ reliance of nonmember deposits has been on the rise, with the total growing from $3 billion to $16 billion as of June 30 in just a few years. Banking groups objected strenuously to a plan to make it easier to tap nonmember funding, but NCUA Chairman Rodney Hood said Thursday that the move would benefit low-income and newly chartered credit unions, where demand for credit frequently outstrips the level of funding members able to support.

The new rule is an example of “extending responsible regulatory relief without creating undue risk for the share insurance fund,” Hood said.

Board members were also briefed by Johnny E. Davis Jr., Hood's special adviser for cybersecurity, on a new cybersecurity examination program.

Davis said small credit unions in particular "are uniquely dependent on third parties" for cybersecurity. "The smaller institutions can't do this work" in-house, he added.

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Field of membership Redlining Growth strategies Deposits Cyber security Law and regulation Compliance Credit unions Community banking NCUA American Bankers Association Virginia
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