Full text of "Community investment practices of credit unions : hearing before the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, One Hundred Third Congress, second session, September 22, 1994"

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COMMUNITY INVESTMENT
PRACTICES OF CREDIT UNIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON
CONSUMER CREDIT AND INSURANCE

OF THE

COMMITTEE ON BANKING, FINANCE AND

URBAN AFFAIRS
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

SECOND SESSION

SEPTEMBER 22, 1994

Printed for the use of the Committee on Banking, Finance and Urban Affairs

Serial No. 103-166

U.S. GOVERNMENT PRINTING OFFICE
8S-117CC WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046797-7

COMMUNITY INVESTMENT
PRACTICES OF CREDIT UNIONS

H.B2z./(;

HEARING

BEFORE THE

SUBCOMMITTEE ON
CONSUMER CREDIT AND INSURANCE

OF THE

COMMITTEE ON BANKING, FINANCE AND

URBAN AFFAIRS
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

SECOND SESSION

SEPTEMBER 22. 1994

Printed for the use of the Committee on Banking, Finance and Urban Affairs

Serial No. 103-166

M 5

U.S. GOVERNMENT PRINTING OFFICE
83-117 CC WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046797-7

HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

STEPHEN L. NEAL. North Carolina
JOHN J. LaFALCE, New York
BRUCE F. VENTO, Minnesota
CHARLES E. SCHUMER, New York
BARNEY FRANK, Massachusetts
PAUL E. KAN.JORSKI, Pennsylvania
JOSEPH P. KENNEDY II, Massachusetts
FLOYD H. FLAKE, New York
KWEISl MFUME, Maryland
MAXINE WATERS, California
LARRY LaROCCO. Idaho
BILL ORTON, Utah
JIM BACCHUS, Florida
HERBERT C. KLEIN, New Jersey
CAROLYN B. MALONEY, New York
PETER DEUTSCH, Florida
LUIS V. GUTIERREZ, Illinois
BOBBY L. RUSH, Illinois
LUCILLE ROYBAI^ALLARD. California
THOMAS M. BARRETT, Wisconsin
ELIZABETH FURSE, Oregon
NYDIA M. VELAZQUEZ, New York
ALBERT R. WYNN, Maryland
CLEO FIELDS, Louisiana
MELVIN WATT, North Carolina
MAURICE HINCHEY, New York
CALVIN M. DOOLEY. California
RON KLINK, Pennsylvania
ERIC FINGERHUT. Ohio

HENTIY B. GONZALEZ, Texas, Chairman

JAMES A. LEACH, Iowa

^ILL McCOLLUM, Florida

MARGE ROUKEMA, New Jersey

DOUG BEREUTER, Nebraska

THOMAS J. RIDGE, Pennsylvania

TOBY ROTH, Wisconsin

ALFRED A. (AL) McCANDLESS, California

RICHARD H. BAKER, Ixiuisiana

JIM NUSSLE, Iowa

CRAIG THOMAS, Wyoming

SAM JOHNSON, Texas

DEBORAH PRYCE, Ohio

JOHN LINDER, Georgia

JOE KNOLLENBERG, Michigan

RICK LAZIO, New York

ROD GRAMS, Minnesota

SPENCER BACH US, Alabama

MIKE HUFFINGTON, California

MICHAEL CASTLE, Delaware

PETER KING, New York

BERNARD SANDERS, Vermont

Subcommittee on Consumer Credit and Insurance

JOSEPH P. KENNEDY

HENRY B. GONZALEZ, Texas
LARRY LaROCCO, Idaho
LUIS V. GUTIERREZ, Illinois
BOBBY L. RUSH, Illinois
LUCILLE ROYBAI^ALLARD, California
THOMAS M. BARRETT, Wisconsin
ELIZABETH FURSE, Oregon
NYDIA M. VELAZQUEZ, New York
ALBERT R. WYNN, Maryland
CLEO FIELDS, Louisiana
MELVIN WATT, North Carolina
MAURICE HINCHEY. New York
PAUL E. KANJORSKI, Pennsylvania
FLOYD H. FLAKE, New York
MAXINE WATERS, California
CAROLYN B. MALONEY, New York
PETER DEUTSCH, Florida

II, Massachusetts, Chairman

ALFRED A. (AL) McCANDLESS, California

MICHAEL CASTLE, Delaware

PETER KING, New York

DEBORAH PRYCE, Ohio

JOHN LINDER, Georgia

JOE KNOLLENBERG, Michigan

DOUG BEREUTER, Nebraska

CRAIG THOMAS, Wyoming

RICK LAZIO, New York

ROD GRAMS, MinncsoUi

SPENCER BACHUS, Alabama

RICHARD H. BAKER, Ix)uisiana

BERNARD SANDERS, Vermont

(II)

CONTENTS

Page
Hearing held on:

September 22, 1994 1

Appendix:

September 22, 1994 51

WITNESSES

Thursday, September 22, 1994

Aranjo, Carol, Treasurer/Manager, D. Edward Wells Federal Credit Union,

Springfield, MA 31

Callahan, Tom, Director, Massachusetts Affordable Housing Alliance, Boston,
MA 13

Cavazos, Armando, President and CEO, Credit Union One 9

Curry, Thomas, Acting Commissioner of the Division of Banks, Common-
wealth of Massachusetts 5

Fergeson, C. Kendric, Chairman, National Bank of Commerce, Altus, OK 33

Gomes, Augusto, President and CEO, Lusitania Federal Credit Union,
Newark NJ 11

Hughes, Vice Adm. Thomas, President, and CEO, Navy Federal Credit Union,

Vienna, VA 29

Mahoney, Cornelius, President and CEO, Woronoco Savings Bank, Westfield,

MA 7

Mount, Richard, President, Saratoga National Bank, Saratoga, CA 27

APPENDIX

Prepared statements:

Kennedy, Hon. Joseph P 52

Bachus, Spencer T., HI 54

Flake, Hon. Floyd H 55

Aranjo, Carol 170

Callahan, Tom 103

Cavazos, Armando (with attachments) 77

Curry, Thomas (with attachment) 56

Fergeson, C. Kendric, 174

Gomes, Augusto 98

Hughes, Vice Adm. Thomas (with attachments) 127

Mahoney, Cornelius 65

Mo»«t, Richard (oral statement) 109

Mount, Richard (prepared statement) 119

Additional Material Submitted for the Record

Congress of Religious Credit Unions:

Written testimony 184

Testimony before the Subcommittee on General Oversight, Investigations
and the Resolution of Failed Financial Institutions on September 16,

1994 190

Fergeson, C. Kendric, list of organizations and/or individuals eligible for
membership in Tinker Credit Union 210

(III)

COMMUNITY INVESTMENT PRACTICES OF

CREDIT UNIONS

THURSDAY, SEPTEMBER 22, 1994

House of Representatives,

Subcommittee on Consumer Credit and Insurance,
Committee on Banking, Finance and Urban Affairs,

Washington, DC.

The subcommittee met, pursuant to call, at 10:10 a.m., in room
2128, Rayburn House Office Building, Hon. Josep?: P. Kennedy
[chairman of the subcommittee] presiding.

Present: Chairman Kennedy, Representatives Gutierrez, Rovbal-
Allard, Barrett, Velazquez, Fields, Kanjorski, Flake, McCandless,
Castle, King, and Knollenberg.

Chairman Kennedy. The subcommittee will please come to
order.

This morning, the subcommittee meets to examine the commu-
nity investment practices of credit unions. This topic may strike
some as a redundancy, if not heresy. For decades, it has been the
gospel truth here in the Congress that credit unions are by their
very nature devoted to community investment. When many of us
think of credit unions, we think of volunteers working out of a
church basement or a trailer just beyond the factory gate making
car loans and personal loans to working people.

In many individual credit unions, this proud tradition continues.
However, the credit union industry, like the rest of the financial
services industry, has changed dramatically over the last quarter
of a century. In 1970, Congress provided credit unions with Federal
deposit insurance. At that time, there were about 24,000 credit
unions wdth $178 million in assets, serving about 23 milhon mem-
bers.

When Congress adopted the Community Reinvestment Act in
1977, it exempted credit unions. The reason was very simple: Cred-
it unions were small institutions with a small amount of assets
serving only a small number of consumers.

That reason no longer exists in many cases. Today, there is noth-
ing small about the credit union industry. It is increasingly domi-
nated by large institutions possessing large amounts of assets and
serving a huge number of customers. Although the number of cred-
it unions has shrunk by almost half to 12,000, the assets of these
institutions has grown by over 1,600 percent, to nearly $300 billion.
In addition, the number of consumers who are members of these
institutions has nearly tripled to over 65 million.

With each passing day, the common bond requirement is being
stretched to the breaking point. Credit unions are no longer limited

(1)

to serving the employees of one company, or the members of one
church or synagogue. Today, one credit union may serve employees
of many companies living in several States. It may even be allowed
to serve people united by nothing more than the fact that they live
in a particular geographic area.

That kind of permissive charter looks a lot like the charters of
banks and thrifts. But there is one big difference: Federally char-
tered credit unions, unlike banks and thrifts, have absolutely no
obligation to serve the credit needs of all of the people that they
are chartered to serve.

The credit unions claim that they don't need such an obligation
because they are by definition in the business of community invest-
ment. That may be true of many, if not most, credit unions. But
on the whole, it is rapidly becoming a myth.

Recent Home Mortgage Disclosure Act data suggests that credit
unions are doing an even poorer job than banks and thrifts of serv-
ing working class and minority consumers. In 1992, the credit
unions rejected minorities 2.7 times more than whites of the same
income when they applied for a home loan. But banks' rejection
rates were 2.1 percent.

Furthermore, in Massachusetts, State-chartered credit unions
must comply with the current State CRA law. As we will learn
shortly from my State's banking commissioner, 26.5 percent of
those credit unions received an unsatisfactory CRA grade. Yet, only
10.7 percent of the State banks received such a mark.

We should remember that many, if not most, credit unions have
stuck to their knitting. They continue to operate as modestly sized
institutions under a narrowly defined field of membership. They
deserve to be commended, not criticized, for their attention to lend-
ing in the local community.

I am sure the irony escapes none of us that many of the most
vocal proponents of extending CRA to credit unions have been
amongst the loudest opponents of complying with the law them-
selves. If they spent less time criticizing and more time emulating
the credit unions' history of service to working people, perhaps they
wouldn't feel so threatened by the market gains credit unions have
made over the course of the last few years.

Nevertheless, the fact remains that it is appropriate to scrutinize
credit unions' community lending practices. In my view, it is en-
tirely reasonable to apply CRA or its functional equivalent to credit
unions, particularly larger, multiemployer, community-based credit
unions.

As has been shown in Massachusetts, CRA can be tailored to
judge credit unions by their own definition of their community, not
by some unworkable cookie-cutter model. Those credit unions that
are going to have all the privileges of banks and thrifts, like de-
posit insurance and a liberal charter, ought to have some of their
responsibilities as well, like serving the credit needs of working
and minority consumers. It is a matter of fundamental fairness, not
only between credit unions and their competitors, but also between
credit unions and the taxpayers who back them up.

Today, we have a distinguished panel of witnesses to help us
begin this examination. I want to thank all of them for coming to
share their insights with us, and I want to particularly thank Tom

Curry, who is the banking commissioner in my own home State of
Massachusetts. He will discuss how CRA is applied to all of the
State-chartered credit unions in Massachusetts, including the em-
ployer-based credit unions, in a manner that has succeeded for
both consumers and lenders. I think his insights will be very en-
lightening for all of our members.

I now would like to turn to my good friend, Mr. McCandless, for
an opening statement,

Mr. McCandless. Thank you, Mr. Chairman. I do not have an
opening statement; I will forgo that privilege and simply say that
I am very appreciative that we have the panel that we do. It is a
very balanced panel. I am glad to see Mr. Gomes, if I am pronounc-
ing it correctly.

Mr. Gomes. That is correct.

Mr. McCandless. Arriving, because Lusitania has something
synonymous with people sinking, and I am glad to see that he was
able to make it here today. The Lusitania Federal Credit Union of
Newark, New Jersey, is what I have referenced. Thank you, Mr.
Chairman.

Chairman Kennedy. You are welcome. I am not sure if Mr.
Gomes feels the same way. Ms. Nydia Velazquez.

Ms. Velazquez. Thank you, Mr. Chairman. The community in-
vestment practices of our Nation's financial institutions have been
one of my primary concerns in Congress. It is an issue which goes
to the heart of the underdevelopment and poverty which character-
izes my congressional district.

The areas of Brooklyn that I represent are repeatedly cited as ex-
amples of the abandonment of low-income, minority communities
by banks and other financial institutions. In the most recent study,
the New York public advocate documented the wholesale flight of
banks from my district and the resultant lack of credit and basic
banking services.

Credit unions constitute a smaller source of funds for community
investment and development. Nevertheless, the tremendous expan-
sion of some of the larger credit unions and the size of their com-
bined assets suggest that we take a fresh look at the industry's
record of community investment. I firmly believe that credit
unions, like all other financial institutions, have a strong respon-
sibility to invest dollars back into the communities from which they
draw deposits.

They must take affirmative steps to promote economic develop-
ment in low- and moderate-income and minority communities.
Credit unions must never approach the credit need of low-income
and minority individuals any differently than those of more afflu-
ent credit union members. Nevertheless, I approach this hearing
without a firm position as to whether the industry as a whole has
upheld or abrogated this responsibility.

I am aware of the criticism that has been leveled against some
credit unions, and of the arguments for expansion of the Commu-
nity Reinvestment Act to cover the industry. However, I also real-
ize that many community credit unions are already providing valu-
able credit services to neighborhoods abandoned by the banking in-
dustry. Therefore, I intend to listen closely to the testimony today
and keep an open mind on the issue before us.

I hope that my colleagues and I will come away from this hear-
ing with a much better understanding of the community invest-
ment practices of credit unions and much closer to answering the
tough question of whether or not we need to extend the CRA to the
industry. Thank you, Mr. Chairman.

Chairman Kennedy. Thank you, Ms. Velaquez. Yes, Mr. Castle.

Mr. Castle. Thank you, Mr. Chairman. Just very briefly, I am
also interested in the testimony. I won't be able to stay throughout
the whole proceeding, so I will be doin^f a lot of reading with my
staff. But I think some interesting questions are raised here.

As Mr, McCandless has said, I think it is a balanced panel that
will hopefully give some insight as to whatever the ultimate an-
swer is as to the community reinvestment with respect to our cred-
it unions. So I look forward to the hearing, and thank you for the
opportunity, Mr. Chairman.

Chairman Kennedy. Thanks, Mr. Castle.

Mr. King.

Mr. King. Thank you, Mr. Chairman. First off, I want to thank
you for holding the hearings and I want to thank the witnesses for
taking the time to be here today.

I share the belief that all financial services providers do have a
duty to help promote the economic well-being of local communities.
As we start today's hearing into credit unions, I want to note that
a number of credit unions in my district have established outstand-
ing records of local involvement. One, the Bethpage Federal Credit
Union, which serves thousands of current and former employees of
Grumman Corp., and its suppliers, and it has a particularly im-
pressive investment in the local community.

I just think that should be on the record. I look forward to the
testimony of the other witnesses here today. I, too, have an open
mind on this issue, and I look forward to seeing how the testimony
comes out, and I look forward to hearing from all of the witnesses,
and I thank you, Mr. Chairman, for holding the hearing.

Chairman Kennedy. Thank you, Mr. King. There being no fur-
ther opening statements, we will proceed with our witnesses.

I would like to thank our first panel for appearing. Your entire
written statements will be submitted for the record and I would
ask you to please limit your oral statements to 5 minutes in the
interest of time. I would very much like us to adhere to the 5-
minute rule. We have a lot of witnesses this morning, and some-
times we learn the most during the question and answers period.

If we take too long on opening statements, we never get there.
So if you would try to bear with us on the 5 minutes. We have
somebody working the clock over there. When it turns red, you are
done, if you get the message.

Our first witness is Thomas Curry, who is the commissioner of
banks for the Commonwealth of Massachusetts. Commissioner
Curry oversees Massachusetts' 366 State-chartered trust compa-
nies, savings banks, cooperative banks, credit unions, and approxi-
mately 1,600 credit licensees. Mr. Curry has formerly served as the
general counsel for the Division of Banks and as an attorney with
the Massachusetts secretary of state's office.

Mr. Curry, thank you very much for traveling to be with us this
morning. Please proceed.

STATEMENT OF THOMAS CURRY, ACTING COMMISSIONER OF
THE DIVISION OF BANKS, COMMONWEALTH OF MASSACHU-
SETTS

Mr. Curry. Good morning, Mr. Chairman and members of the
subcommittee. I welcome the opportunity today to appear before
you to discuss the Massachusetts experience in applying the Com-
munity Reinvestment Act to State-chartered credit unions.

The Commonwealth of Massachusetts passed its CRA statute
which generally parallels the Federal regulation in 1982. As a mat-
ter of regulatory policy, the division has examined all State-char-
tered financial institutions, including credit unions for CRA since
1980.

In applying CRA to credit unions in Massachusetts, I believe the
fit is generally an easy one. Credit unions can satisfy their obliga-
tions to help meet the needs of their local communities, including
low- and moderate-income areas. Given that credit unions are char-
tered to serve specific communities and groups, there is no reason
why credit unions cannot comply with the requirements of CRA.

The membership of credit unions is, of course, restricted to the
common bond in their charter and in their bylaws. In Massachu-
setts, we have both occupational, associational, and geographically
based credit unions. The value of CRA for industrial credit unions
is just as great as for community credit unions. We try to look upon
CRA as a good business and strategic planning tool for both banks
and credit unions.

A credit union cannot meet the credit needs of its membership
unless it ascertains the credit needs of all of its members, markets
its credit services to its members, and develops credit services to
meet the credit needs of its members. These are sound business
strategies and concepts underlying the Community Reinvestment
Act.

By making some minor adjustments for the limitations imposed
by statute on credit unions, it has been very easy for the division
to apply CRA to these institutions. For example, Massachusetts
State law restricts most credit unions from engaging in direct lend-
ing for small business loans or community development purposes.

In addition, there are many credit unions which, because of their
asset size, cannot and do not offer mortgage loans. Therefore, sev-
eral assessment factors in the CRA are not as heavily weighted in
our analysis of a credit union's performance, particularly if they are
an industrial organization.

Examiners also assess how well the credit products offered actu-
ally meet the needs of its membership. It has been very simple for
the division to examine community credit unions since, similar to
banks, they can delineate specific geographic areas for their local
communities. For industrial credit unions, the division reviews how
well they meet the credit needs of their members and eligible mem-
bers across all income and demographic lines, rather than simply
an analysis of the geographic distribution of their lending.

In terms of the regulatory burden, there have been some who
have suggested that CRA requirements for credit unions are overly
burdensome and inappropriate due to the general purpose of credit
unions. At the Division of Banks, we are always working to reduce

the regulatory burden on financial institutions and will continue to
do so.

While I cannot speculate how CRA would look on a national
level, I can state that Massachusetts experience has not been
overly burdensome. It is also true that those credit unions which
are familiar with the CRA and its requirements have much less of
a burden because of the fact that our examinations are likely to
proceed more quickly and without the need for regulatory followup.
Rather than look upon CRA as an unnecessary burden, however,
I believe many Massachusetts credit unions consider CRA as a
positive means of helping to meet the credit needs of their
membership.

The current listing of CRA ratings for Massachusetts financial
institutions indicates that on average, the credit unions have re-
ceived slightly lower ratings than the banks. However, I want to
point out that I do not believe that this is a result of less than
average performance in meeting the credit needs of their member-
ship. Certainly, there appears to be a higher degree of noncompli-
ance with the technical rather than substantive requirements of
the CRA.

This is, in part, due to the fact that most credit unions are rel-
atively small in size with few staff or little resources available to
ensure compliance with all of the technical provisions of the CRA.
In addition, most of the credit unions in Massachusetts have only
received one or at most two examinations for compliance with CRA
as opposed to banks, which have had multiple examinations.

I would simply like to point out one example of improvement
that occurs over time and that is the Millbury Credit Union, a $73
million community credit union. Millbury recently received an out-
standing CRA performance rating from our examiners and is the
first credit union to be accorded such a rating. Previously, Millbury
had received the needs-to-improve rating in its last examination
and we believe that as the basis of the earlier examination, they
used it as a roadmap for an improvement.

In conclusion, we believe that Massachusetts, like many States,
has been a source of innovation and change. Being a local issue by
nature, the Community Reinvestment Act has worked well with
the credit union industry in Massachusetts in helping to meet the
credit needs of their entire membership and their communities.
And credit unions can not only help to improve the quality of life
for their communities in Massachusetts and their entire member-
ship, but they can also enhance their bottom lines by developing a
new and loyal customer base. Thank you.

[The prepared statement of Mr. Curry can be found in the
appendix.]

Chairman KENNEDY. Thank you very much, Mr. Curry. I appre-
ciate your testimony. Just for the record, I was informed that the
red light was a minute early, which everybody from Massachusetts
will understand.

Our next witness is Cornelius Mahoney, who is the president and
CEO of the Woronoco Co., Savings Bank. He is here today rep-
resenting the Savings and Community Bankers of America, Mr.
Mahoney has held various positions with Woronoco Co., since be-

ginning his banking career in 1970, and has been president and
CEO since 1986.

We look forward to your testimony, Mr. Mahoney. Please
proceed.

