Credit Unions Issue Update

Issue Update

The credit union industry today is the story of two industries. At the top, 326 credit unions with assets above $1 billion are just 5% of the industry, but enjoy 75% of the tax benefit. Those large credit unions are doing the least to deliver on the policy objectives of financial inclusion and service to LMI communities that credit unions were created to meet, and their tax exemption is a waste of taxpayer resources.

The purposes of the credit union tax exemption no longer match the facts on the ground, and the credit union regulator continues to provide new powers that move credit unions—especially the largest credit unions—away from their mission.

Why it Matters To Your Community

Serving LMI Communities

Credit unions claim they do not need a legislative mandate to serve their communities, but the data proves otherwise. Large credit unions (greater than $500 million in assets) have more than 10,000 branches in the U.S., but only 6% are located in the low-income communities they were created to serve. Historically, Community Reinvestment Act (CRA) requirements did not apply to credit unions because their strict field of membership limitations ensured they were focused on the specific group they were chartered to serve. Now, NCUA approved field of membership expansions allow credit unions to serve entire regions of the country, but the CRA loophole remains. Large credit unions have exploited that loophole, and low and moderate-income communities are missing valuable investment and financial services as a result.

NCUA Regulatory Risk

NCUA has repeatedly shown a lack of sophistication in its capacity as a safety and soundness regulator, focusing on the competitive edge of their charter above their duties as a prudential regulator. In addition to dramatically expanding field of membership criteria, NCUA recently finalized a rule allowing credit unions to accept subordinated debt from outside investors, further undermining the structure and mission of credit unions as cooperative not-for-profits.

Recommended Action Items

• Require Metrics Around Credit Union Service to LMI Communities. Congress should scrutinize whether credit unions are meeting their statutory objective of serving low and moderate-income communities in a robust, demonstrable way.
• Strengthen Oversight of NCUA. Congress and Treasury should increase oversight of NCUA operations to ensure appropriate safeguards to credit union safety and soundness, and adherence to statutory restrictions on credit union activities.