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Scathing report funded by ABA says credit unions are failing in mission

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A study funded by the American Bankers Association argued that credit unions are failing to meet their statutory mission of serving low-income consumers.

The 40-page report produced by Federal Financial Analytics lambastes credit unions for providing loans for “toys” for items such as private aircraft and offering wealth management services instead of focusing on “provident and productive lending.” Still, credit unions enjoy unique federal benefits given to them under the promise of their original mission.

The study came out on Tuesday, the day before the 85th anniversary of the Federal Credit Union Act.

“The 2019 credit union regulatory regime has redesigned the credit-union business model into one often indistinguishable from expressly for-profit financial institutions with no comparable duties to serve low-and-moderate income households,” the study asserts.

The report questioned the NCUA's definition of who qualifies as a low-income member as being too generous. Between 2008 and 2016, low-income credit unions soared by 80%. By the end of 2018, these institutions had $542.4 billion in assets, or 38% of the industry’s total assets, the study found.

The study includes analysis from the Federal Reserve Bank of Philadelphia that finds that LICUs "do not appear to provide new credit beyond that already available from banks, but instead replace[s] community banks.”

Composition of credit union membership was addressed as well. Membership is skewed toward higher-income households within low-income areas, the report said. Credit unions “deny a greater proportion of African-American borrowers than whites of comparable risk profiles,” the report claimed.

“The report should serve as a wake-up call to regulators and lawmakers that this $1.5 trillion industry no longer meets its statutory mission to serve low- and moderate-income households,” Rob Nichols, ABA president and CEO, said in a statement.

Nichols urged policymakers to read the report and called for major reform.

It’s been 85 years since credit unions were established in 1934 by Congress by the Federal Credit Union Act, and many across the industry have rallied for regulatory reform. CUs have pushed for expanded field of membership definitions, a controversial measure that bankers have protested. The ABA sued the National Credit Union Administration over the regulator’s October 2016 FOM rule.

Credit union trade groups did not take kindly to the accusations outlined in the ABA study.

Addressing the composition of credit union membership, Jaqueline Ramsay, vice president of media relations and communications at the National Association of Federally-Insured Credit Unions, argued that bankers have fought efforts to expand their field of memberships to unbanked and underserved communities.

The bank-funded study also won’t detract from the $243 billion in fines imposed on big banks, she said.

“As the saying goes, ‘you get what you pay for’ and the ABA appears to have gotten exactly what it was looking for: a well-funded, long-winded attack on a movement that for more than a century has provided value and benefit to consumers in ways big and small,” Ryan Donovan, chief advocacy officer for the Credit Union National Association, said in a statement.

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