STATEMENT OF CORNELIUS MAHONEY, PRESIDENT AND CEO,
WORONOCO SAVINGS BANK, AVESTFIELD, MA

Mr. Mahoney. Thank you. Mr. Chairman, members of the sub-
committee, my name is Cornelius Mahoney and I am the president
and chief executive officer of Woronoco Co. Savings Bank, a mutual
institution in Westfield, Massachusetts. Today, I am representing
the Savings and Community Bankers of America, which I serve as
a member of the board of directors. I am also chairman of the Mas-
sachusetts Bankers Association.

SCBA commends you in the strongest terms for holding this
hearing on extending the Community Reinvestment Act to credit
unions. Your hearing represents the first time in recent memory
that any Member of Congress has agreed to seriously look at the
special status that credit unions enjoy.

SCBA takes great pride in the fact that it was at our government
affairs conference earlier this year that you publicly proposed to re-
view whether to extend CRA to credit unions. It is the right public
policy step.

CRA should be applied to geography-based or community-char-
tered credit unions and to credit unions serving multiple-employer
groups from one metropolitan area. There is no other way for these
broad-based credit unions to demonstrate that their lending pro-
grams benefit all segments of their local communities.

Credit unions with little left in the way of a common bond should
be required to reach out and serve all members of the communities
in which they are located, including low- and moderate-income con-
sumers. The credit union industry has moved and continues to
move away fi-om its traditional role into the mainstream of banking
business. Credit unions should be welcomed to full citizenship in
the community of depository institutions, including the rights,
privileges, and obligations that entails.

There is an old axiom: If it walks like a duck, talks like a duck,
acts like a duck, chances are it is a duck. Credit unions, by their
own words and deeds, have moved more and more into the main-
stream of banking business. Many credit unions are full partici-
pants in the financial marketplace, often blanketing whole commu-
nities with advertising.

Much of this advertising of loans and products does not indicate
whether membership is required. The same marketing efforts of
credit unions regularly promote their higher, nominal rates of in-
terest on savings and lower charges on loans. Many credit unions
are looking like banks, acting like banks, competing with banks,
and hence, should comply with CRA just like banks. If credit
unions are so interested in identifying themselves as full service

banking institutions, they should be equally interested in comply-
ing with CRA and paying taxes as we do.

Whether such expansion of the common bond is in fact allowable
under some interpretations of the statute, as several courts are
currently debating, is really not the central issue here today. The
key concern today is that as the Greneral Accounting Office appro-
priately pointed out 3 years ago. Congress should clarify the future
role of credit unions as depository institutions.

Credit unions were granted special benefits, such as being ex-
empt from Federal and State taxes because they served individuals
joined together by a common bond. With the attenuation of the
common bond concept, the special benefits these credit unions enjoy
should disappear as well. Most credit unions in Massachusetts are
actively working to meet the challenge of Massachusetts' area law
which has an essentially identical rating system as the Federal
law.

For example, Greylock Credit Union is the largest mortgage un-
derwriter in Berkshire County. When it applied to establish a
branch in the town of Adams, Greylock touted its satisfactory CRA
rating as evidence that it is striving to serve all segments of its
community.

Credit unions still say they should not have to adhere to CRA be-
cause they already serve the common man. This statement may
have been true at one point, but no longer. As the GAO pointed out
in 1991, the available data clearly indicates that credit unions do
not exclusively serve people of small means today. Regulatory aid
for credit unions such as the Federal tax and CRA exemption, actu-
ally may perversely benefit those with higher incomes at the ex-
pense of those with lower incomes.

Credit unions are worthy competitors who should have the con-
fidence to operate without special benefits in the effort to service
the public most efficiently. The sad fact is that special treatment
creates dissension and bitterness among institutions that otherwise
have a great deal in common and that could learn a great deal
from each other. After all, we are the stewards of the American
dream. Broad-based credit unions should use CRA as a challenge
to be met, a public demonstration of their efforts to help break the
cycle of disadvantage in the community they serve.

Savings and Community Bankers of America stands ready to as-
sist in any way possible to address this issue. Passage of legislation
in the next Congress to extend CRA to community-chartered credit
unions and to credit unions with multi-employer groups in one area
should be made a top priority.

This concludes my prepared remarks, Mr. Chairman. I would be
happy to answer any questions you may have.

[The prepared statement of Mr. Mahoney can be found in the
appendix. 1

Chairman Kennedy. Thank you very much, Mr. Mahoney. I wish
all of the bankers that came before this panel felt the same way
as you do about being stewards of the American dream.

I would now like to introduce Armando Cavazos, who is the
president and CEO of Credit Union One in Ferndale, Michigan.
Credit Union One has 120,000 members and $350 million in assets.

and operates in 20 counties. Mr. Cavazos is here today represent-
ing the Credit Union National Association.

He previously served as an accounting department supervisor,
comptroller, and assistant treasury for Credit Union One.

Mr. Cavazos, it is a pleasure to have you before our panel today.
Please proceed v/ith your testimony.

STATEMENT OF ARMANDO CAVAZOS, PRESIDENT AND CEO,
CREDIT UNION ONE, FERNDALE, MI

Mr. Cavazos. Thank you, Mr. Chairman, and members of the
subcommittee. As the chairman mentioned, I am Armando
Cavazos, and I am the president and chief executive officer of Cred-
it Union One, which is located in Femdale, Michigan. Ferndale is
a 75-year-old community which is contiguous to the southern bor-
der of Detroit.

I would like to thank you for the opportunity to appear before
you on behalf of CUNA to oppose extending the requirements of the
Community Reinvestment Act [CRAl to the Nation's credit unions.
CUNA is a major trade association serving our Nation's 12,733
credit unions. They represent $300 billion in assets and 67 million
members.

I would also like to express and explain the term "field of mem-
bership," which is going to be used repeatedly during this hearing.
The concept is one that means that a credit union serves an identi-
fied group or groups or identified communities, not the general
public.

I was asked to represent CUNA today because I serve on CUNA's
Field of Membership Task Force Committee. Our task force is look-
ing for ways for more consumers to become credit union members.
Our discussion has focused on the need to provide credit union
services to more low-income people.

CUNA was very pleased that the National Credit Union Admin-
istration revised its policy 2 months ago to provide Federal credit
unions with much greater opportunities to reach out to low-income
individuals and communities. My credit union, Credit Union One,
has a long history of serving groups from all economic levels of
society.

We have, as the chairman mentioned, 120,000 members, $350
million in assets, 17 offices, and 14 facilities that we share with
other credit unions in order to serve our members. Credit Union
One was chartered during the Depression. In 1938, it was an out-
growth of the Femdale Cooperative Food Association. Our field of
membership encompassed the members of the Femdale Coopera-
tive, and like all other credit unions, Credit Union One is prohib-
ited by law from serving the general public.

Through our long history, a philosophy of service has evolved
whereby we are committed to serving groups from all economic lev-
els of society. At present, 20 percent of our membership is from
low-income areas in the metropolitan Detroit area. We serve these
members through our branches in southwest Detroit, Detroit Medi-
cal Center, as well as the shared service center in Detroit.

We are convinced that credit union resources, generated from
serving our more affluent members, can and should be allocated to-
ward initiating and continuing services to lower groups and areas

within our membership. Our southwest Detroit branch, for exam-
ple, was started primarily to serve a parish and has gradually ex-
panded to serve a 5-mile radius from this church. This area has 70
percent minority population and the median household income is
$16,900. The credit union is one of the only financial institutions
willing to serve many of the residents as well as seasonal migrant
workers. A great percentage of our loans are unsecured and are
often for auto repairs, schooling for children, debt consolidation,
and financial emergencies.

In addition, we also cash a significant amount of checks and a
large number of money orders at these locations. I would like to
share with the subcommittee some information about some of our
products served and provided for at those facilities.

We make small, unsecured loans for periods of up to 30 months
at a rate of 8.75 percent. There is no charge for check cashing if
the member is under 21 or over 65 years of age, or if the member
has one account relationship with the credit union; in other words,
$5 in a regular savings account and $5 in a Christmas club ac-
count; if the member has a savings balance of $300 or more, other-
wise, the charge is $2.50.

We offer money orders for $1 and waive that fee if the member
is on direct deposit or pa)a'oll deduction. In addition to the above
services, we also reach out and are actively involved in our commu-
nity in many ways, but one I would like to share with you, which
is very significant, is our program at Winguard School in Detroit,
a vocational school serving low-income, mentally impaired adults.

Credit Union One operates a student credit union. The Winguard
School Credit Union allows these individuals to gain experience in
basic money handling. Credit Union One provides this service be-
cause of our commitment to enhancing the self-sufficiency of these
community residents, and there is not an ulterior profit motive.

Clearly, Mr. Chairman, I am proud of the record of our credit
union and feel that we are doing an excellent job of serving our ex-
isting members and of reaching out to all income levels of the com-
munities we serve. In my opinion, there is no justification whatso-
ever for including Credit Union One or any other credit union
under CRA. But most importantly, CRA would not cause this credit
union to change the way it is serving its members. The only thing
that would be added would be extensive and costly documentation
of the work we are already doing.

The National Credit Union Administration has received no evi-
dence of complaints of a CRA nature, either from credit unions
within the community charters, or those with traditional fields of
membership. My State regulator, Mr. Patrick McQueen, feels that
Credit Union One and other credit unions in our State are serving
the credit needs of their members very effectively.

I urge you not to amend a law simply because some would like
to make us less competitive by increasing our costs. In fact, the re-
sult would be the opposite of what CRA envisions: Fewer loans in
low-income areas, as well as a reduction of services.

I have examined closely the 12 factors with which I would have
to comply under the CRA These factors are vague, general, and ap-
pear to me to demand very subjective appraisals. More impor-
tantly, because of statutory and regulatory restrictions on certain

kinds of lending, the requirement to serve only those within our
fields of membership, it would be impossible to meet many of these
requirements.

In your letter of invitation, you asked for comments on four spe-
cific questions concerning creait imions. I provided answers in the
written statement and will take questions later.

The new chairman of NCUA appears to be committed to a more
expansive effort for credit unions to serve low-income areas. Many
of us in the movement see this as a signal for a return to the basic
current philosophy of people helping people. We hope this commit-
ment will be conveyed to and executed by the field examiners. We
are now seeing efforts not only to expand the number and scope of
low-income credit unions themselves, but also a very recent change
in the field of membership policies to permit any credit union to in-
clude low-income groups or areas.

I would like to close with a final thought about the credit union
philosophy. In 1882, Frederick Prosesin, the founder of the credit
union movement, stated the only way to improve social and par-
ticularly economic conditions is to put humanitarian principles into
action through independent cooperatives. The credit union move-
ment continues to exemplify this spirit today.

Mr. Chairman, I believe that credit unions are simply not guilty
of refusing to serve all of their members or all of their commu-
nities. If there are isolated programs, NCUA has the authority to
address them. Extending the CRA to credit unions is neither war-
ranted nor necessary and we strongly oppose any efforts to do so.
Thank you. I would be happy to answer any questions from you or
the members of the subcommittee.

[The prepared statement of Mr. Cavazos can be found in the
appendix.]

Chairman Kennedy. Thank you very much, Mr. Cavazos. We
will have a few questions for you.

Our next panelist is Augusto Gomes, who is the president and
CEO of the Lusitania Federal Credit Union located in Newark,
New Jersey. Mr. Gomes has previously served as president of the
Abington Urban Renewal and the treasurer of the Portuguese Con-
tinental Federal Credit Union. It is a pleasure to have you with us
here this morning, Mr. Gromes. Please proceed for 5 minutes.

STATEMENT OF AUGUSTO GOMES, PRESIDENT AND CEO,
LUSITANIA FEDERAL CREDIT UNION, NEWARK, NJ

Mr. Gomes. Thank you very much. Mr. Chairman and members
of the subcommittee, as the chairman said, my name is Augusto
Gomes and I am executive officer of Lusitania Federal Credit
Union. This is a federally chartered credit union located in New-
ark, New Jersey, and I hope that we have a better fate than the
ship. The reason I am saying that is because we are also the first
Federal credit union to apply for a Federal mutual fund bank.

Lusitania was chartered in 1980 to serve the savings and credit
needs of our community, which consists primarily of the Por-
tuguese community located in the so called ironbound section of
Newark. The officers and directors and employees of Lusitania gen-
erally speak Portuguese and Spanish, and are familiar with dif-

ficulties encountered by our local community and by the recent
immigrants.

Lusitania has been the primary source of loans for many local re-
tail businesses and for much of the area's individual purchasing of
multifamily dwellings. This is an area that has been somewhat
abandoned by the banks. This is an area that is over 90 percent
minorities.

Historically, these loans have consisted of mortgages secured by
real estate, commercial, and mixed used. As of June 30, 1994, Lusi-
tania had assets of $51 million and net worth of $6.8 million in as-
sets. Most of these loans were in real estate and home equity loans.
As a matter of fact, 92 percent of these loans were comprised of
these.

On August 3, 1994, Lusitania filed its application with the Office
of Thrift Supervision to organize a Federal mutual savings bank,
and while NCUA and most of the credit unions are opposed to the
requirement to comply with the Community Reinvestment Act, it
is our desire to meet the CRA needs of our community.

The subcommittee has asked us to address several issues which
are the following: Do we believe it is appropriate for the credit
unions to meet the Community Reinvestment Act requirements?
There are certain tjrpes of credit unions, for example, credit unions
that solely serve the credit union needs of the employees of a com-
pany or a similar, limited specific group of persons should not be
imposed with the requirement of CRA. We see no sense and pur-
pose as such.

However, the credit unions that have a street front office, that
were chartered for a specific geographical community, or serve
many groups of employee people, we believe that those credit
unions should comply with CRA requirements.

Would compliance with CRA impose an undue burden? We be-
lieve that imposing CRA requirements on community credit unions,
we do not believe that this would be unduly burdensome on the
credit unions. As evidenced by the fact that we have applied — this
applies to all Federal savings banks already.

To the extent that CRA standards apply to credit unions, do we
believe that such a standard should recognize the different sizes
and types of credit unions? This was the question. I previously in-
dicated, that although we believe that it is appropriate for CRA
standards to be met by the community credit unions, such stand-
ards should not apply to company or similar types of credit unions
serving a limited population of members.

We are confident that we can meet the requirements of the CRA
if we are permitted to complete our charter conversion to a Federal
savings bank. We have applied with the OTS and FDIC to become
a Federal savings bank, and doing so, we will immediately have to
comply.

In regard to our application to flip the charter, NCUA has taken
the position that the agency has the authority to prove or reject the
commission of charters. We believe that it is the responsibility of
the board of directors and the members to decide what best fits the
needs of the members and their community.

This is all I have, Mr. Chairman. Thank you for the opportunity.

[The prepared statement of Mr, Gomes can be found in the
appendix.]

Chairman Kennedy. Thank you very much, Mr. Gomes. We
appreciate your testimony.

Our final witness in this panel is Tom Callahan, who is the exec-
utive director of the Massachusetts Affordable Housing Alliance.
The alliance is a statewide coalition of 140 organizations that
works to increase public and private sector investment in afford-
able housing. He has done fine work in the implementation of CRA
on a number of different fronts and it is a pleasure to have him
with us this morning.

Please proceed for 5 minutes, Tom.

STATEMENT OF TOM CALLAHAN, DIRECTOR, MASSACHUSETTS
AFFORDABLE HOUSING ALLIANCE BOSTON, MA

Mr. Callahan. Thank you, Mr. Chairman, members of the sub-
committee, for the opportunity to testify today. I will start out with
a quote. "Credit unions, by definition, must serve their commu-
nity," end quote. Undoubtedly, each member of this subcommittee
has either heard this or will near this from credit unions and their
lobbyists. In Massachusetts, however, I would like to say that that
is not the case.

As you have heard previously, Massachusetts gives CRA ratings
to all State-chartered credit unions. Based on available public rat-
ings, fully 37 percent of the 78 ratings that have been given to
credit unions to date have been failing grades of either "needs to
improve" or "substantial noncompliance."

Compared to banks, the Massachusetts Division of Banks awards
only 6 percent of b£mks in the State a failing grade. The FDIC, only
5 percent of Massachusetts banks receive a failing grade. The OCC,
none of their banks receive a failing grade, but 37 percent of our
credit unions fail the CRA test. That does not sound like an indus-
try that by definition is serving community credit needs.

In Massachusetts, 5 credit unions of the 78 have been examined
for CRA twice now in the past 4 years. In four of those five cases,
those credit unions improved their rating, showing that the CRA
law does have an impact on their performance.

Credit unions have responded, albeit slowly, to a State examiner
asking questions about things like geographic distribution of mort-
gages, services for low-income consumers, branch patterns and
hours, marketing and outreach to community groups. Credit
unions, indeed, compete with banks.

In Brockton, Massachusetts, the Brockton Credit Union is a $400
million institution; Crescent Credit Union, $164 million; and Brock-
ton Brotherhood Credit Union, a $55 million institution. Those
credit unions compete with some Boston-based banks in the county
that you may have heard of. Baybank has only $188 million in as-
sets in the county. Citizens Bank $236 million, and fleet, $258 mil-
lion. So in one case, the credit union is larger than some large Bos-
ton-based institutions in that geographic area.

In Pittsfield, Massachusetts, Greylock Credit Union has $260
million in assets. Only one bank has more assets in Berkshire
County. And the Greylock Credit Union dwarfs most other banks
in that county.

For credit union customers, and my family is one, there is little
difference between a bank and many credit unions. Credit unions
look, feel, and act like banks. In fact, to prove I am a credit union
customer, this is my card that I have used to get money here in
DC and all over the country, actually, as well as in my home city
of Brockton at the five branches and ATMs that the credit union
has. To paraphrase a popular commercial, this is not your grand-
father's credit union.

In the 1992 annual report to the commissioner of banks, though,
only seven credit unions in the State reported that they offer flexi-
ble mortgage products. Over half of the credit unions in the State
did not even offer a low-cost checking account to their customers.

Clearly, a CRA law and strong enforcement of that law are need-
ed if credit unions are to truly meet low- and moderate-income
credit needs. I will talk about a couple of examples. As I said, my
hometown of Brockton is home to at least three significant credit
unions. The Brockton Credit Union has stepped forward over the
past 2 years and has now taken a leadership role in affordable
housing in the city.

It is an active member and a founding member of the Brockton
Housing Partnership, a consortium of banks, government, and com-
munity groups that is seeking to revitalize housing stock in the
city. The credit union offers a special first-time home buyer mort-
gage program with no points or closing costs and low
downpayments, and it has also worked closely with the Brockton
Community Corp., a nonprofit housing development organization,
which I served on its board.

The Greylock Credit Union is a leading financial institution in
Berkshire County in western Massachusetts. It has been an impor-
tant player in the county's top nonprofit development organization,
Berkshire Housing. Greylock offers also a first-time home buyer
program called the Good Samaritan Program at 1 percent below
the market rate with low downpayments and reduced closing costs.

Greylock is also an active partner with many of the area's com-
munity organizations. CRA has indeed been an incentive for Grey-
lock, which as you heard earlier, has been looking to expand its
charter and has needed State regulatory approval, which includes
a thorough CRA review and opens the credit union to a public chal-
lenge of its application.

If you read through the narrative evaluations of credit unions as
we have, it is clear that the credit unions are not being penalized
in Massachusetts for failure to produce the sometimes voluminous
documents and glossy CRA statements that some of the larger re-
tail banks have been known to produce.

Instead, regulators look at whether the board has discussed CRA,
at where the bank markets its services, at how its loans are dis-
tributed throughout the credit union's geographic area. If you are
meeting low- and moderate-income community credit needs, CRA,
it is clearly not a burden to prove that under CRA in Massachu-
setts. Thank you.

[The prepared statement of Mr. Callahan can be found in the
appendix.]

Chairman KENNEDY. Thank you, Mr. Callahan. That concludes
the formal statements of our panel of witnesses, and we will now
turn to questions.

My first question would, I think, go to Mr. Cavazos. You indi-
cated, as I understand in your testimony, that most of your objec-
tion about complying with CRA seem very familiar with — what I
hear when I listen to banks talk about CRA. You may be familiar
with the fact that Mr. Ludwig at the OCC has announced, I think
today or yesterday, or sometime in the next few days that there
will be a major change in the Community Reinvestment Act, and
so we can presume that he will be taking comments on some new
guidelines that will be issued and this subcommittee will also be
delving into those issues, as well. Nobody is interested in seeing
paperwork.

If we can assume for the sake of discussion that we can maybe
deal with the paperwork burden issue, don't you think that there
is at least some rationale for extending CRA to at least a segment
of the credit unions? You know, maybe there is some way to deal
with this issue so that very small, specific organizations that I
think Mr. Curry referred to in his testimony that are dealing with
just a particular organization and have a very small amount of de-
positors and the like might have some kind of exemption, but these
larger credit unions that have hundreds of millions of dollars, who
are the dominant players in these counties, who are able to spread
across large geographic areas or have, as one credit union in my
own district has, you know, says that they are going to serve the
people of the city of Boston. It is even bigger than that. It doesn't
appear to have any guidelines that are much different than a
bank's.

