CUs not out of the woods yet with Warren's latest CRA proposal

Credit unions last week cheered Sen. Elizabeth Warren’s revised CRA bill, but a closer look reveals that the proposed legislation could still cause problems for CUs.

Warren’s bill strips out language from a previous version of the legislation that would have required credit unions to comply with the Community Reinvestment Act, but according to Carrie Hunt, EVP and general counsel at the National Association of Federally-Insured Credit Unions, “this bill does create a whole new regulatory regime and regulatory burden for credit unions, and certainly that is a concern for us.”

Rather than directly subjecting credit unions to CRA, the revised bill would add a new section to the Federal Credit Union Act requiring CUs to present documentation to the National Credit Union Administration explaining how their institution is meeting specific community needs.

“It’s something that banks have been pushing for in several states,” Hunt explained, adding that those explanations could in some cases lead to a public hearing — something the bankers look forward to because it tends to “stop public expansion going forward and create a lot of rhetoric in this process.”

Originally passed in 1977, CRA was an attempt to force financial institutions to address credit needs in their communities with a particular focus on low and moderate-income areas. The law was meant to stop the discriminatory practice known as redlining, a tactic used to either deny or raise the price of a loan to borrowers who are minorities or low-income.

Redlining was by and large not historically a problem at credit unions, and the industry already has a mission to serve the underserved, which often translates to serving minorities or low-income consumers. NCUA requires credit unions to have an “unmet needs plan” addressing the steps each institution is taking to meet unmet needs in consumer lending and financial services, and Hunt warned that Warren’s bill could allow the regulator to revoke a credit union’s charter if it fails to meet the terms of its unmet needs plan.

Federal credit unions approved to serve an underserved area will also need to submit a report to NCUA that details the number of facilities it has in an area and evidence demonstrating compliance that meets a CU’s unmet needs plan.

It’s worth noting that under NCUA’s current chartering plan, credit unions are already required to submit a detailed business plan. But Hunt argues that this new bill “goes further than that” and could create a “slippery slope.”

"This is certainly a version of measuring CU service that is extremely similar to the design of CRA,” Hunt said.

What’s the problem?

The industry generally reacted positively to news that credit union-specific language had been stripped from the bill, but in the wake of that many have also suggested the bill is a solution in search of a problem — at least as far as CUs are concerned.

For credit union consultant and former NCUA chairman Dennis Dollar, the new bill is “much more appropriate — if such a piece of legislation is needed at all.” But he added that the bill also has the potential to be “legislative or regulatory overkill” by bring NCUA into the issue.

Many of the revisions from Warren’s original bill were spearheaded by the Credit Union National Association and several state leagues, including the Cooperative Credit Union Association, the Louisiana Credit Union League and the Maryland-D.C. Credit Union Association.

"We suggested taking CRA out and proposed working with credit unions to develop provisions to help credit unions bring housing opportunities to other communities and lower income communities, as well as support expanding home ownership opportunities for families,” said MDDCCUA President and CEO John Bratsakis. “CRA is not the way to empower credit unions to do that."

More generally, the revised bill would still extend CRA to cover “more nonbank mortgage companies," according to a summary released last week. Billions of dollars would also be injected into affordable housing trust funds.

Regardless of how CUs are positioned, it’s unclear whether the bill will have any real traction in Congress. It has no congressional support from Republicans, and was cosponsored by Sens. Kirsten Gillibrand, D-N.Y., Ed Markey, D-Mass., and 15 House Democrats.

Among the next steps, according to Bratsakis, will be assessing the potential impact of any of the other provisions that have been modified, noting that things could become “problematic” if there were to be an “expansion of reporting or unnecessary compliance burdens put on credit unions.”

Regardless of what happens with this bill, noted Ryan Donovan, chief advocacy officer at the Credit Union National Association, there are still steps that could be taken that better allow CUs to aid consumers than subjecting them to CRA or similar laws.

The credit union landscape “looks quite a bit different than it does just 10 years ago,” he said, adding that “the federal credit union charter needs to evolve in order for credit unions to continue to meet the needs of consumers for the 21st century.”