The Community Reinvestment Act

By Joyce Moed, Reporter

GOLDSBORO, N.C.–Having a Democratic majority in the house may bring stricter regulations for credit unions. U.S. Rep. Barney Frank (D-MA), now House Financial Service Committee Chair, has wanted to impose the Community Reinvestment Act (CRA) on credit unions nationwide, in addition to the Maine credit unions it has been imposed upon for several years.

 Now that he is serving as chair, Credit Union Journal asked CU leaders their predictions, and feelings, about CRA becoming a reality for credit unions.

“For the first time, I do believe there is a possibility,” said Robert McKenzie, president and CEO of North Carolina Community Federal Credit Union in Goldsboro, N.C.

Gregory Meyer, community relations manager for Meriwest Credit Union in San Jose, Calif., agreed that the chances of CRA being imposed on credit unions is now likely.

“Judging by the way the current financial and political winds are blowing, it’s a fair assumption that CRA will be imposed upon credit unions,” he said. “For years, certain members of Congress and advocacy organizations have pushed to have CRA cover credit unions along with other financial market entities. I would not be surprised to see this put into law by the end of this year.”

McKenzie doesn’t expect it to be as strict as the CRA many CU leaders fear.

“There will be some amendments that would soften the blow to credit unions,” he said.
However, even with amendments, McKenzie said it’s hard to see how CRA would work for different credit unions.

“The problem is the one-size-fits-all mentality,” he said. “It’s exempt for community development credit unions and credit unions with 3,000 members or less. But what about credit unions with 3,001 members? Larger credit unions have made a decision to bring the credit union mission to an entire community. How does one describe a small credit union compared to a large credit union?”

“I guess the biggest problem I have with it is it’s really not necessary,” McKenzie continued. “We really don’t need any more regulations coming down on us. The average credit union is doing what it is supposed to be doing. The last thing we need is to spend money is to update our software to comply with CRA requirements. There’s a limited amount of resources available to credit unions. I just don’t think this proposed legislation has been well thought out. From a practical point, it’s going to do a lot more harm than good.”

Meyer said that his CU is prepared.

“Luckily, for Meriwest Credit Union, we have been altering our community relations and community development work to be more in line with CRA,” he said. “We have become members of the Federal Home Loan Bank of San Francisco and participate in their Affordable Housing Grant program for community development. We have successfully sponsored grants for our local Silicon Valley Habitat for Humanity affiliate and for the Old Pueblo Community Foundation in Tucson, Arizona, where we have two financial centers.

“For Meriwest, the primary change would be the reporting aspect of the work we are performing in the community,” Meyer explained. “I am confident that the programs we have put into place and the results we have achieved so far would fit well within the guidelines of CRA.”

But still, even adding that one aspect of reporting may bring a lot of new work for many CUs, Meyer noted.

“The reporting piece can be a serious issue for some credit unions,” he said. “I can see where some credit unions will need additional training on gathering the specific data the auditors want to see, setting up continuous tracking, and how to present the data.”

Meriwest CU would have to “carefully consider” each community event and program it is asked to sponsor if CRA is imposed, Meyer said, explaining there would be more emphasis on low and moderate income housing programs, small business access to capital, and financial education for low-income families.

“If your biggest sponsorship is a health or human services program, you may want to rethink that,” he advised. “Credit unions will need to put more strategic thought into sponsorships, volunteerism and grants. Yes, there are organizations out there that provide important services to our communities that may get the stick-end of the lollipop. If a non-profit’s programs don’t fit within CRA, a credit union may just make a business decision to reduce or eliminate support for it. In ways, CRA can force some credit unions away from their traditional community partners if those partners are not eligible for CRA credit.”

Meyer said that when he was in his former position as community relations director of a major national bank, he saw “community medical clinics trying to provide financial education classes to their clients just to get a piece of the CRA money pie. This way was outside their mission, but they needed the money. We will probably see more of this,” he said.

Joseph Clark, president/CEO of Winthrop Federal Credit Union in Winthrop, Mass., said that although his “lower-income credit union is not impacted by CRA, he still has a very strong opinion about it.

“CRA is really important to help everyone,” Clark said. “I think it just doesn’t belong in a regulator’s hand. There is no need for a regulator to fill out paperwork. I think it’s really inherent for us to do the job. I think the leagues should be doing this–more than NCUA. If they have to report to NCUA, is it really going to help? I don’t think so. I think it has to come from leadership. That leadership comes from leagues and credit unions.”

Clark noted that credit unions already are doing the right things, but documenting it through a regulator might be a burden.

“Credit unions naturally have to serve their membership,” he explained. “We have to do what CRA is requesting. Period.”

Ed Jacob, CEO of Northside Community Credit Union in Chicago, said he has seen it from both sides, as he formerly served as a CRA officer.

He said that CRA is definitely going to happen, due to “things like Norlarco and US Central.”
“Large field of memberships have been granted. It’s viewed as the responsibility that comes with these things,” he said.

That said, Jacobs said he doesn’t think “it’s that big a deal.”

“I think credit unions will do fine with it,” he said. But still, he added “nothing gets credit unions more mad than CRA. I don’t quite understand the level. A burden? I don’t think so. I think it’s actually a positive. The things that credit unions would measure are things a good credit union would measure anyway. I don’t view it as big of deal as other credit unions do. There are a lot of battles we are fighting. I don’t think this should be one of them.”

Jacobs said he “knows he’s a minority” in this thinking, but “I really think credit unions are going to be fine. I think NCUA will have to figure out how this is appropriate for credit unions. They’ll have to make sure it makes sense for credit unions.”

Fred Becker, NAFCU president, said he hopes CRA does not become a CU reality.

“We’ll continue to oppose it,” he said. “The question I ask is what problem are we trying to solve? Why impose on credit unions another regulatory burden? CRA was imposed on banks because of redlining. There is no evidence of credit union redlining. The current crisis is a result of other financial institutions doing redlining, subprime loans.

“At this day and age, I wouldn’t be trying to solve a problem that doesn’t exist. We’ve got enough problems.”

www.nccfcu.org
www.ilovemycreditunion.com
www.northsidecommunityfcu.org
www.nafcu.org
www.meriwest.com