They have an advantage in terms of the tax base, and yet their
CRA compliance, at least in reference to the HMDA data, would
suggest that they are not doing a very good job of serving their low-
income or minority constituents or depositors. So it would appear
that there is an instinctive self-interest in saying, of course, we
should not be covered, but when you peel back the covers a little
bit, it seems that there really is a pretty good case that can be
made that the larger ones, in particular, ought to go through the
CRA examination. And in a case like yours, I am sure you would
pass. Do you have any thoughts about that?

Mr. Cavazos. Yes, Mr. Chairman. The opposition to coming un-
derneath the umbrella of the CRA, documentation is one part of it,
but the real essence of it is structurally, credit unions are not in-
corporated or organized as a cooperative to only serve their identi-
fied field of membership, and we don't serve in that sense, or are
allowed to serve the general public, so that is one aspect of it.

The other aspect is that currently we have not received any evi-
dence of any type of violation. And so as our structure, our specific
structure is set up, that we can't make

Chairman Kennedy. How can you be cited for a violation?

Mr. Cavazos. We don't make

Chairman Kennedy. If you are not examined, I mean, of course,
you are not cited for a violation if you are not examined, right, for
CRA purposes?

Mr. Cavazos. Well, CRA-type. We are reviewed by the National
Credit Union Administration, and they do have fair lending compli-
ance regulations.

Chairman Kennedy. Well, fair lending, OK. But do they have
one for fair lending?

Mr. Cavazos. Well, the National Credit Union Administration,
and I will submit for you, Mr. Chairman, on behalf of the Commu-
nity Development Revolving Loan Program, credit practices, de-
fines unfair credit practices, discrimination

Chairman Kennedy. Have you been examined for fair lending
by

Mr. Cavazos, We are a State-chartered credit union insured by
the National Credit Union Share Insurance Fund.

Chairman Kennedy. It is a fairly simple question. It is yes or no.
Have you been examined

Mr. Cavazos. We have been examined by NCUA.

Chairman KENNEDY. For fair lending?

Mr. Cavazos. This is part of their examination.

Chairman KENNEDY. Now, now, listen. Let's not play games with
each other. I am asking you a very simple, straightforward ques-
tion. Have you been examined by NCUA for fair lending?

Mr. Cavazos. They have, as part of their examination, put in the
fair lending aspect of it, and we have never, at this point in time,
been cited for any violation.

Chairman Kennedy. Has there been an examination, sir?

Mr. Cavazos. Pardon?

Chairman Kennedy. Has there been an examination?

Mr. Cavazos. By NCUA, yes, sir, as their normal examination,
yes, Mr. Chairman.

Chairman Kennedy. NCUA has informed our subcommittee that
they don't do that, so we will talk to them and try to find out what
the difference is here. They have told us specifically that they don't
do that. So we will find out what is what.

But in any event, the point is that if you are being examined,
and if there are these discrepancies under the HMDA data, I think
there are many members of this subcommittee that have felt a long
time, I know Ms. Velazquez has questions and I have, and other
members of this subcommittee have argued long and hard that a
trigger mechanism ought to be put in place for CRA so that when
HMDA data indicates that a particular institution is denying mi-
norities access to loans at a particular rate, that that ought to in-
stantaneously kick out a CRA examination.

If your institutions are, in fact, turning down people of the same
incomes, coming from the same neighborhoods, but happen to have
a different color skin at a rate one-third more, almost one-third
more than the average bank, don't you think that maybe there is
a problem?

Mr. Cavazos. Mr. Chairman, that HMDA percentage, I think the
one stated that it was like 2.5 or 2.7.

Chairman Kennedy. It was like 2.7.

Mr. Cavazos. One of the things when you look at that universe
is that credit unions really have not been involved in mortgages
significantly across the Nation. I know in our credit union we have

only been involved with mortgages for approximately 4V2 years,
ana

Chairman Kennedy. That doesn't really deal with the central
issue. I don't care how long you have been involved with the issue.

If, in fact, there is a large racial discrepancy, don't you think that
maybe requires us to look after what is really going on?

Mr. Cavazos. The NCUA did have a study in regard to this, any
type of discrimination, and in their study they revealed that they
did not agree with it.

Chairman Kennedy. NCUA tells us that they don't, in fact, have
these fair lending examinations for State-chartered institutions. We
are going to try to find out what is what.

Mr. Cavazos. Absolutely.

Chairman Kennedy. Anyway, my 5 minutes is up.

Mr. McCandless.

Mr. McCandless. Thank you, Mr. Chairman. My experience
with credit unions has been kind of interesting and kind of cul-
minated during the FIRREA hearings and the process of develop-
ing that piece of legislation. Credit unions were established, as it
has been pointed out to me, as a resource for funds within the
framework of its membership for various and sundry reasons, not
the least of which would be emergency activities on the part of a
family where they needed something in a hurry, and that these
charges and activities were a result of the deposits upon which the
members received more in the way of interest than they could ex-
pect to receive downtown at a regular institution. And, conversely,
because of that, they were able, then, to borrow at far less than
they were in the traditional consumer loan type of activity.

Now, that was fine and we had this particular institution on the
second floor of a business or an industrial or some type of a com-
plex serving the membership of that particular institution.

Then, we started expanding into the brokering of automobiles,
where, come and see us and we will help you make your deal down-
town with the dealer, and then pretty soon the dealers said, OK,
I want to join your organization and be one of your suppliers. And
that is fine. We would like to have you and we will refer everybody
to you who comes in and wants an X, Y, Z coupe. But you under-
stand that each one you sell is going to have a certain fee attached
to it that you pay to the credit union.

And then we got involved with credit cards and now in Califor-
nia, some of the credit unions are financing 30-year mortgages on
single-family homes, providing money for purposes of developing
shopping centers, and in my opinion, the original purpose of the
credit union to be a source and resource for savings and needed
money has gone beyond the bounds of the original intent of what
those who developed the credit union activities as legislation had
intended.

Hence, we have now pressure upon the credit unions to join the
rest of the financial institution family and do the things that they
have to do, the laws of the United States, which are a cost of doing
business as well as addressing the needs of the communities in
which they serve.

Now, Mr. Cavazos and Mr. Gomes, you both represent credit
unions. I have taken some time to lay a little framework here.

Shouldn't we distinguish between the credit union on the second
floor who is a small loan company and a savings depository from
the person who is developing shopping centers and competing di-
rectly with the institutions that are required by law to do these
things?

Mr. Cavazos. Yes.

Mr. Gomes. My answer is certainly that there is a difference and
they should be recognized. The ones that serve the large commu-
nity that they should be, they should comply, we believe. Those
that serve just the little, specific group I don't think they should
be burdened with this paperwork.

Mr. Cavazos. Congressman, just a comment, a^ain to your
thoughts. We don't believe that there is a difference m the size of
that particular credit union, whether they are a large one or a
small one or medium-sized. And the reason is because structurally,
we all have to serve the members that are identified as part of our
field of membership, whether it is a community, whether it is an
occupation or association.

The onslaught of adding different services provided to those par-
ticular members that we serve are significant because I have been
in this credit union movement for 20 years, and in the financial in-
stitution arena, and I remember when it was the real essence of
having checking accounts for credit unions. So we have had, over
the years, an evolution of demands of the consumer and members
to add products and services.

I don't know and I can't comment on the credit union that is in-
volved in a particular large, I take it large commercial lending for
a shopping center. But that is, I can only express to you that in
the State of Michigan, that my experience with my colleagues is,
that does not happen. We are limited by commercial loans to not
exceed on the — if you are a federally chartered credit union,
$50,000, and on a State level, in our State of Michigan, it is
$25,000. The only thing that we can do is seek a waiver or an ex-
ception to that, and that has to be submitted to the regulatory
agency in order to have that waiver.

Mr. McCandless. Thank you. Mr. Currv, do you distinguish,
when you do what it is you are required to do by law in Massachu-
setts, between the size of the credit union and how it serves the
community and to what degree it has expanded into the com-
munity?

Mr. Curry. The law itself doesn't distinguish between the types
of credit unions; it applies to all credit unions. However, since we
are the regulator for the State-chartered credit union industry, we
are aware of the legal and structural differences between indus-
trial-type credit unions and community credit unions. Community
credit unions are essentially treated tne same as banks in terms
of the CRA process.

The adjustment is made for the smaller credit unions and the in-
dustrial-type credit unions in terms of given their field of member-
ship, how well are loans distributed among the membership in
terms of income and demographic considerations. Primarily, that is
our focus to see whether fair lending requirements are being met.

Mr. McCandless. Thank you. My time is up. Thank you, Mr.
Chairman.

Mr. Gutierrez [presiding]. When I stepped over here, does that
mean that I get to step over

Mr. McCandless, You lose your turn.

Mr. Gutierrez. Congresswoman Velazquez from New York.

Ms. Velazquez. Thank you, Mr. Chairman. Mr. Cavazos, critics
of the current regulatory scheme allege that large credit unions
like Credit Union One operate more and more like banks. How do
you respond?

Mr. Cavazos. We have similar products and services, but I don't
believe that we certainly operate like a bank because of one, our
unique structure. We have no — our stockholders, shareholders are
our members and they own the credit union. We have a volunteer
board of directors and we also look at those volunteers for the
input for the mission or vision of our particular credit union and
they operate and direct the policies of that credit union.

I would also like to say that in our case, our particular credit
union, in the credit union world, is a large credit union. But it is
a pittance in comparison to some of the banking and financial insti-
tutions in the Detroit metropolitan area in the State of Michigan,
But we do have different missions.

Our average savings account is only about $2,500 to $2,700 per
account. The Detroit area, metropolitan area that we serve, and
that is about 39,800 members, their average savings balance is
only $1,000. So those particular communities, and we serve a sig-
nificant amount of minorities in the community where we have our
facility, and many of those facilities that we have are really the
hub of that community, and we hire — we have bilingual staff. We
hire people that live in those communities and support those com-
munities and to develop their own community infrastructure for
independence.

Ms. Velazquez. Where do you invest your assets?

Mr. Cavazos. Well, we invest almost 80 percent of them in our
member loans, and of that 80 percent, of the 80 percent of those
loans, approximately 60 percent of it are in consumer-type loans,
and the rest of it is, as I mentioned earlier to the chairman, we
have only been in real estate first mortgage lending for about 4V2
to 5 years, and if you recall 5 years ago, part of the stringency
placed on credit unions and mortgages was to make sure that you
had the liquidity and that the liquidity meant that you had to be
set up and apply for the secondary markets, which were much
more stringent.

Now, I think credit unions have had a 5-year experience. They
also dictated that we try not to have more than 20 to 25 percent
of our loan portfolio in mortgages.

So we have experience now and I think we want to look at ex-
panding that.

Ms. Vei^zquez. Can you tell me the salary levels of the credit
union's top executives?

Mr. Cavazos. Salary levels? Salary levels. There is a publication
put out by the Credit Union Executive Society, and they have —
there was a studv that was done and they do it annually, and they
have the range from, all the way through geographic areas, asset
size, number of members and employees. So that is a wide range,
and I would be more than happy to submit that to you.

Ms. Velazquez. What is your salary?

Mr. Cavazos. My salary? My salary is $198,000 plus an incentive
program, if, in fact, we meet certain needs in the communities that
we serve in loans, and so forth.

Ms. Velazquez. Thank you, Mr. Chairman.

Mr. Gutierrez. Thank you, Congresswoman Velazquez. Now we
will go to Mr. Knollenberg from Michigan.

Mr. Knollenberg. Thank you, Mr. Chairman. I want to thank
Chairman Kennedy for arranging for the panel. I want to in par-
ticular acknowledge the panel and singularly Mr. Cavazos, who as
CEO of Credit Union One, which is right over the border from my
district, serves many of the constituents in my district.

I have a question for you, Mr. Cavazos, to start with. How would
you respond, for example, to Mr. Curry, who is the acting commis-
sioner of the Division of Banks for the Commonwealth of Massa-
chusetts when he says that in his testimony, there is no reason
that credit unions cannot comply with the requirements of CRA.
Could you comment on how you would react to that statement?

Mr. Cavazos. Yes. In our State, the State of Michigan, my con-
versation with the commissioner, Mr. McQueen, he feels that to
add another layer of some type of regulatory requirements and re-
porting documents would not be necessary, and because there has
been no evidence of any particular violation of something similar
to the CRA Act. And so in that sense, some of the areas like the
marketing, the education, some of that becomes very subjective in
how you meet it, and then the other aspect of it is that from a reg-
ulatory standpoint we cannot, and we are limited in the extent of
not being involved in commercial loans for, say, the lower income
communities.

And so from that aspect, he feels and we certainly support that,
is that there is not anything necessary to add any kind of docu-
mentation or whether or not we have to start tracking all of the
marketing, educational aspects, or parts of our programs and put-
ting it into some type of a summary report. So his comment, again,
we agree and support; that is, that we do not need at this time cer-
tainly an added layer of regulatory requirements.

Mr. Knollenberg. Let's say that the worst of all possible things
happen to you, and we did — or you did find one day that CRA was
extended to your institution. Who, in your judgment, would bear
the ultimate cost, compliance cost? And there would be a compli-
ance cost. And you did say, I think, you have some 40,000 members
with an average balance of how much?

Mr. Cavazos. Of those 40,000 members, they have an average
savings balance of $1,011.

Mr. Knollenberg. They receive dividends as a result of

being-
Mr. Cavazos. Absolutely.
Mr. Knollenberg. Who would bear those costs.
Mr. Cavazos. And part of that is, if it increases our operational
costs, we then have to either reduce the interest rates that we have
on savings to our members, we have to increase possibly the loan
rates or add fees to cover some of those operational costs. And ulti-
mately the member, the consumer in that particular community
where you are trying to build that infrastructure, loses.

Mr. Knollenberg. These are the 40,000 depositors, 40,000
members.

Mr, Cavazos. That is correct. Congressman.

Mr, Knollenberg. A question for Mr. Gomes. Am I pronouncing
that name right?

Mr. Gomes. That is correct.

Mr. Knollenberg. I noticed in your, I think you made this both
in your testimony, written testimony and commented on it when
you testified, you are shifting, I beHeve, making the move from
your current credit union status to a savings bank?

Mr. Gomes. We have appHed

Mr. Knollenberg. You are at least in the appHcation process?

Mr. Gomes. Yes. We have appHed to OTS and FDIC for a mutual
Federal savings bank charter, yes.

Mr. Knollenberg. So you have to, of course, comply with CRA
then?

Mr. Gomes. Certainly. We are aware of that, and we have sub-
mitted our statement, and it has been received as acceptable.

Mr. Knollenberg. So then it is just a matter of fact that you
will be dealing with CRA as a must. I guess a question that I
would want to raise, and I am not sure we need to target this for
anyone in particular, but I noticed in the process of conversation
and testimony being offered, mortgages came into play. It is my be-
lief, and either Mr. Cavazos or Mr. Gomes can respond to this, but
it is my belief that credit unions are pretty much brand new play-
ers, are they not, in the mortgage market?

Mr. Cavazos. Congressman, yes. In our case, we have only been
involved in first mortgages for approximately 4V2 years, and I
would say probably 75 to 85 percent of the credit unions are in that
same particular situation.

Mr. Knollenberg. Is that true in Massachusetts, Mr. Gomes?

Mr. Gomes. New Jersey.

Mr. Knollenberg. I am sorry, New Jersey.

Mr. Gomes. The real estate business has been our main business
in Newark, New Jersey. As I stated before, this is an area that
banks have somewhat abandoned and we are talking about an area
that is 80 percent minority, and we have filled this void very well.

Mr. Knollenberg. Let me ask you a question. When you make
a mortgage loan, maybe you know the answer to this, does the loan
officer or do you know whether it is going to be kept in a portfolio
or sold on the secondary market?

Mr. Gomes. Most of the time, yes.

Mr. Knollenberg. Would you, Mr. Cavazos, respond?

Mr. Cavazos. Congressman, most of our first mortgages, by pol-
icy set by the board and some guidelines set out by NCUA, we are
required in our policy so that we have the liquidity to sell off our
first mortgages. All of our 30-year mortgages are secondary re-
quirements. And our 15-year mortgages are secondary market re-
quirements applied to, and we do retain that service — we do do all
the servicing for all of those mortgages, but we do have them hit
the standard for the secondary markets, and that is because of li-
quidity purposes. And what we are doing now is reassessing, now
being that we have the experience to try other processes involved.

You mentioned earlier, Congressman, about some of the areas,
about some of the documentations, and so forth, and maybe an-
other layer of cost involved in order to meet some of the require-
ments. There was an article — it is not only credit unions, but also
some of our individual critics in some fashion, there was an article,
and I would certainly be willing to submit it, in the Banking Jour-
nal in February 1994 and there was a statement stated that broad-
ening CRA to include other financial intermediaries. Ferguson
takes a slightly different tack than others.

I wouldn't wish CRA on anybody, including even his nemesis, the
Red River Credit Union. I would rather spend the time working to
release banks from CRA than trying to bring everybody else into
it. This isn't a universal opinion, he acknowledges. But that is the
essence of it, and that is what we are here for.

Mr. Knollenberg. I appreciate that comment. My time has
expired.

Mr. Gutierrez. Thank you, Mr. Knollenberg. We will go to Mr.
Barrett from Wisconsin.

Mr. Barrett. Thank you, Mr. Chairman.

Mr. Mahoney, obviously, the issue today is whether the CRA
should be applied to credit unions. Do you think it should be ap-
plied to mortgage bankers?

Mr. Mahoney. Of course. Congressman, the issue today is CRA
for credit unions, and mortgage banks are not deposit-taking insti-
tutions. So I don't know if that — does that answer your question?

Mr. Barrett. I infer from your answer that you would say no?

Mr. Mahoney. Yes.

Mr. Barrett. I just wanted to see what kind of level playing
field we are interested in here today.

I come from Milwaukee, Wisconsin, and your illustrated exam-
ples of how credit unions compete with banks, you mentioned the
Landmark Credit Union, which is close to my home, and you say
that it offers quote, fair rates, convenient hours, timely closings,
and interest on escrow. Are those bad things that put you at a com-
petitive disadvantage, Mr. Mahoney?

Your testimony talked about advertising for fair rates, conven-
ient hours, timely closings, and interest on escrow. I failed to see
why those are bad things.

Mr. Mahoney. Well, they are only bad things because they di-
minish the original intent of what we were talking about with the
common bond. So the argument is

Mr. Barrett. Fair rates diminish the common bond or conven-
ient hours.

Mr. Mahoney. The mere fact of the advertising to a general pop-
ulation, and those are the things that we are talking about.

Mr. Barrett. So any credit union, in your mind, that advertises
should be brought under the CRA?

Mr. Mahoney. Yes. But let me just specifically answer your
question perhaps with an example.

Mr. Barrett. Go ahead.

Mr. Mahoney. We have in my county, there is a credit union,
Polish National Credit Union, and they would advertise on a local
radio station for many, many years. And most recently the tag line
for this particular advertisement always was at the end: You don't

have to be Polish to belong, which stretched beyond the origi-
nal

Mr. Barrett. OK. I understand. I appreciate your answer. OK

I would like to go to Mr. Cavazos. You talked about your salary
including incentives. Can you let us know how much tnose incen-
tives were?

Mr. Cavazos. They could be up to 9 percent, and don't always
get to 9 percent.

Mr. Barrett. So $20,000, $18,000?

Mr. Cavazos. It could be. That could be. But based on certain
programs implemented in the credit union.

Mr. Barrett. Your field of membership for your institution, is it
geographical? What is your field of membership?

Mr. Cavazos. It was chartered in 1938, Congressman. The field
of membership is based on the Ferndale Cooperative. So if an indi-
vidual joined the Ferndale Cooperative, they then could join

Mr. Barrett. Today, what is the field of membership. In your
testimony you made reference to a parish and a geographic area,
so obviously, that is not the same thing.

Mr. Cavazos. Right. Throughout the years we have assisted
credit unions that have been in areas or smaller credit unions that
may have been in trouble providing some of the services to their
members. Some of them might be the People's Community Credit
Union in Detroit, the Afi-ican Methodist Credit Union in Detroit,
where we have our southwest office. Thirty years ago it was Holy
Redeemer Parish Credit Union. What we made a commitment to do
was to go in there, keep the services to the members of that
community.

Mr. Barrett. So how many of yours have a geographic field of
membership, or do they all?

Mr. Cavazos. It is not just that particular branch. We have ap-
proximately— I say approximately because we have two new cen-
ters going up, but they are across the State of Michigan, they can
be. An example. Grand Rapids, Michigan, we have a facility.

Mr. Barrett. So that — don't you think that a branch or an insti-
tution with a geographic membership is more similar to a bank or
a savings bank? Because you don't really limit.

I am a member of a credit union. I like credit unions, but once
you start moving away from your traditional cooperative motto to
a geographic membership, I think you are branching out into new
areas.

Mr. Cavazos. Well, I don't share that same opinion. Congress-
man, because I think the uniqueness of the credit union is that it
is a membership-owned, and we do have a volunteer board, and we,
in those particular communities that we serve, have liaison com-
mittees that we meet with, that are representatives from that com-
munity membership. And so as identified in our charter, that is
who we serve.

It is not necessarily the geographic area. It is what is in that
particular charter that has been assigned to us, and that charter,
if it is identified as people who belong to the St. Matthew's parish
and their other affiliations, then that is the uniqueness of what the
credit union is doing.

Mr. Barrett. I am certain there are ones that have a strict or
solely a geographic field of membership. Do you think that those
should be treated differently? If the field of membership is people
who live in Detroit, Michigan, why should then you not require
them to serve the people who live in Detroit, Michigan?

Mr. Cavazos. Those that have a geographic definition by their
charter and that is their field of membership, that is all they can
serve in that particular geographic area.

Mr. Barrett. Don't you think that we should ensure that they
then serve the whole community. That is the whole essence of the
Community Reinvestment Act.

Mr. Cavazos. The way that the credit unions are structured,
they have to serve, by their own nature, they have to serve those
individuals that are members in that community. They have to,

Mr. Barrett. So why is it objectionable for us just to make sure
that that goal is reached?

Mr. Cavazos. Well, because in our case, again, Congressman,
through the — there is a study that is a report by the examination
of discrimination practices by credit unions, by NCUA, which is an
attachment, there is no — ^has been no evidence that credit unions
have violated any discriminatory practices in low-income areas.

Mr. Barrett. So there would be no problem in complying with
CRA?

Mr. Cavazos. Pardon?

Mr. Barrett. So there would be no problem in complying with
CRA?

Mr. Cavazos. No, if there is no evidence, why should we have an
additional layer of regulation which then increases the costs, and
so forth, which reduces services.

Mr. Barrett. Thank you very much.

Mr. Gutierrez. We have 10 minutes before the vote. I think that
is ample time as all of the members are real young and vigorous
here and in good health. So why don't we go to Congresswoman
Roybal-Allard, have her ask her questions and then we will recess
for the vote.

Ms. Roybal-Allard. I just want to pursue the same line of ques-
tioning that Congressman Barrett was following, because, unfortu-
nately, and I apologize, I missed most of the testimony, but based
on what I have been hearing is the main contention for having
credit unions fall under the CRA guidelines or requirements is be-
cause there is — it is unfair, is that what I am hearing the banks
saying, that it is not fair, that there is no level playing field, and
that is why credit unions should then be requirea to fall under
these requirements?

Is that the main reason for this, Mr. Mahoney? Do I understand
that correctly?

Mr. Mahoney. I don't know that the issue of competitiveness, or
let me come at it from this way. You know, it started out, and I
apologize for you missing some of my testimony, but if it walks like
a duck and talks like a duck, and so on, it is a duck. We are talk-
ing about certainly the larger credit unions here who have gone be-
yond what was originally their common bond.

More importantly, I guess, the answer is, my institution was
formed 123 years ago back in 1871. We came forward to 1977. We

might have argued the same types of things that we have heard
here today and certainly I have been one of the ones who have bent
Congressman Kennedy s ear on changes, but it is within changing
the process of compliance. It is not looking to override so much the
law.

What has really come to the forefront here is the demonstration
of whether it is a need or not, but by whose standards? And, cer-
tainly, Congress represents the people, and therefore, it is their
standards, and certainly we as banks have always been willing to
comply with this issue, and that is really what we are talking
about now. For those larger institutions coming up and competing
directly with us, they should also comply with the same standards.

Ms. Roybal-Allard. But even in terms of the larger institutions,
my understanding is they are still nonprofit organizations, regard-
less of the size, credit unions are still nonprofit. Banks are for prof-
it. So I mean regardless of size, there is still that basic difference.
Regardless of size, the boards of credit unions are volunteers;
banks, they are not.

You have shareholders in banks. My understanding is that the
money — I believe when I came in, Mr. Cavazos, you were saying
that 80 percent of the profits go back to the community itself. Is
that correct?

Mr. Cavazos. Yes, Congresswoman. The 80-percent figure was
we invest back into the members in the respect of loans. And of
that, 60 percent or 65 percent in our case are loaned out in
consumer-type loans and the balance of it is in mortgages.

Ms. Roybal-Allard. OK Mr. Mahoney, what percentage of your
profits go back actually to the community? Does it go to your share-
holders? I mean in comparing the two, if 80 percent go back to the
community for credit unions, what percentage

Mr. Mahoney. Congresswoman, first of all, let me clarify, I am
a mutual institution, so I don't have shareholders. My bank is
owned by the depositors. So any money that we earn certainly is
held in reserve to comply — I have to be careful on this answer, be-
cause I have my chief regulator next to me — to maintain the safety
and soundness, the future safety and soundness of the institution.
There is a certain thing that we recognize in terms of what we do
in our community and what we put out of the institution into the
community.

For any community to advance, there has to be a weaving of the
institution, any financial institution into that character of the com-
munity. And we certainly have done many things in order to do
that.

In terms of actual dollars, I don't have that exact figure, but I
can tell you some of the things, and you could probably get a cer-
tain conclusion on it. We have put a branch of the bank in the high
school that is run by the high school students themselves. We take,
I believe it is 2 percent of our pretax earning and set that aside
for community development projects.

We are not considered, or as a mutual, we are not a cash cow.
We don't continue to build up profits and so on for the sake of
building them up. We keep whatever is necessary to continue and
move on the safety and soundness of the institution. I cannot speak
for what stock institutions do, or stock banks.

Ms. Roybal-Allard. OK. What I was trying to understand is,
there obviously is some benefit to being a bank over a credit union.
Otherwise, banks would be changing their charters to become cred-
it unions, and I am trying to understand what those advantages
are, so that I can better judge whether there is an unfair playing
field here or not. Can you elaborate a little bit on that?

Mr. Mahoney. Well, I think the key thing going, again, we are
talking about, at least fi-om my perspective, larger institutions. We
are not talking about the smaller, $2.5 million credit imions. We
are talking about the larger ones.

Ms. Roybal-Allard. I understand. Let me just say that regard-
less of size, though, the structure is the same; there are still volun-
teer boards. They are still not for profit, so I understand to some
degree what we are talking about about size, but, nevertheless, the
structure remains the same. So I am having a little bit of trouble
understanding why size is as important as you are claiming that
it is.

Mr. Gutierrez. Do you want to answer that question quickly?
We have 3V2 minutes to vote, so take 10 seconds.

Mr. Mahoney. Well, I am not sure I understand the question
about size, or even the issue about the volunteer workers. Cer-
tainly, for example, we heard some of the testimony here of those
trying to change to become a thrift institution and so on, or a mu-
tual institution. As a matter of fact, I was thinking I might apply
for a job, now that I have heard what the salaries are, at Mr.
Cavazos' credit union. Certainly, it makes it worthwhile to do that.

Mr. Cavazos. We don't have that stock option, though.

Mr. Gutierrez. We will come right back, but we will lose our
jobs if we don't go and vote. Thank you very much. We will be right
back to finish questioning of this panel.

[Recess.]

Chairman Kennedy. The subcommittee will please come to
order.

There being no further questions for this panel, I want to thank
all of the members of the panel for their patience in answering
questions and their understanding about the floor schedule this
morning and the interruptions that inevitably take place. I thought
all of you gave good testimony and we are looking forward to work-
ing with you as we close in on what the appropriate action is that
the Congress will take on this issue. But thank you all very much
for coming and sharing your testimony with us.

I would now like to ask our second panel, and since at one point
we were going to have both panels together, let me read off the
names briefly of who we are expecting. Ken Fergeson; retired Vice
Adm. Tom Hughes; Richard Mount; and Carol Aranjo. Please come
forward.

Evidently, Richard Mount has a flight to catch so we will try to
be accommodating. Mr. Mount is president of Saratoga National
Bank, president-elect of the Independent Bankers Association of
America and he serves as the IBAA State director in California and
he is chairman of the IBAA's Public Relations and Advertising
Committee.

Thank you very much for appearing before us, Mr. Mount. Please
proceed for 5 minutes.

STATEMENT OF RICHARD MOUNT, PRESffiENT, SARATOGA
NATIONAL BANK, SARATOGA, CA

Mr. Mount. Thank you very much, Mr. Chairman. Distinguished
members of the subcommittee, my name is Richard Mount, as has
been mentioned, and I am president and CEO of Saratoga National
Bank located in Saratoga, California. Today I am pleased to appear
before you as president-elect of the Independent Bankers Associa-
tion of America, the only national trade association that exclusively
represents the interests of our Nation's community banks.

With your permission, I will summarize my remarks and submit
my entire statement for inclusion in the record.

Chairman KENNEDY. Without objection, so ordered.

Mr. Mount. I commend you on convening this hearing today on
two subjects that are near and dear to the hearts of commercial
bankers, credit unions, and CRA. And I honestly believe that if you
had thrown in nonbank banks, the foreign credit system, and other
financial service providers, we would have the majority of our 6,000
members here today. But while these subjects can be controversial,
they are important subjects that deserve serious and thorough at-
tention and soon.

The Community Reinvestment Act is the law of the land and
community bankers are committed to the effective implementation
of this statute. Community banking and community lending, in-
cluding lending to low- and moderate-income areas, is the lifeblood
of our industry.

Last year, President Clinton called for reform of the CRA proc-
ess, and the regulators issued a proposal for public comment. We
support parts of that proposal, particularly the proposed stream-
lined examination for small institutions.

At the same time, we do not believe CRA will be fully effective
until it is applied to all sectors of the financial services industry.

Should the credit unions be involved in CRA? I think the answer
to that is an unequivocal yes. And the remainder of my testimony
today will be devoted to explaining exactly why.

It wasn't long ago, Mr. Chairman, that banks and thrifts held
roughly 70 percent of the assets in our Nation's financial services
industry. Today, we hold less than 30 percent. While banks and
thrifts have been losing market share, the growth of the credit
union industry has been nothing short of phenomenal.

Since 1980, share growth in credit imions has gone up 450 per-
cent, and loans have increased roughly 360 percent. At the end of
last year, total assets held by credit unions approached nearly $300
billion, and they had more than 65 million members. There is no
longer any valid argument for continuing to exclude this industry
from the requirements of CRA.

Credit unions argue that they should not come under CRA be-
cause they are already fulfilling the spirit of CRA. Unfortunately,
fulfilling the spirit of the law is simply not enough. More impor-
tantly, we believe that there is a strong case to be made that credit
unions are not even fulfilling the spirit of the law itself.

They also argue that since CRA is a geographically based law,
it should not apply to credit unions since, and I quote fi'om the
September 12 NAFCU newsletter, "most credit unions do not serve
their members based on where they live." Well, I would certainly

agree with that statement. In fact, most credit unions serve their
members based on whether they Hve, rather than where they hve,
but I will get into that a little bit later in my testimony.

Since credit imions accept deposits from all segments of the com-
munity, there is absolutely no justification for exempting credit
unions from the reasonable requirement that they meet the credit
needs of all segments of their community, including the low- and
moderate-income segments.

In adopting CRA, Congress stated that regulated financial insti-
tutions have a continuing and affirmative obligation to help meet
the credit needs of the local community in which they are char-
tered. The law does not define community in geographical terms.
In fact, military banks define their community to include its entire
deposit customer base without regard to geographic proximity.

Mr. Chairman, since the common bond issue is so central to the
question of credit union membership and therefore the applicability
of CRA, I would like to spend a few minutes explaining this issue
in more detail.

The Federal Credit Union Act of 1934 said credit union member-
ship should be limited to groups having a common bond of occupa-
tion or association, or to groups within a well-defined neighbor-
hood, community, or rural district.

Since 1989, the National Credit Union Administration, the indus-
try's regulator, has been unraveling this fundamental statutory
principle of membership. Recent NCUA actions have expanded the
common bond rule to permit virtual unlimited membership. I draw
your attention to this ad from a Wisconsin credit union which I will
submit for the record. Basically, what the ad says, point-blank,
anyone can join.

Yet, there is no requirement that credit unions serve all seg-
ments of their communities, including the low- and moderate-in-
come areas. More importantly, since credit unions are exempt from
CRA, there is no evaluation of a credit union's performance. Even
credit union members do not have access to the type of public eval-
uation on the credit union's community performance that can be
obtained from any bank or thrifl in the Nation.

What public policy purpose is served by not performing a CRA
analysis? Do we just allow credit unions to continue to expand
without considering what services are being provided, and where
they are being offered?

In July 1991, the U.S. General Accounting Office issued a report
on the NCUA's relaxation of the common bond requirement.
Changes to the common bond principle should be decided by Con-
gress and not by the NCUA. We hope that this hearing will be the
first step in that process. Credit unions today bear little resem-
blance to the credit unions originally chartered by Congress.

As you, Mr. Chairman, noted in the American Banker last week,
when credit unions were small organizations, the argument that
they were fulfilling the requirements of CRA did make some sense.
Toaay, however, many credit unions operate just like a bank or a
thrift. Many of them operate across State lines. Yet, unlike banks
and thrifts, credit unions are under no obligation to serve the low-
and moderate-income segments of their community.

CRA is premised on the finding that banks and thrifts have a
continuing and affirmative need to help meet the needs of the local
communities in which they are chartered. This finding stemmed
from the view that government has granted these institutions spe-
cial privileges including charters to do business, deposit insurance,
and access to the Federal Reserve discount window as well as the
Federal Home Loan Bank System.

Mr. Chairman, I note that credit unions have all of these special
privileges, just like banks and thrifts. And they also have a very
special privilege of a tax exemption.

Chairman Kennedy. We have got to wrap it up, Mr. Mount.
Your 5 minutes ended a couple of minutes ago, and we have to be
fair to all of the other panelists. Why don't you take another 20
seconds.

Mr. Mount. Just to wrap it up, it is our opinion that community
banks challenge the credit unions to step up to the CRA plate. If,
as they contend, they are complying with the spirit of CRA, then
extending this law should pose no problems for them. If credit
unions are not complying with the spirit of CRA, then the public
and our communities are entitled to know about it.

Thank you, Mr. Chairman, for the opportunity to present the
views of our Nation's community banks. I would be happy to an-
swer any questions that you may have.

[The prepared statement of Mr. Mount can be found in the
appendix.]

Chairman Kennedy. Thank you very much.

Our next witness is Admiral Hughes. Admiral Hughes is a re-
tired vice admiral, president, and CEO of the Navy Federal Credit
Union, which is the largest credit union in the United States, with
over $8.2 billion in assets. He appears today to represent the Na-
tional Association of Federal Credit Unions.

Vice Admiral Hughes is a member of the board of directors of the
Baltimore branch of the Federal Reserve Bank of Richmond and is
a former member of the Thrift Institution's Advisory Council and
is, most importantly, an old roommate of my father's. So it is a
pleasure to have Vice Admiral Hughes with us this morning and
we look forward to your testimony. Please proceed.

STATEMENT OF VICE ADM. THOMAS HUGHES, PRESIDENT AND
CEO, NAVY FEDERAL CREDIT UNION, VIENNA, VA

Admiral Hughes. Chairman Kennedy and members of the Sub-
committee on Consumer Credit and Insurance, I am Tom Hughes,
vice chairman. National Association of Federal Credit Unions
[NAFCU], that is, and president and CEO of the Navy Federal
Credit Union. I thank you for the opportunity to express NAFCU's
views with respect to the relationship of credit unions to the Com-
munity Reinvestment Act.

The National Association of Federal Credit Unions is the only na-
tional organization dedicated to exclusively representing the inter-
ests of our Nation's federally chartered credit unions. As federally
chartered credit unions, NAFCU membership is made up of non-
profit, member-owned financial cooperatives from throughout the
Nation that collectively have 18.6 million members and almost $91
billion in assets. Navy Federal Credit Union is the Nation's largest

credit union, with over 1.4 million members and assets of $8.4 bil-
lion.

I have a short opening oral statement and a longer written one,
which I request be submitted for the record.

Mr. Chairman, every credit union takes very seriously its statu-
tory mandate found in the Federal Credit Union Act to make more
credit for provident purposes available to people of small means.

The motto, "not for profit, not for charity, but for service," cap-
tures the essence of credit unionism. Credit unions' primary focus
is on service, a characteristic distinguishing them from other finan-
cial institutions. There is no group of stockholders or outside third
parties for whom profits must be generated. Thus, credit unions
offer a sharp contrast to the profit-oriented institutions of the fi-
nancial services industry.

Our experience at Navy Federal Credit Union epitomizes the
dedication of all credit unions in meeting the credit needs of all of
their members. We are a large credit union — 1.4 million members,
as I said — serving many, many, many low- and moderate-income
people throughout the world. I would like to think of us as the larg-
est small credit union in the world.

Let me share with you a few of our statistics: 680,000 members,
or 52 percent of our entire membership, have less than $100 in
their share savings account; 350,000 of these members have less
than $10 in their share savings account. One-third of our consumer
loans are for less than $2,500, which is the smallest loan some
large banks will make, given processing costs. We have no low limit
to how much you can borrow.

It may be tempting to dismiss anecdotal evidence about one cred-
it union, however, in order to assist the subcommittee, NAFCU has
conducted a survey of its members. That survey, which is detailed
in my written statement, clearly shows that credit unions have not
lost their commitment to members of limited means.

Mr. Chairman, there is absolutely no compelling reason to bring
credit unions under CRA, We don't know the benefit that would be
gained. Credit unions' cooperative form of ownership doesn't
warrant it and credit unions' record of member service doesn't
justify it.

Credit unions are not a part of the problem. Credit unions are
a part of the solution when it comes to CRA. Credit unions offer
a number of specific services that are tailored toward meeting the
special needs of low- and moderate-income members. These include
offering their members financial counseling, special programs
geared for first-time borrowers and special programs to ensure that
minority borrowers receive equitable treatment.

At Navy Federal Credit Union, we provide every avenue feasible
to meet our low- and medium-income members' credit needs. These
programs include totally free checking accounts, ATMs throughout
the world, and free budgetary counseling. We operate our offices,
many of them, at a loss, particularly overseas to take care of the
service people assigned there. By the way, we are over there be-
cause the Congfress asked us to go over there.

Our Utility Deposit Guarantee Program helps young enlisted
personnel to get their utilities turned on upon arrival to a new
duty station without having to put up large deposits up front. Es-

sentially, we pay these deposits. Of 27,500 mortgage loans made in
1993, 40 percent were to members who had less than the median
metropolitan statistical area income, and 24 percent of these with
less than 80 percent of the median metropolitan statistical area
income.

Finally, we offer three mortgage programs specifically geared to
low-income borrowers. Mr. Chairman, again, the NAFCU survey
shows that our experience in providing for credit needs of our mem-
bers is typical of credit unions in general.

In summary, Mr. Chairman, credit unions were formed primarily
to serve the needs of their members wherever they may be located,
not to meet the needs of a geographic area. Credit unions were es-
tablished to serve the underserved, and credit unions are still ful-
filling that mission.

Mr. Chairman, this concludes my prepared statement. Again,
NAFCU appreciates the opportunity to share our views with you on
these issues, and I look forward to answering questions of the
members of the subcommittee.

[The prepared statement of Admiral Hughes can be found in the
appendix.]

Chairman Kennedy. Thank you very much, Admiral Hughes.

Our next witness is Carol Aranjo, who is the manager of D. Ed-
ward Wells Federal Credit Union in Springfield, Massachusetts.
She appears today on behalf of the National Federation of Commu-
nity Development Credit Unions. Her organization represents 120
credit unions in 30 States.

Thank you very much for being — is it Mrs. Aranjo — thank you for
being here and please proceed for 5 minutes.

STATEMENT OF CAROL ARANJO, TREASURER/MANAGER, D.
EDWARD WELLS FEDERAL CREDIT UNION, SPRINGFIELD, MA

Ms. Aranjo. Thank you for inviting me to speak. Seeing how I
am a member of the ethnic group that this subcommittee is seeking
to give more access to financially, I would like to say that the fed-
eration does not think that CRA should apply to credit unions
today, and one of the reasons that we feel this way is that there
is a difference between credit unions and banks, and I know you
have heard this all day. I am going to talk about it from a different
angle.

I am an African-American. I believe that without economic
empowerment, we cannot lift ourselves up the American way. I am
against CRA in its form today for anyone. I don't think it works.
Banks to me use CRA — every single book that I have gotten on
CRA, a lot of it is charity work. It does not do much to empower
the people of the community in which you are looking to serve.

Credit unions do empower people to help themselves. I am not
sure how CRA, if it were applied to credit unions today, would help
to empower people. It may not. If it is just paperwork, it may
hinder.

On the regulatory front, we believe under the leadership of
Chairman Norman D' Amours, the National Credit L^nion Adminis-
tration has made considerable progress in addressing the issues re-
lated to mortgage lending discrimination and related matters.

It is important to note that all credit unions do not originate
mortgages. This in itself could account for some of the statistical
differences in loan approval rates between credit unions and banks.
We hope and expect that mortgage lending by credit unions will in-
crease, predominantly in the minority areas.

We are confident that under the leadership of Chairman
D'Amours, NCUA will develop proper guidelines to ensure that
credit union lending is carried out in a strictly nondiscriminatory
manner. We are also pleased that NCUA recently issued new field
of membership guidelines which will make it possible to expand
into low-income areas more readily.

NCUA did speak with the federation when drafting these new
regulations and we are pleased that the agency adopted our sug-
gestions to build safeguards into the credit union expansion proc-
ess, with the express purpose of assuring that lending discrimina-
tion, intentional or unintentional, does not result. The national fed-
eration intends to monitor developments in this area, and we have
every expectation that NCUA, under Chairman D'Amours' leader-
ship, will aggressively and effectively monitor expansion situations
to ensure that no proolems result.

With regard to the matter of the burden of CRA regulations, we
do not believe that the Massachusetts CRA regulation is com-
parable to the Federal CRA law. As a resident of Massachusetts,
and in all due respect to Banking Commissioner Curry, if he were
to come into my community, the banks could not get the great CRA
rating from our community that they have been receiving from the
regulators.

Finally, with regard to the matter of placing funds in risky for-
eign-controlled investments, we do not hold ourselves out as ex-
perts of the level of risk that may or may not be involved. We know
that NCUA is looking into the matter of corporate credit unions
and we would like to see them pursue their study to its conclusion
and engage in full dialog with the credit union industry or any pro-
posed regulatory changes before any legislative action is pursued.

Needless to say, we are intensely interested in increasing invest-
ment in low-income communities. We do not believe that there is
much that the Federal Government can do in this area. First of all,
what we would like the Federal Government to do whenever it can
is to expand the scope of existing secondary markets. Simply put,
existing secondary markets have not done nearly enough to facili-
tate lending to low-income people. They could do a great deal more,
especially by working through institutions like community develop-
ment credit unions.

I will be open for any questions.

[The prepared statement of Ms. Aranjo can be found in the
appendix.]

Chairman Kennedy. Thank you very much, Mrs. Aranjo, for
your testimony.

And our final witness is Mr. Fergeson. Ken Fergeson is the chair-
man of the National Bank of Commerce in Altus, Oklahoma. He is
also the director of the Federal Reserve Bank in Kansas City, a di-
rector of the Oklahoma Industrial Finance Authorities, a trustee of
the Oklahoma Development Finance Authority, and a director of
the State Chamber of Commerce.

You are a busy fellow, Mr. Fergeson. Anyway, thank you very
much for appearing before us today and please proceed for 5 min-
utes.

STATEMENT OF C. KENDRIC FERGESON, CHAIRMAN,
NATIONAL BANK OF COMMERCE, ALTUS, OK

Mr. Fergeson. Thank you, Chairman Kennedy. I would like to
thank you for the opportimity to discuss the application of CRA to
credit unions today.

Since 1977, when CRA was passed, there has been a massive
change in the credit union industry as well as the overall financial
markets. In view of those changes, I think it is appropriate for
Congress to reevaluate which institutions are covered under the
statute.

Today, I would like to make three points, if I could. First, I be-
lieve that credit unions should be included under CRA. They look
like banks, they act like banks. In fact, they compete with me di-
rectly for deposits, they compete directly with me for loans in my
local market, and there is no reason that they should not be held
to the same community standards.

Second, because banks represent less than 25 percent of the
financial markets as opposed to 33 percent in 1977, I think it is
appropriate for Congress to review the role of financial service pro-
viders that are meeting the community needs today.

Third, we must reduce the red tape and the complexity of CRA
compliance to make the system more flexible for all institutions.

Mr. Chairman, the credit unions will tell you that they are al-
ready doing a good job of meeting the credit needs of their mem-
bers, and mat there is no need to include them in CRA, but who
are their members? According to their own survey, they have an
average household income 27 percent higher than nonmembers.
They have more years of education, they are more likely to be fully
employed, and they are more likely to be homeowners. In other
words, they have a blue-collar image but the credit union industry
really serves an affluent and well-educated group of people.

How did they get this way? Part of the answer is that they can
cherry pick those areas and groups that they want to serve. The
virtual collapse of any reasonable, common bond requirement
means that they can simply redefine and extend their membership
as they see fit. And unlike banks, credit union mergers are not sub-
ject to a CRA review, so a credit union can expand to a market
without any regard to serving low- to moderate-income areas, and
they can cherry pick the market that they want to serve. Even
credit unions with geographic common bonds have no obligations to
serve the low- to moderate-income communities in their areas.
These credit unions are virtually identical to banks, but they have
no CRA responsibility,

Mr. Chairman, let me tell you what my bank is doing. In addi-
tion to our regular CRA compliance, we have $100,000 in a CDC,
a community development corporation. Half of this corporation is
used to help people with low to moderate income into homes and
the other half is used to revitalize the downtown. We are in a small
town, and like a lot of small Midwest towns, the downtown area

is deteriorating and we are trying to help that community. These
projects are important to my community's economic health.

I compete with Tinker Credit Union, which has $830 million in
assets It is 10 times larger than I am. Their membership is vir-
tually unlimited. Here is 4V2 pages of fine print of membership
that can get into Tinker, and even I can belong to Tinker because
I have a relative that is getting a Social Security check.

In addition to that, I compete with the Red River Credit Union.
Red River Credit Union in my hometown is a credit union that is
a geographic credit union; they have 10,500 members. There are
only 30,000 people in my whole county.

Chairman Kennedy. I would like to see that piece of paper.

Mr. Fergeson. I would be happy to submit that.

Chairman Kennedy. Would you like to submit it for the record?
Without objection, so ordered.

[The information referred to can be found in the appendix.]

Mr. Fergeson. In addition to Tinker's membership, they don't
even want to respond to the local community. Last week in the
Journal Record in Oklahoma City, it was reported that Tinker
Credit Union wants to receive a Federal charter so that they can
avoid any State and local taxes. They claim by changing to a Fed-
eral charter that they can ignore $200,000 in investment back into
the State of Oklahoma.

Is it feasible to apply CRA to credit unions? Certainly, it is. In
credit unions with a geographic bond it would be appliea simply as
the way we do commercial banking. Other credit unions can pick
from the menu of services, investment options for compliance, just
like wholesale banks or credit card banks do. They could invest in
community development credit unions or other nonprofit entities;
they could invest in securities issued under the low- and moderate-
income housing programs by Fannie Mae £ind Freddie Mac.

Mr. Chairman, the bottom line is that applying CRA to credit
unions is feasible and it will increase the resources available to
help low-, moderate-income communities, and I strongly urge you
and members of the subcommittee to continue to pursue the
matter.

Thank you very much.

[The prepared statement of Mr. Fergeson can be found in the
appendix.]

Chairman KENNEDY. Thank you very much, Mr. Fergeson.

I want to thank all of the witnesses for your testimony this
morning. I have a couple of comments that I want to make and
maybe a couple of quick questions.

But, first of all, I want to say to Mr. Mount that I was really just
delighted to hear your testimony this morning. Are you going to be
the head of the IBAA for the next year?

Mr. Mount. That is correct.

Chairman KENNEDY. Terrific. Because sometime you are going to
come back before this subcommittee and I am going to remind you
of this little quote that you just gave me, which is credit unions ac-
cept deposits for their — ^from their community that they define by
a common bond.

There is no justification for exempting credit unions from the
reasonable requirement that they meet the credit needs of all seg-

ments of the community, including low-income, moderate-income
segments, regardless of how that common bond is defined. So I will
look forward to working with you, Mr. Mount, on these areas of
mutual agreement.

Admiral Hughes, I understand the resistance on behalf of credit
unions obviously to take on the additional burden of CRA. We, a
few years ago, had a very difficult fight on the public disclosure of
HMDA data and CRA evaluations. Now, as I understand, the Navy
Federal Credit Union had one of the worst statistical records in
terms of black to white denial records for home mortgages of any
of the institutions around the country, and that you have done
really an excellent job over the course of the last 2 or 3 years of
trying to improve that record; is that true?

Admiral Hughes. Yes, sir. We really did not want to attack — al-
though I think there are reasons to attack it — ^the HMDA data it-
self. We have such a high mortgage approval rate, we approve
nearly 99 percent of the loans that we get. So by looking only at
the denial side of it, a few loans really twists the comparisons
around. Instead of going after the numbers and fighting the data,
I decided that our philosophy would be to go after discrimination.

What we really want to do is stop the discrimination and to hell
with the numbers and the data. We have put a lot of effort into
that. As a matter of fact, I am very happy to say that, whether it
is a direct result of our training efforts or not, we were at 1.0
(black versus white denials). In other words; the percent of denials
of whites and black was equal last year. We weren't going after the
numbers, but we are going after training our people and making
sure that everybody treated the members properly without
discrimination.

Chairman KEN^^EDY. I appreciate that. If I could just make the
point, though.

We have heard Mr. Fergeson testify, and he hands out this piece
of paper which was pretty incredible in terms of the total number
of organizations that can come out — come under any of these — 1
suppose any of the employees under all of those

Mr. Fergeson. Or live in areas, too.

Chairman Kennedy. Or live in those areas can join this credit
union, which might be an extreme case, but nevertheless reflects
the concern that I think the subcommittee is trying to deal with,
which is that as long as you have a very well-defined group of indi-
viduals that work for a particular company, if you have a small
business in my own district that happens to have a small credit
union, I don't have any reason to believe that there is a difficulty
with regard to meeting the community needs. Where you have
very, very large credit unions that are, for instance, the largest
lenders, as we heard testimony earlier in the day, in entire areas
of a State like Massachusetts, it makes sense to hold them to the
same community reinvestment standards as banks and thrifts, es-
pecially if — as HMDA shows — they are doing a poorer job of serving
all residents of a given community.

You have taken on the job, I think to your credit, of fixing up
an issue that might have been a problem in the Navy Credit
Union, and you have made an effort to deal with it. All we are try-

ing to do is create a framework where that same kind of effort will
be made by other credit unions.

I am not suggesting that that should take place for all credit
unions. But maybe where there are these attempts by credit unions
to get very, very big, to be, you know, paying banker-type salaries,
to be getting far away from what was the original purpose of pro-
viding the tax breaks as well as the regulatory breaks that many
credit unions enjoy, don't you think that it is kind of reasonable for
us to expect that if the institutions themselves are going to stretch
the envelope that far, that we ought to be saying, well, maybe you
ought to at least make certain that there isn't racial discrimination
taking place?

Don't you think we ought to say, you know, maybe we ought to
make sure that you really are meeting the credit needs of all of the
people in the community, not just a certain select group? Don't you
think that is just sort of a reasonable thing for us to be asking?

Admiral Hughes. If I may take the question in parts. First of all,
I am very surprised at Mr. Fergeson's testimony. In the ABA Bank-
ing Journal last February, he is quoted as saying, "I wouldn't wish
CRA on anybody," he says, including even his nemesis, the Red
River Credit Union. "I would rather spend the time working to re-
lease banks from CRA than trying to bring everybody else into it."

Chairman Kennedy. Well, I am sure that is true.

Admiral HuGHES. I am surprised that that is not quite con-
sistent.

Chairman KENNEDY. But I am glad to see that Mr. Mount dis-
agrees with him.

Admiral Hughes. But the other point that I wanted to make is
that the NCUA, as our agency regulator checked out, as a followup
on the — in specific cases on the HMDA data, and I think the
HMDA data may have been a flag that people should go out and
look at — but the statistics are very weak for the reason I gave you,
that 99 percent of our mortgages are approved. We are playing
with 1 percent out-of-the universe and any skewing of that really
changes the figures quite significantly.

We did a lot of things as a result of that, including increasing
our programs. We have a Low-income Program; we put $5 million
toward that, and we cannot sell those on the secondary market, we
must sit with them for low-income people. So there are things that
we have done to try and facilitate better the low-income require-
ments.

But the NCUA, in looking at the whole system, said that they
did not find any aberration or discrimination, open discrimination,
in its look at the credit unions.

So open discrimination doesn't exist. The statistic was there. The
statistic put up a red flag. It was looked at in detail and the bottom
line is that it really was not discrimination in his opinion.

One of the things that you mentioned is that large credit unions
or fat credit unions or community credit unions or anything like
this ought to be included and somebody else ought not. First of all,
the community credit unions only make up 7 percent of the credit
union world, 7 percent you are talking about. That is — the credit
unions are not a matter of large and small or other make up, it
is a matter — that credit unionism is different and it is a unique ap-

proach to personal finances. It is people, whereas you are talking
about community infrastructure.

Credit unions use the money of people loaning to each other. It
is a cooperative organization. To take their money and put it any
place, we are very hesitant and reluctant. I think that you have to
keep in mind this alternative process that is available to the Amer-
ican people that should not be destroyed. It is democratic, it is one
vote per person, it is run by volunteers, and all the other character-
istics of it that I could go down and read off are things that are
attractive to the American public.

Chairman Kennedy. I am sorry, Admiral, but I have got to let
the other members of the panel ask their questions. I appreciate
your testimony. I would just point out that when you say it is run
by volunteers, I think the last panel had a volunteer who is earn-
ing $198,000 a year, so not exactly volunteers. But in any event,
I appreciate the witness' testimony.

And I think Nydia Velazquez has been waiting the longest.
Nydia.

Ms. Velazquez. Thank you, Mr. Chairman.

I would like to hear the reaction to this question from Admiral
Hughes and Ms. Aranjo. Is it valid to continue to lump all credit
unions together and treat them alike? Should we distinguish be-
tween credit unions, depending upon their size, composition, or
structure?

Admiral Hughes. The structure of credit unions is uniform, and
it is overseen by an agency of the government assigned to oversee
it. I think that he looks at the problem of discrimination, or HMDA
and all of these other issues, and his examiners look into that, and
they report to him on it.

I think that the integrity of that particular alternative process
for personal finances of the American public is something that
should not be destroyed. By taking bits and pieces of it apart and
putting it under different aegises, I think in the end, if you want
to destroy the credit union philosophy, the credit union approach
and its organization, structure and what have you, this is the way
to do it. It is a good program to follow. Just take pieces and put
each of it under somebody else, it will destroy it.

Ms. Aranjo. No, I do not think credit unions should be treated
differently, because your size does not determine whether or not
you discriminate, it is your attitude. I cannot sit here in good con-
scious and say there is no discrimination in credit unions or any
other financial institutions. This is America. There is discrimina-
tion, OK? But it is not by size, it is by attitude.

I would also like to say that I have been with the credit union
industry for 10 years. When I first came to the industry, they did
a compliance exam of all of the Equal Credit Opportunity Act and
different things. Under Chairman Roger Jepson, they stopped
doing that. They haven't done it in my credit imion for about 5
years. I don't know if they are doing it elsewhere. I would rec-
ommend that they go back to it.

As I said before, I do not personally — and my credit union board
I asked before coming and some of the credit unions in the federa-
tion, we do not believe that CRA as it is today actually works. So
to take something sort of defective before you fix it and use it to

bring in more people won't help us. We need — ^banks have the abil-
ity to raise capital and get investments that credit unions don't
have. And also, I also hear about the tax advantage.

Once again, take a good look at CRA in the banking industry. A
lot of what the banking industry does under CRA is charitable and
they write it off on their taxes. So as a credit union person and as
a member of the minority community, I would like to see this sub-
committee look at CRA and see how they can actually strengthen
it, and if there are things — and also ask NCUA to go back to the
compliance exams.

Chairman KENNEDY. Will the gentlelady yield to me for 1
minute?

Ms. Velazquez. Sure.

Chairman KENNEDY. You mentioned this a couple of times. I was
going to igfnore it the first time. But the fact of the matter; I think
you are dead wrong about CRA, I would say that there is a fellow
sitting behind you, Tom Callahan, who does not run a charitable
organization, but has in fact gotten hundreds and hundreds of peo-
ple home mortgage loans in the city of Boston and in the surround-
ing neighborhoods, only because of CRA.

Now, I am not saying it is perfect and I am not saying that it
works well and I am one of its biggest critics for not being strong
enough. But I think you make a grave error by suggesting that
CRA ought to in any way be condemned for the hard work that we
try to ensure that it accomplishes. It doesn't do enough, it doesn't
do enough. But my goodness, ma'am, we are up here doing our best
to try to strengthen that law so that it does more.

It does us no good — ^you identified yourself as an African-
American. It does us no good to have you coming in here undercut-
ting our ability to strengthen that law, and I want to make that
very clear to you. There are hundreds and hundreds, and if not
tens of thousands of Afincan-Americans who have home mortgage
loans today only because of that law.

Ms. Aranjo. I would agree with you, sir, but there are also hun-
dreds of thousands of African-Americans today that still are unable
to provide for themselves, have to go somewhere else to get it, and
CRA does not today empower black communities.

And when you say — I know Tom Callahan and I worked with
him a long time, but in the State of Massachusetts, under CRA,
many banks will not give that same empowerment or that same op-
portunity that they g^ve to Mr. Callahan to serve people like me
and give us mortgages, to allow us to do it for ourselves.

And we are at a time in our life, the Afi-ican-American commu-
nity, where we would like to do it for ourselves, sir. And that is
the only thing that when I criticize CRA, I criticize it from an
Airican-American point of view that says, thank you. Congress.
You are doing a wonderful job. I am not knocking that. I am asking
that you allow something in your laws that empowers the African-
American community to do it for themselves.

Chairman Kennedy. Yes, ma'am. Thank you. I would agree with
you.

Ms. Velazquez. I would like to correct you also when you only
talk about the black community.

Ms. Aranjo. And the Hispanic community. Yes, I am sorry,
ma'am. You are correct.

Ms. Velazquez. OK Mr. Fergeson, I found quite interesting that
in today's testimony you recognize the obligation of financial insti-
tutions to help promote the economic well-being of communities
and encourage expanding the Community Reinvestment Act to
cover credit unions.

Is the ABA now recognizing the important role that the CRA
plays in spurring community investment? Is that why you endorse
CRA coverage of credit unions, or is your position a reaction to un-
welcome competition from credit unions?

Mr. Fergeson. The idea of CRA is, of course, a noble idea and
we have always embraced that. And I think what Mr. Hughes re-
ferred to a while ago is that while I wouldn't wish CRA on any-
body, I was referring at that time to the compliance burden of
CRA. The ideas of CRA are good, and I think that banks need to
continue looking at CRA and ways to improve it, and that credit
unions that are truly just like banks ought to do the same thing.

Ms. Velazquez. I welcome your transformation from the position
you expressed in that newsletter.

Thank you, Mr. Chairman.

Chairman KENNEDY. Thank you. I am sorry, I don't know who
was next.

Ms. Roybal-Allard.

Ms. Roybal-Allard. First of all, let me say that I was also very
interested and fascinated by Mr. Mount's testimony. Particularly,
I like the part of it where he says, community lending, including
lending to low- and moderate-income area is good for banking. I
have been trying to convince banks of that for the IV2 years that
I have been in Congress.

I represent an area where I have six cities with a population of
600,000 and only 55 banks as opposed to the more affluent area,
for example, of Pasadena which has 160,000 population and 50
banks. So I am hoping that you are going to make sure that the
banks understand that and that you will help us in our efforts to
promote that kind of activity, of banks moving into those kinds of
communities.

As I am listening to the testimony, I have picked up sort of the
same thing that Congresswoman Velaquez' questions did, and that
is that it seems to me a lot of the reasons that are being given as
to why credit unions should fall under CRA requirements is a long
list showing how successful credit unions have in fact been, and
that they are in fact offering a great deal of competition to banks.

And one of the reasons I would contend that is because they have
been able to fill a tremendous void that is in many, many commu-
nities such as the ones that I represent. But I am still trying to
be open and to understand the arguments that are being given by
the banks as to why this creates £m unlevel playing field.

One of the things that I hear as one of the reasons is the size
that the large credit unions perhaps should fall under the CRA re-
quirements. Yet, my understanding is that they are still, regardless
of the size of the credit unions, there are some basic fundamental
differences between banks and between the credit unions. And I

would like to go through that to see — to help me to understand
where these — if there are differences and where they are the same.

My understanding is that credit unions are nonprofit and banks
are for profit. Credit unions have volunteer boards and banks do
not; and based on a statement that was made by one of the earlier
panelists, he made the statement that was not disputed that 80
percent of the profits of credit unions go back to the membership.
And we had a vote and I did not get to ask the question of what
is the breakdown in terms of the profits from the banking
industry?

How do your profits break down as opposed to the 80 percent
that goes back to the members?

Mr. Mount. I would like to address that, if I can. A couple of
different things. With regard to the banking industry, in fact the
comment that was made to you, I think what the gentleman was
trying to tell you was that 80 percent of the deposits went back in
the forms of loans into the community that they served, not 80 per-
cent of their profits, OK?

Ms. Roybal-Allard. OK.

Mr. Mount. I think what we are sa)dng as a banking industry
is the fact that our market share is shrinking from year to year.
It is now down to less than 30 percent. We firmly believe in CRA
But as our market share continues to decline, we cannot be the
only engines to drive the CRA process. We need help. And I think
that help must come from other financial service providers, and
that includes credit unions.

It also includes brokerage houses, it also includes many, many
other types of financial service industries. We have less than 30
percent of the financial assets in the country today. But what you
would like to see done is impossible for an industry of our size to
do. I think all we are saying is that there are other financial serv-
ice entities out there that can help with this problem.

Ms. Roybal-Allard. But there must be some advantages to
being a bank versus the credit union. Because if there were not,
then all the banks would be changing and being chartered as Fed-
eral credit unions, and that is what I am trying to understand the
differences between the two in order to make a decision as to
whether I agree or disagree.

Mr. Mount. Well, let me answer that. The basic differences that
I can see at this point in time, of course, is that the credit unions:
Number one, are not under any CRA restrictions; number two, they
do not have any tax consequences at this point in time.

Ms. Roybal-Allard. Well, then why don't banks

Mr. Mount. I think you are going to see more and more banks
as time goes on look at credit union charters. In fact, that process
has already started.

Ms. Roybal-Allard. That will be real interesting

Admiral Hughes. If I may, you know, banks

Ms. Roybal-Allard. Based on the experiences we have had in
my district with credit unions.

Admiral Hughes. Well, banks really exist for profit for the share-
holders. It is in business to provide for the shareholders. In the
case of credit unions, it is people who put the money in, it is people

who borrow the money to put in there, it is a cooperative arrange-
ment.

Last night at my board, because we had a very good quarter, we
put a one-quarter percent increase bonus out to the share savings
account, one-quarter of a percent for the next 3 months. If extra
money is there and is generated in the business that we have, it
goes back to the people. And that is — ^you know, that is the nature
of the whole thing. This is an alternative to the American public
on how to conduct their personal finances.

Chairman KENNEDY. Excuse me. I want to find out if Mr. Kan-
jorski and Mr. Flake want to split the remaining time in order to
be able to — or would you rather take more time and come back?

Mr. Kanjorski. Come back.

Chairman Kennedy. You want to come back? That is fine. So we
will break for about 10 or 15 minutes. Paul and Floyd, if we could
come right back, I would appreciate it, OK?

We are in recess for about 15 minutes.

[Recess.]

Mr. Flake [presiding]. We would like to continue the hearing.
And questioning was — questions were being raised by Ms. Roybal-
Allard, and she will continue her line of questioning at this time.
As much time as you need, Ms. Roybal-Allard.

Ms. Roybal-Allard. I don't see Mr. Mount there, because I was
going to let him know that I represent all of the metropolitan
downtown area

Mr. Flake. He had to leave.

Ms. Roybal-Allard. I was just wondering if all of the banks
that are headquartered there in Los Angeles are aware of the fact
that at some point they may be credit unions.

Ms. Aranjo. Could I answer the Congresswoman's question?

When you asked what was the difference between credit unions
and banks, there are many differences beyond just a membership.
Credit imions can only raise capital through their lending and their
investments, and their investments are very regulated.

Banks can raise capital by just going out and selling stocks.
Banks can do investments. Banks can do securities. Banks can sell
insurance. Banks can sell uninsured instruments. Credit unions
cannot. I don't see a bank who would change in his charter and be
limited to how much money they can raise, and credit unions do
have those restrictions.

Ms, Roybal-Allard. Mr. Fergeson, if credit unions were to fall
under the CRA regulations and be treated in the same way as
banks, would then banks be willing to fall under the same require-
ments as credit unions then? In other words, so we are not talking
apples and oranges here, would your organization be willing to ac-
cept rules that would apply to Federal credit unions such as those
that prohibit the payment of director fees to more than one direc-
tor? You know, those kinds of things.

If you want level playing fields, then we need to have them for
both credit unions and for banks. So if you are saying that credit
unions should fall under the same guidelines as banks, then
shouldn't banks then fall under similar guidelines as credit unions?
And if no, why not?

Mr. Fergeson. No. As long as we are only talking about CRA
regulation as applying to credit unions and banks, then I think
that we are willing to fall under the same reflations. I think that
credit unions should have the same opportunities and the same re-
sponsibilities back to their communities as banks do.

The other things that you mentioned are structure changes, or
changes in whole laws. You were talking about nonprofit — or not
taxable entities, and you are talking about lots of different things
that really do not concern the community and what CRA means
back to the community.

Ms. Roybal-Allard. But that is really the basis of the argument
of the credit unions as to why they should not fall under the CRA
regulations is that structurally they are entirely different than
banks, and that they do give back to their membership rather than
paying profits to a board or shareholders. I mean, my understand-
ing is that is one of the bases for the argument against it.

So it seems to me that if you are arguing that credit unions
should fall under the same guidelines as banks, then banks should
fall under the same guidelines as credit unions. I fail to see why
there is a difference in one case and not in another.

Mr. Fergeson. I believe that credit unions, a lot of credit unions
pick and choose what regulations they want to come under. As I
pointed out, the Tinker Credit Union, their field of membership is
that almost anybody can qualify to be a member, but at the same
time they don't want to fulfill the obligations back to those commu-
nities. So they are picking and choosing what they want to do, they
are cherry picking those communities that they want, but at the
same time they have no obligation back to the community.

Ms. Roybal-Allard. But the majority of their profits, regardless
of the size of the community, still goes back to their membership;
it doesn't go to shareholders and others. I mean the structure, re-
gardless of the size, remains the same. It goes back to the member-
ship; it is still a volunteer board. Is that correct? Regardless of
size?

Mr. Fergeson. I don't know.

Ms. Roybal-Allard. Well, let me ask the credit union people to
respond to what is being said by Mr. Fergeson.

Ms. Aranjo. Yes, you are. I don't believe that credit unions just
pick the regulations they want to be under. We could say that
about everybody, banks pick the regulations, he is just not ready
to say have an unpaid board. That is a regulation for credit unions.

Would banks be willing to give up the right to go out and get
capital anywhere they want? That is a regulation. I don't think
they would give that one up. So, no. And credit unions, regardless
of size, have an unpaid board.

Ms. Roybal-Allard. OK.

Admiral Hughes. If I may just quickly. You know, to me, banks
are great. Banks are very important for the national payment sys-
tem and they have a role in life. Credit unions are an alternative
way for personal financing, for people. What we have goes back to
the people.

Wnat we are talking about here is the things that go back to
communities vis-a-vis me people directly. It is a different objective.
I don't have any problem with that. But in the credit union, it is

going back to the people and, to me, it is doing the same thing as
the objective of the CRA which is, put money back into the commu-
nity.

And we have a different mechanism that we are dealing with
people, and we give it back to them. So I think that is that there
is a place for both, credit unions are an alternative for the Amer-
ican public on how to do their personal financing, and I think there
is room for both.

Mr. Flake. Thank you very much.

Thank you, Ms. Roybal-Allard.

Let me just make several points and I think that my introduction
will make clear prettv much my position on this matter. I have the
distinction of not only being in Congress, but pastoring a church
with a credit union of which I chaired until I came to the Congress.

And as I listen to the testimony today, I find myself a bit dis-
mayed, because, first of all, I realize that there are some exception-
ally large credit unions that may be doing a lot of things that make
them competitive with banks. However, I find in communities like
the one that I serve that the majority of those credit unions are
small church-based credit unions, nonprofit, operating with individ-
uals who come to the credit imion after a day's work, give some
time, as much as they can. Generally, the majority of those credit
unions have a great deal of financial problems because they don't
have the wherewithal to even hire accountants and other people to
help them to be — make sure that they do the work appropriately
and properly, even though NCUA provides for some degree of
oversight.

Now, having said that, I find it interesting that here we sit, we
pretend that the credit unions represent such a major competitor,
taking such a major share of the market from the banking commu-
nity. I said it to the ABA convention and I say it again today. The
banks have lost their market share not because of credit unions;
they have lost their market share because they are not competitive.

At 3 o'clock, when they close the door, persons from GMAC, Ford,
GEC, and other entities are out in the marketplace. I can sit at my
dinner table as I did and sign a loan application for a home mort-
gage at 9 p.m., in fact, evening, long after the bank is closed. Much
of what the banks lose, they lose because they have not changed
their practices, they have not understood a responsibility to diver-
sify; they have lost market share because they made investments
abroad without understanding that there is a Third World commu-
nity in America that has been created by redlining, and that if they
made the same kind of investments in those communities, that in
most instances, there would not be a need for a credit union in the
first place.

Last, I would suggest to you that those persons who we service
in our credit imion are persons who on average are getting loans,
personal loans for $750— up to $750 to $1,000. They have come
there because they have been turned down by everybody else. It is
the loan source of last resort. And by the time they come to that
point and they are required to pay their $5 share to become a
member of the credit union in order to make the loan, these are
loans that banks would not ordinarily be making.

To Mr. Mount who left, that market share that he talks about
and even the list that you present, I suspect if we took your list
now of those middle-class persons who have accounts at that credit
union, they also have bank accounts, because there are so many
things that credit unions cannot do that the majority of us who
hold credit union accounts like I do, it is only because of my com-
mitment to support the existence of the credit union.

It has very little to do with my need for the credit union, but
more because if I did not keep a certain amount of money there
and some other people that we get committed to doing that, that
credit union wouldn't even be able to survive. So I don't know that
they represent a serious threat to the banks, because most persons
who I know, other than those persons who come, who live on the
edge, at the last minute have to make a loan, also have bank ac-
counts at commercial banks, because credit unions cannot service
their full needs.

So Mr. Fergeson, one of the things that I would suggest is even
in a marketplace where you are, where perhaps you do have a com-
petitor who is a major, large institution as a credit union, that is
just not the case in most urban communities. In most urban
communities, these credit unions are small, they operate out of
churches, they are run by volunteers; the only investments they
are making are in those persons, in those communities, because
those are tne people who in many instances don't even know the
credit union exists until they have a need for that loan.

And in many instances, pastors like myself even have to stand
up in the pulpit to remind them that God is not going to pay the
loan back for them. So we find ourselves crippled by the respon-
sibility for meeting a need that banks don't meet and then having
to go through the burden of trying to collect for loans that you don't
make in the first place.

So I would tend to think that CRA is good — obviously everybody
here in this room knows that I am a major proponent for commu-
nity reinvestment — but I don't want us to get to the point where
we are not looking at what ought to be targeted in order to one,
rebuild market share, and deal with the reality that the competi-
tion as it relates to community reinvestment from credit unions is
not the problem.

The problem is other people ate your market up while you sat
on the platform and, at 3 o'clock in the evening, closed the banks.
When the banks closed, other people came to people's houses,
knocked on doors, put out flyers, put out advertisements, and they
are working right now while the bankers are still sitting on the
platforms and doing the same thing.

And so I don't really have any questions, but you may respond
if you choose to before I recognize Mr. Kanjorski.

Mr. Fergeson. One response is I would love to have you as a col-
lector for me, if I could get you in the pulpit.

Mr. Flake. I will preach to you.

Mr. Fergeson. OK. Thank you. A couple of just real quick points
if I may. Again, I can only speak for my bank. In that last month
we made 43 installment loans, 23 of those were less than $2,000.
So we do make and we are responsive to loans. I think that CRA
does need to be flexible. The same regulation maybe doesn't need

to apply to a church credit union as it does to Tinker Credit Union
or Red River Credit Union that encompasses that whole world.

Mr. Flake. And I can appreciate that, because I think the small
credit unions would be put out of business. I mean, they are re-
sponding to the best of their ability to the requirements now. But
if thev really had a — and had to build in a component to try to re-
spond from a CRA perspective to the needs that they are already
meeting, most of them could not afford that, because they cannot
even afford — I have been at this church for 18 years; I was chair-
man of the credit union board for 10 years.

We hired a full-time person for the first time 6 years ago, and
we only were able to hire that person because the church sub-
sidizes that salary, otherwise the credit union would not even be
able to exist. And trust me, that is — I could take you to about —
there are about nine credit unions left. That is what is left from
the credit unions that haven't closed in my entire congressional
district, and in every case, that would be pretty much the same
situation.

Mr. Kanjorski.

Mr. Kanjorski. Thank you, Mr. Chairman.

Mr. Chairman, I would like to be associated with your comments.
I think they are very cogent.

I would have to say that I am dismayed that the panel has ap-
proached this question today as it has. It seems to me that CRAs
in their worst cover would constitute a poison pill, and your argu-
ment, Mr. Fergeson, is that you would like to use that poison pill
on the credit imions and probably to a large extent to their demise.
And I think that is unfortunate.

And on the other hand, I want to say to you that I am not unfa-
miliar with the problems of small banks and medium-sized banks
in America, insofar that it is not the concept of CRA that disturbs
them, it is the paperwork and the cost of compliance. And it seems
to me that your testimony here representing the ABA is saying
well, you want to get that same cost and difficulty to credit unions
so that they fail. That is a very negative attitude.

I would have hoped that the banking community, with the credit
unions today, would have come with maybe some better questions
and solutions. You know, why do we have CRA? Well, we have
CRA as best as I understand it because the banking industry
wasn't doing a fair job at some point and it required the Congress
of the United States to pass an act to try and require them to do
that job. And the implementation of that act has been unduly and
unfairly expensive for small- and medium-sized banks, particularly
since many of them already were operating within their commu-
nity, because that is the onlv way they do business.

I happen to be the Memoer of Congress who several years ago
sponsored legislation to reduce the burden of where CRAs would
apply. My bill proposed that CRA would only really have to apply
to the very large banks and the regional banks, and small commu-
nity banks that clearly already practice good community lending
would be exempt. Unfortunately, we haven't heard that type of pro-
posal today. Your testimony, although you represent a relatively
small bank in your professional life, your argument is to allow the
large money center banks to be given a free opportunity to take bil-

lions and billions of dollars and ignore the people they live among
and care nothing about it, and plow nothing into some of these
areas or these communities.

I think that is, at best, wishful thinking; it is not going to hap-
pen. The practical question I would like to address myself to is why
hasn't the banking community, that is now down to 30 percent
share of the market, why haven't they done a little introspection,
as Mr. Flake has suggested, of why they are where they are today.

You know, why did we just pass the Community Development Fi-
nancial Institutions bill? Because a vacuum exists in the banking
community. It is not serving the needs of small businesses and
small entities that need to get started. I don't hear the bankers
running in and sa3dng, gee, let us try and use our ingenuity to find
out how to solve that problem.

Those of us that are in Congress are not carrying the water for
any particular group in our society, whether tney be minorities,
whether they be working people, whether they be wealthy people.
What we are trying to do is give equal opportunity.

And the last thing that I have heard, and I have been on this
subcommittee for 9V2 years, I have yet to hear the banking commu-
nity come forward and sav, look, let the private sector structure or-
ganizations and methodologies solve this problem so that the gov-
ernment doesn't have to act; we will provide the venture capital to
small businesses, that we will find ways to bring communities alive
and cover their infrastructure needs, we will provide methodologies
for risk — people who don't necessarily have large assets to make
home loans, business loans, and other personal property loans.

You know, it astounds me that we are sitting here, how many
decades after the credit union movement was founded, and now we
are moving into the creation of community development financial
institutions, to fill vacuums with new institutions as a result of the
failure of the banking system to fill those vacuums. And we are not
taking anything away from it, we just know — we passed the CDFI
because there is nobody out there making those loans. We know
that.

We passed the Community Reinvestment Act because commu-
nities that people are putting the deposits in their banks, that
money is not necessarily going back to those communities to help
them, or being loaned in those communities in a fair and
indiscriminatory fashion. And I would just wish that the intellec-
tual talent of the business community would stop for a moment
and, instead of trying to put a poison pill in what is operating now
in sort of a democratic capital mode, a small group of nonprofit in-
stitutions that really isn't taking that much away from the banking
industry.

But part of what the banking industry must start asking is, what
do we have to do to make banks more competitive in the financial
services industry generally to enlarge share, but also, when is the
banking community and the financial services community going to
address these very cogent needs?

You know, let me give you a suggestion. I would have thought
that if the small community banks in this country had come to-
gether with venture capital funds suggesting how they could help
the minority community and the disadvantaged, small businessmen

regardless of what reason, to help ensure that they could get access
to get business opportunity to get into the real economic cycle of
America, that you would have gotten some relief from some of the
regulatory costs of CRA. But nobody has come forward.

Constantly, before this subcommittee, all the banking community
comes in is sort of not — I don't want to use the word "whine," but
cries, that this is too much of a burden, that is too much of a bur-
den, the regulators are doing too much, it is not fair, we are paying
taxes, they are not — instead of looking at it as an opportunity to
suggest, if you construct a mechanism of venture capital and we
can create 100,000 new businesses in the United States, your share
of the financial market is going to increase, and I think that is why
we have helped open up the Federal Reserve and open up a way
in which you can get money at a cheaper rate.

What I am disturbed about is that everybody is concentrating on
the pie, either being the same size or shrinking, instead of using
their intellectual talents to enlarge the pie for everyone. And if you
do that, we don't need further legislation, we don't need further
regulation. But we certainly don't need to poison an existing insti-
tution that exists like credit unions. May be I can get your re-
sponse to that.

Mr. Fergeson. To which part?

Mr. Kanjorski. Well, why aren't you here telling us what would
be a good idea to solve some of the problems that CRAs were in-
tended to solve? Particularly, some of the problems that the wit-
ness next to you talks about. Opportunity. You know, disadvan-
taged communities, for whatever reason, whether it is because of
ethnic makeup, whatever their status, you know, they are
disenfranchised from the American economic system today, and
that is why we have set-asides, that is why we have favored con-
tracts. It is not because they are not necessary. If we don't do it,
there is no opportunity.

What we are trying to strive for is why can't the private sector
create the instrumentalities to create the opportunity. You know,
why don't you have in the banks, and perhaps in the large credit
unions, you could come in here recommending a large venture cap-
ital fund that everybody could buy into as a qualification for meet-
ing their CRA requirements, and then go one step further and
make sure that that venture capital fund gets into the areas and
the neighborhoods of America that need those businesses.

Why not do something simple like that?

Mr. Fergeson. I would applaud that, and I think we would love
to participate in discussions of doing that. I think those are tough
questions and they are things that really ought to be looked at. I
hope I didn't give the impression that I am out for the demise of
credit unions, that I want credit unions to go away.

Mr. Kanjorski. We have had testimony before the subcommittee
that the average bank expends $55,000 a year in legal fees, ac-
counting costs, and so forth, to meet the regulatory requirements
of CRA. I don't know about the admiral's credit union — well, I do,
it is very large. That is a minimal cost. But 90 percent of the credit
unions in the Commonwealth of Pennsylvania would be gone at
that cost. So what this is is a poison pill.

If we were to adopt the idea that across the board, without dif-
ferentiation, without qualification, credit unions are going to be
subjected to the same conditions as banks, we would put 90 percent
of the credit unions in this country out of business, at least in my
Commonwealth.

Mr. Fergeson. Of course, it is hard to compare myself with a lit-
tle $80 million bank with an $8 billion credit union. We are not
even in the same game. I applaud things that you have done in the
past to try to relieve the burden of compliance of CRA for smaller
banks. We are suggesting that different methods of compliance
should be looked at for different sizes and different types of credit
unions.

The same compliance again, and I wouldn't wish on anybody, the
compliance that I have to go through. That is why we are working
with regulators and working with Congress in trying to even out
that compliance to allow special banks, credit card banks, or a spe-
cial credit union to have vehicles where they could invest in maybe
venture capital funds to comply with that, at the same time mak-
ing sure that everyone is helping to participate in getting money
and getting initiatives back to the community.

Mr. Kanjorski. I am just disappointed that this seems to me an
atmosphere of we and they, and I don't know why we don't under-
stand we have met the enemy and they are us, all of us together.
We are not fulfilling the needs for opportunity in America. And we
are trying to nitpick around it and find little ways with the CDFI
and all of this legislation that is not going to solve this problem.

If we are going to have opportunity for all people in America,
since we are not starting with an even deck, an even deal here,
some people have 10 cards and others don't have 1, we have got
to find a tool and a mechanism to make it available, that people
can get started in the small- and medium-sized businesses, they
can take a good idea, they can take an innovation and create
wealth for themselves and for society. It seems that we have forgot-
ten that that is what this system is all about.

You know, I was a major stockholder in a bank about your size
before I came to Congress. I understand full well the problems of
small banks in America. But, unfortunately, they tend to identify
with the organizations that represent the largest banks of America
instead of what the organizations that represent the people that
are more similar to the credit union people.

The fact of the matter is, the people you serve and the size of
your bank, you are much closer to what is being done for credit
union people, and they are not your competition. The competition
is that the financial services industry of America hasn't come to
meet the needs of a changing economy, a changing markup of
American structure and opportunity for everyone.

Maybe I should ask the — isn't that frustrating to the

Ms. Aranjo. It is.

Mr. Kanjorski. I mean, I think your answer to Mr. Kennedy is
exactly the answer I would have given.

Ms. Aranjo. It is extremely frustrating. I do not want to elimi-
nate the CRA if that was what Congressman Kennedy thought that
was what I am saying. That is not what I am saying. I am saying

that I have watched the CRA, I have watched banks use the CRA
to not help the community, the minority community.

In the State of Massachusetts, several banks have announced
CRA initiatives, these great, wonderful programs, and then they
went out and found organizations that were not of minorities, His-
panic or African- American, and gave them the money and said go
take care of this community. And they got CRA credit for it. That
is what I object to.

I hope that as the CRA is revised, that it does really what it says
it was going to do, is help the community, the minority commu-
nities in America get access to the opportunities of America, and
no one can do it for us, for me or for the Hispanic community.
There are enough educated, intelligent members of those commu-
nities that they are able to do it for themselves, and I truly hope
that Congress will give those communities the opportunity that vou
are striving for, but would look at the fact that you have to allow
them to do it for themselves.

Mr. Kanjorski. Mr. Chairman, could I ask the Chair's indul-
gence for 2 more minutes.

Mr. Flake. You may do so with unanimous consent.

Mr. Kanjorski. I come from an area of the Commonwealth of
Pennsylvania that used to have all small banks about your size,
Mr. Fergeson, and recently what I thought was good legislation,
both on the State and national level, we have encouraged large
intrastate £ind interstate banking and as a result, regional, large
banks have come in and purchased all of the small banks in mv
area, to the tune that a new bank had to spring up to serve a need,
which did.

And it is interesting that now we have been studying the depos-
its in, and the money left by these very institutions closely, and I
want to tell you that the massive deposits coming in are not being
invested in the area, they are going out into other areas, whether
it is in the marketplace or around the country for investments
overseas, thus indicating that we are going to have a negative im-
pact because of that changeover of our own economy in the area.
What we do about it, I don't know, but I suspect that if in 5 years
that continues, we are going to have to do some corrective legisla-
tion and get more involved in private business because the job isn't
being done.

I wanted to make a point, though. It is not only the banks that
have this problem, it is business in America generally. I met with
a utility president not too long ago, one of the large utilities in my
area, multibillions in size, and he told me they were restructuring
so that they could have a holding company that would allow them
to have a foreign investment company.

That is, a utility company which was getting money from the
ratepayers in a portion of my district had such a profit that they
wanted to take it and invest it overseas, either in Europe or in
Asia, as opposed to doing economic development in my district that
is in dire need of it.

I want to tell you something. My area in minority representation,
my congressional district, has only six-tenths of 1 percent minority.
So I am not here because I have a constituency that is black or dis-
advantaged from a standpoint of minority. I am here representing

an anemic economic community that the banking system of Amer-
ica isn't working for, that the business community of America
doesn't understand that they have to reinvest with the people and
in the areas that need that reinvestment if the people of those
areas are going to have opportunity.

And all I can tell you is that when I cast my votes, it is not be-
cause I have a constituency of minorities that I have to appeal to,
I just don't see the economics of allowing America to take funds out
of disadvantaged areas, send them to wealthy areas, or take funds
out of needed areas and send them overseas as investment, and
that if we have nothing that can correct that problem in the free
market system, then it is incumbent on us to press even more on
the CRA system, even though personally I think that is not nec-
essarily the ideal approach.

I like the theory of it, I like the idea of it, but I think it is ex-
tremely expensive and cumbersome to accomplish it that way, and
I would have preferred that the private sector would accomplish it.

Mr. Flake. Thank you very much. There being no further ques-
tions, we would like to express appreciation to the witnesses who
have come today and to share — who have shared your views with
us.

At this time, we would ask unanimous consent that the record
be open for 4 additional days so that if there are additional views,
they may be submitted. Hearing no objection, that is ordered, and
the panel is excused.

The subcommittee is adjourned subject to the call of the Chair.

[Whereupon, at 1:30 p.m., the hearing was adjourned, subject to
the call of the Chair,]

APPENDIX

September 22, 1994

jOSCrw * KUMtOT a UASSACHUSFTTS. CHAIAMAN

HfNRY ■ C0N2AL£Z TTXAS

LAnnv UJIOCCO IDAHO

lUtS V GUTieHfiU IIUNOIS

BOeev L RUSH ILLINOIS

LUCILLE RO<re*L At.L>RO CALIFORNIA

TWOMA5 M SAR^iETT WISCONSIN

ELlZAflrrn FUf»S£ ORtCON

NTDIA M VELAZQUEI NEW TORk

ALBERT R WVNN MARTLAND

CLEO Fields loljisiana

MELVIN WATT NORTH CAROLINA
MAURICE HI?«CHn' NEW VORK
PAUL I KANJORSKI PENNSYLVANIA
FLOYD M fLAKE. NEW YORK
HAXINE .'.ATtRS. CAUFORNIA
CAROLYN B UALONEV NEW YORK
KTEM OEUTSCH. FLOmOA

ALFRCO *. McCANDLESS CAUFORNIA
MICkaEL CASUE DELAWARE
PETER KING. NEW TORK
OEaoHAH PRVCE Ohio

jOmN lINOER GlOHGl*
JOE KNOLLENBER^i MICHIGAN
DOUG eE<1EUT(R NtBRASAA
CRAIG THOMAS wyOUINC

Rich lazio new voRk
ROD GRAMS Minnesota

SPENCER BAChuS III lU^BAMA
RICHARD H BAKER LOUISIANA

BERNARD SANDERS. VERMONT

poll 12S-a8T3

U.S. HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

WTMI

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
ONE HUNDRED THIRD CONGRESS

ROOM 604 O'NEia HOUSE OFFICE BUILDING
WASHINGTON, DC 20515

Opening Statement by

Congressman Joseph P. Kennedy II (D. — MA)

at hearing on

COMMUNITY INVESTMENT PRACTICES OF CREDIT UNIONS

September 22, 1994

THIS MORNING, THE SUBCOMMITTEE MEETS TO EXAMINE THE COMMUNITY

INVESTMENT PRACTICES OF CREDIT UNIONS. THIS TOPIC MAY STRIKE SOME

AS A REDUNDANCY, IF NOT A HERESY. FOR DECADES, IT'S BEEN GOSPEL

TRUTH HERE IN THE CONGRESS THAT CREDIT UNIONS ARE BY THEIR VERY

NATURE DEVOTED TO COMMUNITY INVESTMENT. WHEN MANY OF US THINK OF

CREDIT UNIONS, WE THINK OF VOLUNTEERS WORKING OUT OF A CHURCH

BASEMENT, OR IN A TRAILER JUST BEYOND THE FACTORY GATE, MAKING CAR

LOANS OR PERSONAL LOANS TO WORKING PEOPLE.

IN MANY INDIVIDUAL CREDIT UNIONS, THIS PROUD TRADITION
CONTINUES. HOWEVER, THE CREDIT UNION INDUSTRY — LIKE THE REST OF
THE FINANCIAL SERVICES INtlfcsTRY — HAS CHANGED DRAMATICALLY OVER
THE LAST QUARTER OF A CENTURY. IN 1970, CONGRESS PROVIDED CREDIT
UNIONS WITH FEDERAL DEPOSIT INSURANCE. AT THAT TIME, THERE WERE
24,000 CREDIT UNIONS WITH $18 BILLION IN ASSETS, SERVING ABOUT 2 3
MILLION MEMBERS.

WHEN CONGRESS ADOPTED THE COMMUNITY REINVESTMENT ACT IN 1977,
IT EXEMPTED CREDIT UNIONS. THE REASON WAS VERY SIMPLE: CREDIT
UNIONS WERE SMALL INSTITUTIONS WITH A SMALL AMOUNT OF ASSETS
SERVING A SMALL NUMBER OF CONSUMERS.

THAT REASON NO LONGER EXISTS. TODAY, THERE IS NOTHING SMALL
ABOUT THE CREDIT UNION INDUSTRY. IT IS INCREASINGLY DOMINATED BY
LARGE INSTITUTIONS POSSESSING LARGE AMOUNTS OF ASSETS AND SERVING
A HUGE NUMBER OF CONSUMERS. ALTHOUGH THE NUMBER OF CREDIT UNIONS
HAS SHRUNK BY ALMOST HALF TO 12,000, THE ASSETS OF THESE
INSTITUTIONS HAS GROWN BY 1600%, TO NEARLY $300 BILLION. IN
ADDITION, THE NUMBER OF CONSUMERS WHO ARE MEMBERS OF THESE
INSTITUTIONS HAS NEARLY TRIPLED TO OVER 65 MILLION.

WITH EACH PASSING DAY, THE "COMMON BOND" REQUIREMENT IS BEING
STRETCHED TO THE BREAKING POINT. CREDIT UNIONS ARE NO LONGER
LIMITED TO SERVING THE EMPLOYEES OF ONE COMPANY, OR THE MEMBERS OF
ONE CHURCH OR SYNAGOGUE. TODAY, ONE CREDIT UNION MAY SERVE THE
EMPLOYEES OF MANY COMPANIES LIVING IN SEVERAL STATES. IT MAY EVEN
BE ALLOWED TO SERVE PEOPLE UNITED BY NOTHING MORE THAN THE FACT
THAT THEY LIVE IN A PARTICULARLY GEOGRAPHIC AREA.

THAT KIND OF PERMISSIVE CHARTER LOOKS A LOT LIKE THE CHARTERS
OF BANKS AND THRIFTS. BUT THERE IS ONE BIG DIFFERENCE: FEDERALLY

CHARTERED CREDIT UNIONS, UNLIKE BANKS AND THRIFTS, HAVE ABSOLUTELY
NO. OBLIGATION TO SERVE THE CREDIT NEEDS OF ALL THE PEOPLE THEY ARE
CHARTERED TO SERVE.

• THE CREDIT UNIONS CLAIM THAT THEY DON'T NEED SUCH AN
OBLIGATION BECAUSE THEY ARE BY DEFINITION IN THE BUSINESS OF
COMMUNITY INVESTMENT. THAT MAY BE TRUE OF MANY, IF NOT MOST,
CREDIT UNIONS. BUT ON THE WHOLE, IT IS RAPIDLY BECOMING A MYTH.
RECENT HOME MORTGAGE DISCLOSURE ACT DATA SUGGESTS THAT CREDIT
UNIONS ARE DOING AN EVEN POORER JOB THAN BANKS AND THRIFTS OF
SERVING WORKING CLASS AND MINORITY CONSUMERS. IN 1992, CREDIT
UNIONS REJECTED MINORITIES 2.7 TIMES MORE THAN WHITES WHEN THEY
APPLIED FOR A HOME LOAN. BUT BANKS' REJECTION RATE WAS 2.1%.
FURTHERMORE, IN MASSACHUSETTS, STATE-CHARTERED CREDIT UNIONS MUST
COMPLY WITH A STATE CRA LAW. AS WE WILL LEARN SHORTLY FROM MY
STATE'S BANKING COMMISSIONER, 26.5% OF THOSE CREDIT UNIONS RECEIVED
AN UNSATISFACTORY CRA GRADE. YET, ONLY 10.7% OF STATE BANKS
RECEIVED SUCH A MARK,

WE SHOULD REMEMBER THAT MANY, IF NOT MOST, CREDIT UNIONS HAVE
STUCK TO THEIR KNITTING. THEY CONTINUE TO OPERATE AS MODESTLY
SIZED INSTITUTIONS UNDER A NARROWLY DEFINED FIELD OF MEMBERSHIP.
THEY DESERVE TO BE COMMENDED, NOT CRITICIZED, FOR THEIR ATTENTION
TO COMMUNITY LENDING. I'M SURE THE IRONY ESCAPES NONE OF US THAT
MANY OF THE MOST VOCAL PROPONENTS OF EXTENDING CRA TO CREDIT UNIONS
HAVE BEEN AMONG THE LOUDEST OPPONENTS OF COMPLYING WITH THE LAW
THEMSELVES. IF THEY SPENT LESS TIME CRITICIZING AND MORE TIME
EMULATING CREDIT UNIONS' HISTORY OF SERVICE TO WORKING PEOPLE,
PERHAPS THEY WOULDN'T FEEL SO THREATENED BY THE MARKET GAINS CREDIT
UNIONS HAVE MADE OVER THE LAST FEW YEARS.

NEVERTHELESS, THE FACT REMAINS THAT IT IS APPROPRIATE TO
SCRUTINIZE CREDIT UNIONS' COMMUNITY LENDING PRACTICES. IN MY VIEW,
IT IS ENTIRELY REASONABLE TO APPLY CRA OR ITS FUNCTIONAL EQUIVALENT
TO CREDIT UNIONS, PARTICULARLY LARGER MULTI- EMPLOYER AND COMMUNITY-
BASED CREDIT UNIONS. AS HAS BEEN SHOWN IN MASSACHUSETTS, CRA CAN
BE TAILORED TO JUDGE CREDIT UNIONS BY THEIR OWN DEFINITION OF THEIR
COMMUNITY, NOT SOME UNWORKABLE COOKIE-CUTTER MODEL. THOSE CREDIT
UNIONS THAT ARE GOING TO HAVE ALL THE PRIVILEGES OF BANKS AND
THRIFTS — LIKE DEPOSIT INSURANCE AND A LIBERAL CHARTER ~ OUGHT TO
HAVE SOME OF THEIR RESPONSIBILITIES, AS WELL — LIKE SERVING THE
CREDIT NEEDS OF WORKING AND MINORITY CONSUMERS. IT'S A MATTER OF
FUNDAMENTAL FAIRNESS — NOT ONLY BETWEEN CREDIT UNIONS AND THEIR
COMPETITORS, BUT ALSO BETWEEN CREDIT UNIONS AND THE TAXPAYERS WHO
BACK THEM UP.

TODAY WE HAVE A DISTINGUISHED PANEL OF WITNESSES TO HELP US
BEGIN THIS EXAMINATION. I WANT TO THANK THEM ALL FOR COMING TO
SHARE THEIR INSIGHTS WITH US. I WANT TO PARTICULARLY THANK TOM
CURRY, WHO IS THE BANKING COMMISSIONER IN MY HOME STATE. HE WILL
DISCUSS HOW CRA IS APPLIED TO ALL OF THE STATE-CHARTERED CREDIT
UNIONS IN MASSACHUSETTS, INCLUDING EMPLOYER-BASED CREDIT UNIONS, IN
A MANNER THAT HAS SUCCEEDED FOR BOTH CONSUMERS AND LENDERS. I
THINK HIS INSIGHTS WILL BE VERY ENLIGHTENING FOR THE MEMBERS.

Statement of the Honorable

Spencer T. Bachus, III

before the Subcommittee on Consumer Credit and Insurance

submitted for the official record

September 22, 1994

Thank you, Mr. Chairman, for conducting this hearing today. I applaud your efforts
to examine the role of credit unions as they relate to the Community Reinvestment Act
(CRA).

I would state that it is my firm belief that CRA has been more of a regulatory
quagmire for our nation's financial institutions than a mechanism to encourage community
reinvestment. The shortcomings of CRA have gone unchecked for too long and the Act is
in desperate need of an overhaul. Reforming CRA will enable lending institutions to better
serve local communities without constant fear of federal interference.

Having said that, I tend to draw several noteworthy distinctions between credit unions
and banks. Because of these differences of purpose, function and structure, I am reluctant
to support efforts to place credit unions under the jurisdiction of CRA for a number of
reasons. In my opinion, credit unions are, by design, operated with the primary objective of
serving their members, each of whom is a shareholder in the institution. As non-profit
entities, credit unions do not have the same latitude as for-profit commercial banks. Credit
unions, similar to the Navy Federal Credit Union which is represented by Admiral Hughes
today, are held together through the common interests of their members, usually tied to
employment. On the contrary, commercial banks are generally structured to serve a varied
customer base across diverse geographic areas.

In closing, I believe it is important to note that credit unions do reinvest in the
communities they serve-their members. This vehicle of community reinvestment which
satisfactorily delivers services to its members should not be impeded. Alabama's credit
unions have served their members well and I am hopeful they will be allowed to continue
this level of service, free from additional federal government intrusion.

Thank you for allowing me the opportunity to share my observations, Mr. Chairman.

STATEMENT OF REPRESENTATIVE FLOYD H. FLAKE
BEFORE THE
SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

SEPTEMBER 22, 1994

Good morning Mr. Chairman and welcome to todat's witnesses.
I thank you for holding this important series of hearings on
community investment practices and compliance with the
requirements of the Community Reinvestment Act ("CRA"). I also
commend the Chairman for his Subcommittee's tireless efforts in
this area and his commitment to ensuring that credit reach all
communities of this Nation.

Mr. Chairman, I attend this hearing today wearing two hats, a
legislator and a practitioner. As you may know, the church which
I pastor operates a credit union. Through this credit union we
have been able to extend valuable credit to our members. My
credit union's average loan is about $750 — $1000, a standard
personal loan and about the national average credit union loan.
To this point, CRA has been targeted to mortgage and commercial
lending and not to these smaller personal loans. In my experience,
credit unions are serving basic community need of credit and are
not competing with the large institutions for business.

Knowing that credit unions serve a unique role, we must move
very carefully as to not hurt the very institutions which are
providing credit to communities which are not being adequately
served by our larger financial institutions. Toward that end,
I will be listening very closely to the testimony of these
witnesses today.

Thank you. I yield back the balance of my time.

TESrriMONY OF THOMAS J. CURRY

ACTING COMMISSIONER OF BANKS

COMMONWEALTH OF MASSACHUSETTS

DIVISION OF BANKS AND LOAN AGENCIES

Before tlie

SUBCOMMITTEE ON CONSUMER CREDFT AND INSURANCE

of the
COMMTTTEE ON BANKING, FINANCE AND URBAN AFFAIRS

of the
U^. HOUSE OF REPRESENTATFVES

September 22, 1<)94

REGARDING THE AFPUCABILITY OF THE COMMUNITY REINVESTMENT ACT
TO MASSACHUSETTS 5TATE<:HARTERED CREDIT UNIONS

Introduction

Mr. Chairman and meinben of the subcomiDittee, I welcome this opportunity to appear
before you today to discuss the Massachusetts experienoe in applying the Community Reinvestment
Act to state-chartered credit unions.

The Massachusetts credit union industry has a long and proud tradrdon dating back to 1909.
Pierre Jay, the Srst modem Bank Onnmissiotter of the Commonwealth of Massachusetts, was a
leading force in the establishment of the credit union movement in the United States. In fact, the
6i3t credit union statute was enacted in Massachusetts. Today, there are over 130 state-chartered
credit unions in Massachusetts, representing over SS.9 bQlion in assets.

The Massachusetts CRA Experience

I wish to share with you bow Massachusetts has been innovative in the administration of its
own state CRA statute. The Commonweahb of Massachusetts passed its CRA statute, which
parallels the federal regulation, in 1982. As a matter of regulatory policy, the Division has examined
all state-chartered financial institutions, including credit unions, for CRA since 1980. The statute was

amended in 1990 to account for the changes to the federal regulation in 1989. In that amendment,
however, an additional assessment factor was added to assess an institution's cfEbtts to promote or
preserve aSbrdable bousing, and another was expanded to assess an institutioD's use of flexible
lending criteria, making the state statute more coraprehensrve. The amendment also tied the deposit
of public funds to an institution's CRA rating and created regional mortgage and small business loan
review boards.

The credit union industry originated in Massachusetts out of a self-help movement Tbeir
purpose was and continues to be to provide easy access to credit and banking services for working
people and members of civic ethnic, and religious organizations. In applying CRA to credit unions
in Massachxisctts, I believe the fit is an easy one. Credit unions can satisfy their obligations to help
meet the credit needs of tbeii local communities, including low and moderate-income areas. Given
that credit unions arc chartered to serve speciSc communitiei and groups, there ii no reason why
credit unions cannot comply with the retjuiremeots of CRA.

The membership of credit unions is, of course, restricted to the common bond in their charter
and by-laws. In Massachusetts, we have occupationally, assodationally and geographically based credit
unions. The value of CRA for industrial credit unions is just as great as for community credit unions.
We try to look upon CRA as a gcxxl business and strategic planning tool for both banks and credit
unions. A credit union can not meet the credit needs of Its membership unless it ascertains the credit
needs of its membos, markftt its credit services to its memben, and dev^ops credit services to meet
the credit needs of its m^mhtv^ These are sound business strategics.

The Division has onployed Qeidbility in how credit onions define their tocal communities
because of their membership restricdoni. In £act, differences among all types of institutions are
CKpressly taken into account during an examination by tbe Divisioii- As the 1989 Joint Federal
Financial Supervisory Agency Statement on CRA stated, *&i8titutions have substantial leeway in
developing polides and programs to meet their CRA responsibilities''. This shouk) be a matter of
judgment on the part of the examiner during his or her assessment of an institution's peifuiiuance.

In Massachusetts, CRA applies to a small industrial credit imioo as it would to one of our
larger coimneidal banks. However, no one would expect tbe two to ha:ve the same types of produa
lines, ascertaiameot programs or marketing eSons. Asscssmeot Factor KaBows an eominer to assess
an institution's ability to meet community credit needs based on various bctors, incftwiing size and
economic conditions. As the primary regulator of statc<hartered institutioDS in Massachusetts, the
Division has a tbtnongfa understanding of the unique circumstances of each individiiai institution.
However, Assenment Factor K comes near the end of tbe report in the Community Development
sectiorL To address this deficiency, tbe Division intnxluced a new introductory section in its CRA
report which gives specific information regarding tbe institution and the demographics of the
community it serves. This makes the Public Evaluation clearer and gives the reader a better
understanding of tbe community in which an institution operates.

By making some minor adjustments for the limitations imposed on ciedit unions, it has been
very easy for the Division to apply CRA to Massachusetts credit unions. For example, Massachusetts
state law restricts most ciedit unions from engaging in direct lending for small business loans or
community development purposes. In addition, there are many credit imion which do not ofiEcr
mortgage loans. Therefore, several assessment fecton in the CRA are not as heavily weighted in our
analysis of a credit union's performance. For those assessment factois dealing with the origination

or the distribution of mortgage and small business loans, our esamincis instead focus on the
disthbutjon of the credit union's personal loans, automobile loans, and other types of consumer loans
such as home improvement loans, home equity lines of credit, and mortgage loans (when applicable).
Exammers also assess how well the credit products offered actually meet the neols of the
membership. It has been very simple for the Division to examine community credit unions since,
similar to banks, they can delineate specific geographic areas for their local communities.
CoDsequentty, our examiners can use many use many of the same examination techniques as they do
for banks. For industrial credit unions, the Division reviews how well they meet the credit needs of
their members and eligible members, across all income and demographic lines, rather than simply an
analysis of the geographic distribution of their lending.

Regulatory Burden

There have been some who have suggested that CRA requirements for credit unions are
overly burdensome and inappiropriatc due to their purpose. At the Division of Banks, we are always
working to reduce the regulatory burden on financial institutions and wiU continue to do so. While
I can not speculate bow CRA would look on a national level I can state that the Massachusetts
experience has not been overly burdensome. For those Massachusetts credit unions over SlOO million
in assets, the average cost of a CRA examination is S4300. For credit unions between $50 million
and $99 nuUion, the average cost is S3,000; between SIO million and S49 million, the average cost is
$2,000; between S5 million and S9 million, the average cost is $950. Finally, for credit uniotu with
assets less than $5 million, the average cost for a CRA examination is S650. Since the Division's goal
is to examine each institution £or compUance with CRA on a two year cycle, a credit union's annual
costs £or CRA compliance are relatively smalL It is also true that those credit unions which are
familiar with the CRA and its icquiiemcnts have much less cTf a btirdcn because of the tact that qui
examinations arc likely to proceed more quickly and without the need for regulatory follow up. In
addition, if it is inappropriate to impose CRA requirements on credit tmions, then it would appear
equally inappropriate to impose CRA on ■^^^'j^' state-chartered banks in mutual form. Massachusetts
co-operative banks were arganized on the same self-help principle as credit unions and have similar
ownership, or sbaxeholdcr, structures.

Rather than look upon CRA as an unnecessary burtlen, I believe that many Massachusetts
credit unions consider CRA as a positive oieais of helping to meet the credit needs of their
membership. The value of CRA today goes beyond its original intention of prohibiting redlining.
Banks and credit unions can kx)k to CRA as a way of opening up opportimities for expanding their
markets by affirmadvely meeting the credit needs of communities and making sound kians to
creditworthy individuals, regardless of where they live.

Ka tings

The current listing of CRA ratings for Massachusetts financial institutions indicates that, on
average, the credit unions have received slightly lower ratings than the banks. Since July 1, 1990,
when CRA ratings first became public until now, one credit union has received an 'Outstanding'
rating, 60, or 723% have received 'Satisfactory' rating;, and 22, or 2&5%, have received 'Needs to
Improve' rating*. During the same time, 29, or 14.8% of the banks have received 'OuUtanding'
ratings, 146, or 74.5% have received "Satisfactoiy* ratings, and 21, or 10.7% have received 'Needs to
Improve' ratings. However, I want to point out that I do not believe that this is a result of less than
aversige performance in meeting the credit needs of their membeiship. Certainly there appears to

be a higher degree of noncompliance with the technical aspects of CRA. This is, in pan due to the
fact that most credit unions are relatively small in size with few staff or little resources available to
ensure cnmpiiance with all of the '""hniraj provisions of CRA. To alleviate this situation, the
Division has participated in many seminars and educational programs through the credit union trade
associations designed to infonn the credit union industry of both the technical and substantive
provisioDS of the Community Reinvestment AcL

In addition, most of the credit unions in Massachusetts have only received one or at most two
examinatians for compliaocs with CRA. Banks on the other hand have received multiple
examinations for CRA from the Dtvisian and their federal regulator, resulting in a greater awareness
of both the »'«<'*'"««^i and substantive pirsvisions of CRA. In terms of providing credit and Goancial
services to their membenfaip, credit unions have no trouble complying with CRA. One example of
the impiuveuient that occun over time b MiUbuiy Credit Union, a $73 million community credit
union. Millbuiy recently received an 'Outstanding' CRA Performance Rating, the first credi: union
to be accorded such a rating. MSBwiy had received a "Needs to Improve' rating in its last
examinatioii. Other institutions, including credit unions have shown similar improvements in their
succeeding ezaimnatioD& Two yean ago, we had several banla and acdit unions which had
'Substantial Noftcoinpiiance* ratings. However, because of our regulatory oversight and the proactive
e^rts of these institutioos, subsequent cnminations have shown substantial improvement in
petformance.

The Division has developed a new and we believe innovative 'CRA and Fair Lending PoKcy*
which was impleuiaited on November 1, 1993. (A copy is attached.) In addition to giving dear and
constructive roggotioiB to instilulium on ways to increase fiair lending opportimities, this policy
clearly states that the Divoiaa win '^■■""^ all state-chartered finanrial institutions, including credit
unions, bt oompliance with tbe Commnnity Reinvestment Act at least once evciy two yean. In the
past, the Division did not have the roKXucei to attain this goaL In addition, the Division traditionally
used its limited icsuui'Les to fixus its attention in the area of CRA on the larger urban banks.

HfYuwgiT. iny nffit-r^ has. ffwr«»nriy fiiithw nw^tmniirA th#-. niimhw nf i-ranimfft« Afmntini tn ffmnming fhr

compliance with CRA. TliB should give us the resources we need to maintain a two-year examination
cycle. Two yean bom now, when all state-chartered credit unions vrill have recdvcd at least two
piublic CRA ratings, I believe that there will be substantial improvement in the performance of the
credit union industry.

Fair Lcoding

As I inmtktTy^. the Division ***"«'"'^ all state-chartered institutions for compliance with £air
lending. This is done as part of tbe CRA eaomination piocess. We '■""lir"' for compliance not only
with our new fair lending policy, but also with the state and federal versions of Regulation B and the
Equal Qedit Opportunity Ao and the Home Mortgage Disclosure Act The use of lending dau is
critical to the examination piocess and can directly impact upon an institution's overall CRA rating
if any suspected disciiminatoty practices are fcnind. In fact, we have had instances where our
examinen have detected suspected disciiminatoiy policies or practices at credit unions. Only through
the examination process can we ensure that the consumer is property protected.

Conclusion

Massachusetts, like many states, has been a source of iimovation and change. Being a local

issue by nature, the Conununity Reinvesunent Act has worked well with the credit union industry in
Massachusetts. The CRA is not a law that credit unions in Massachusetts can not live with- In fact,
CRA has been to their benefit through helping credit unions, like banks, recognize the obligation to
help meet the needs of their entire membership and their communities. In doing so. aedit unions
can not only help imprtjve the quality of life for their communities and membership, they can also
enhance their bottom lines by developing new and loyal customers.

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STATEMENT

CORNELIUS D. MAHONEY

PRESIDENT AND CHIEF EXECUTIVE OFFICER

WORONOCO SAVINGS BANK

on behalf of

SAVINGS & COMMUNITY BANKERS OF AMERICA

before the

SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

of the

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

U.S. HOUSE OF REPRESENTATIVES

September 22, 1994

Mr. Chairman and members of the Subcommittee, my name is Cornelius Mahoney. I am
President and Chief Executive Officer of Woronoco Savings Bank, a mutual institution in
Westfield, Massachusetts. Woronoco Savings Bank was established over 100 years ago and
now has $258 million in assets. The bank specializes in helping the individual realize the
American dream. As author James Humes said, "The American dream ends with the
purchase of a home, but it begins with a community bank."

Today I am representing Savings & Community Bankers of America (SCBA), which I serve
as a member of the Board of Directors. I am also Chairman of the Massachusetts Bankers
Association. SCBA represents an industry of more than 2,200 savings and community
financial institutions throughout the United States with more than 16,000 offices, 285,000
employees and nearly $1 trillion in assets.

SCBA commends you in the strongest terms for holding this hearing on extending the
Community Reinvestment Act to credit unions. Your hearing represents the first time in
recent memory that any member of Congress has agreed to look seriously at the special
status that credit unions enjoy.

SCBA takes great pride in the fact that it was at our Government Affairs Conference earlier
this year that you publicly proposed to review whether to extend CRA to credit unions. At
the time, you said it was the right thing to do. It is the right public policy step.

I want to state at the outset that I have nothing against the credit union industry, particularly
those small credit unions which have not strayed beyond their traditional common bond.
Most of them do a fine job of providing service to their members. The problem arises when
the line between credit unions and banks becomes virtually indistinguishable. CRA should be
applied to geography-based or community-chartered credit unions and to credit unions
serving multiple employer groups from one metropolitan area. It is these "come-one, come-
all" credit unions, where the common bond has been severely if not totally diluted, that
application of CRA is needed to ensure that all segments of the community are being served.
There is no other way for these geographically-based credit unions to demonstrate that their
lending programs benefit all segments of their local communities. Credit unions with little
left in the way of a common bond should be required to reach out and serve all members of
the communities in which they are located, including low- and moderate-income consumers.
Continued growth and prosperity of our local communities depends on the commitment of all
depositories in a community to CRA, not just FDIC-insured institutions.

A policy debate over the expansion of the common bond, and exemption from taxes, is
warranted. The financial marketplace has become more competitive, blurring many of the
traditional dividing lines, that formerly separated service providers. Within it, the credit
union industry has moved and continues to move away from its traditional role into the
mainstream of the banking business. Credit unions should be welcomed to full citizenship in
the community of depository institutions including the rights, privileges and obligations that
entails.

IF IT LOOKS LIKE A BANK AND OPERATES LIKE A BANK. IT SHOULD BE
SUBJECT TO CRA

There is an old axiom: if it walks like a duck, talks like a duck, acts like a duck, chances are
it is a duck. Credit unions by their own words and deeds have moved more and more into
the main stream of banking business. Many credit unions are full participants in the financial
marketplace, often blanketing whole communities with advertising. Much of this advertising
of loans and products does not indicate whether membership is required. The same
marketing efforts of credit unions regularly promote higher nominal rates of interest on
savings and lower charges on loans. Credit unions looking like banks, acting like banks, and
competing with banks, should also comply with CRA, just like banks. Here are but a few
illustrative examples:

• Citizens Equity Federal Credit Union (Peoria, IL; assets: $1 billion) advertises same
day loan approval; mortgage loans serviced locally; no-annual-fee Visa cards; no-fee
and no-minimum-balance checking accounts; and free transactions at over 80 money
center locations.

• Brotherhood Credit Union (Lynn, MA; assets: $70 million) advertises a full range of
banking services including: savings accounts, NOW accounts, term deposit accounts,
retirement plans, mortgage loans, home improvement loans, automobile loans,
personal money orders, travelers checks, direct deposits, and notary public services.

• Warrick Federal Credit Union (Newbrugh, IN; assets: $102 million) promotes itself
as providing "better services than banks" with "lower loan rates and higher savings
rates" and that "membership is open to almost anyone who lives or works in Warrick
County or is related to someone that does. "

• Banta Credit Union (Manasha, WI; assets: $50 million) provides "total financial
services" including low cost Visa/Mastercard, high interest savings accounts, IRAs,
CDs, money market accounts, insurance benefits, "fast friendly loan service for any
need," investment/brokerage services; TYME ATM cards, and safety deposit boxes.

• Indiana University Credit Union (Bloomington, IN; assets: $70 million) describes
itself as a "full service financial institution." The advertisement says that credit union
membership is required but extends an invitation to all Red Cross volunteers to
become members of the organization.

• Guardian Credit Union (West Allis, WI; assets: $70 million) says it provides "full
banking services" including free-checking,-no minimum -balances, -Mastercard and
Visa cards, and lower loan rates.

• Landmark Credit Union (Waukesha, WI; assets: $121 million) does not indicate in its
advertisement whether credit union membership is required, but says that it does offer

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fair rates, convenient hours, timely closings, and interest on escrow.

If credit unions are so interested in identifying themselves as full-service banking institutions,
they should be equally interested in complying with CRA and paying taxes as we do. Credit
unions, for the most part, are no longer unique depository institutions. The general public
often finds little difference between dealing with a credit union and with other lending
institutions. Congress should make no distinction in dealing with them either.

THE LACK OF A COMMON BOND UNDERSCORE THE NEED TO EXTEND CRA

The common bond relationship that credit unions once had with their members is
evaporating. In the beginning, credit unions were formed by and for people of basically
modest means who had a similar occupation or association to produce a cooperative lender.
The Federal Credit Union Act states:

"Federal credit union membership shall be limited to groups having a common bond
of occupation or association or to groups within a well-defined neighborhood,
community, or rural district." (12 U.S.C. 1759)

For many years, the "common bond" was strictly construed. Each credit union served a
rather small and well-defined group of members. However, recent years have seen the
common bond limitation - the principle on which credit unions were founded ~ become so
watered down as to become a legal fiction.

Whether such expansion of the common bond is in fact allowable under some interpretations
of the statute, as several courts are currently debating, is not the central issue here today.
The key concern today is that ~ as the General Accounting Office appropriately pointed out
three years ago -- Congress should clarify the future role of credit unions as depository
institutions. Credit unions were granted special benefits, such as being exempt from federal
taxes, because they served individuals joined together by a restrictive common bond. With
the attenuation of the common bond concept, the special benefits these credit unions enjoy
should disappear as well. The segments of the local community served by credit unions are
now, in many parts of the country, indistinguishable from those served by banks and savings
institutions.

The relentless and continued expansion of the credit union field of membership is directly
attributable to policies of the National Credit Union Administration. NCUA policy now
allows credit unions.that have -historically served-well::defined.groups,^uch as. employees of a
specific company, to adopt all-encompassing "community" charters, whereby the credit union
can serve the general public over wide geographic areas. Credit unions may include, under
one credit union "umbrella," several unrelated membership groups. Several credit unions
may now share the same branch office, a practice questionable from an antitrust standpoint.

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Some credit unions seemingly have developed an acute thirst for new members. From an
economic perspective, the expansion of the common bond is fairly easy to understand even
though it has undermined the traditional character of credit unions. The reduction in
traditional manufacturing jobs has caused credit unions to seek markets to replace business
lost to employer (member) attrition. Credit unions have sought a broadening of the common
bond to add assets and keep their earnings growing. Communicators Federal Credit Union in
Houston, Texas, recently received permission from the NCUA Regional Administrator to
expand its field of membership to add all retirees and senior citizens living within a 25 mile
radius of Houston. This means the addition of nearly 580,000 potential customers to
Communicators' current membership of just over 28,000, an increase of nearly twenty-fold.
In an even more recent case, the Lima Superior Community Federal Credit Union in Ohio
was allowed to expan*? its charter to add more than 25,000 potential customers from eight
rural townships to its current membership of just over 14,000. Direct Federal Credit Union
in Needham Heights, Mass. began as the credit union for Polaroid employees and now serves
64 companies including Staples, Cellular One, Lotus, Lechmere, and Reebok.

The common bond has traditionally been the distinguishing factor in the definition of a credit
union; but should the focus for a credit union terminate, then so long as there are other
community resources that can meet the financial needs of the membership, the credit union
should consider closing.

NCUA's policy of allowing credit unions to serve the general public without serious regard
to commonality of members is changing the character of many credit unions from financial
cooperatives that serve small groups to large commercial enterprises indistinguishable from
many banks and savings institutions.

The expansion and diffusion of credit union membership further heightens the need for CRA-
type requirements for credit unions. It made complete sense to have only a limited
community support evaluation under the original limited field of membership restrictions. It
makes absolutely no sense for credit unions to remain exempt from CRA based on an out-
moded and out-dated notion of membership that is no longer reflective of economic reality.

Community reinvestment obligations of broad-based credit unions should be judged on the
basis of the geographic community in which they serve. There is no reason to differentiate
between a credit union that makes a loan to a member's child who does not live in the
community from a savings institution or bank that makes a loan outside of the community it
has delineated for CRA purposes. Without CRA, it is difficult, if not impossible for such
credit unions to demonstrate they have devised lending programs that enhance their entire
local community. There is no other way-forjCongress_and-the American -public to know for
sure.

LARGE CREDIT UNIONS HAVE STRAYED FROM THEIR FOUNDING PRINCIPIRS

There are really two distinct credit union industries today. The first adheres to a narrow
common bond, uses volunteer staff, operates in church basements and factory backrooms,
and offers a limited product line. The second group ~ often the larger credit unions ~ is
professionally staffed and offers a full range of financial services. Some of these tax-free
businesses operate from expensive buildings, have large advertising budgets and may even
have overseas offices. Such credit unions are active participants in the financial marketplace,
virtually indistinguishable from banks and savings institutions in the full range of services
offered - real estate loans, credit and debit cards, IRAs, student and consumer loans, home
equity loans, and even agricultural and commercial loans. These same credit unions now
offer far more services than they did when they were exempted from the original CRA
requirements.

This credit union growth was facilitated by federal insurance, the loosening of the restriction
on the "common bond" requirement and tax-preferred status. The fact that credit unions pay
no federal taxes on their earnings enables credit unions to pay higher interest on deposits and
charge less for their services on a competitive basis than banks and savings institutions.

Large credit unions have been adding rapidly in every dimension to their product array,
membership numbers and asset size. From 1989 to 1994, the credit union industry grew
from $206 billion to $277.2 billion. In 1989, six credit unions had over $1 billion in assets;
by 1993, there were twelve. The savings institution industry had $107 billiun in assets in
1963 when it became subject to federal income taxes and far few powers than credit unions
enjoy today.

SCBA urges Congress and the Administration to give early consideration next year to
reviewing and revising the tax treatment of credit unions. In 1992, the Administration raised
the possibility of imposing federal income tax on credit unions whose assets exceed $50
million. It would have made only 9 percent (or 1,139 institutions) of all federally insured
credit unions taxable, although they hold approximately 64.7 percent of all federally-insured
credit union assets. The proposal makes even more sense today.

CREDIT UNIONS HAVE INCREASED THEIR INVOLVEMENT IN HOUSING
WITHOUT ANY CRA ACCOUNTABILITY

Many credit unions have dramatically increased their involvement in housing finance and
become important players in the mortgage market, competing aggressively against banks and
savings associations.in ihe developmentX)f .mortgage-products. -According to .the Callahan
Report of March 1993, credit unions increased their mortgage lending by 70 percent in 1992.
According to NCUA (Letter No. 152, March 1994), other important facts relating to the real
estate activity of credit unions include:

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• $25.4 billion in real estate loans were granted in 1993.

• At year-end 1993, credit unions had $51.7 billion in real estate loans outstanding.

• $23.1 billion, or 42.8 percent of outstanding real estate loans, will either refinance,
reprice or mature within 3 years.

• $9.8 billion in first mortgage real estate loans were sold on the secondary market, an
increase of 43.9 percent over the previous year.

Unlike banks and savings institutions, broad-based credit unions are under no obligation to
reach out to all segments of the communities in which to meet the credit needs of moderate
and low-income borrowers.

The question for Congress is whether or not this should be allowed to continue - whether a
significant component of the financial services sector should be allowed to operate without
being required to demonstrate service to their communities. It also does not necessarily
follow that because a credit union is made up of members who voluntarily join and are the
prime target for lending programs that all in the community will be served. In
Massachusetts, for example, based on the 1992 HMDA data provided by the 20 largest credit
unions in Massachusetts, minorities were significantly less likely to apply for a loan at a
credit union than at a bank, and minorities were substantially more likely to be denied at a
credit union. (Source: Sheshunoff Information Systems, Produced from 1992 HMDA
Disclosures)

In addition, Massachusetts credit unions in 1993 trailed banks in terms of re-investing local
deposits in the community. These credit unions had a loan-to-deposit ratio of 56 percent
versus 84 percent for Massachusetts banks. The application of CRA to credit unions will
help ensure that all efforts are being made to provide broader access to credit and to weed
out inappropriate practices.

CREDIT UNIONS SHOULD WELCOME CRA. NOT OPPOSE IT

I fail to see the logic in the credit unions' opposition to the extension of CRA. Credit unions
may say they should not have to adhere to CRA for a number of reasons, but none of them
make any sense. If they are doing such a good job in serving their communities, why
shouldn't credit unions be more than happy to prove it to the world? Why shouldn't they,
like banks and savings institutions, take pride and demonstrate on equal terms service to their
community?

Perhaps credit unions oppose CRA because compliance requires the commitment of resources
and time at all levels of an institution. Perhaps credit unions oppose CRA because they do
not incur these costs in either time or resources right now and thus would be giving up a

certain competitive advantage. This disparity, however, furthers neither the goals of
community reinvestment nor providing credit in a safe and sound manner.

The application of CRA to banks and savings institutions has had positive effects sometimes
overlooked. CRA has helped institutions develop successful business opportunities witiiin all
segments of their communities. Banks and savings institutions have learned how to mitigate
many of the risks associated with affordable housing lending, and have been making loans to
low-income borrowers for years. Because these borrowers often have non-traditional credit
histories, SCBA members make the extra effort to qualify the applicant for a loan, consistent
with safety and soundness. There is no reason why credit unions cannot do the same.

Most credit unions in Massachusetts are actively working to meet the challenge of
Massachusetts' CRA law, which has an essentially identical rating system as the federal law.
For example, Greylock Credit Union is the largest mortgage underwriter in Berkshire
County. With $270 million in assets Greylock has become the largest and fastest growing
financial institution in the area. In fact, in the past 10 years, the credit union has grown 400
percent ~ more than five times the growth of local area banks. As a result of its
extraordinary growth, Greylock saw its loan-to-deposit ratio plummet to a mere 50 percent,
well below industry standards. However, when it applied to establish a branch in the town
of Adams, Greylock touted its satisfactory CRA rating as evidence that it is striving to serve
all segments of its community.

There are wide disparities in CRA ratings between Massachusetts banks and credit unions.
As of July 1994, 32 percent of the credit unions examined under the state law were rated
"Needs to Improve" and none were rated "Outstanding." In comparison, only 7 percent of
the state's banks were rated "Needs to Improve" with 12 percent rated "Outstanding." The
Massachusetts experience should underscore the reality that a major segment of the nation's
massive credit union industry is not doing all it can in terms of lending to all segments of the
local community. (Source: Division of Bank Annual Reports 12/93, Activity Reports
Through July 1994)

Credit unions still may say federal CRA rules should not be applied to them because they
only make loans to their members and that is tantamount to sending the funds back into their
communities. But that is not true in every instance, and simply begs the question. Credit
unions do not necessarily lend and take deposits in the same area. The Indianapolis-based
Teachers Credit Union used a mobile unit to get deposits from a Crawfordsville, Ind., R.R.
Donnelly office some five years ago. CRA tries to help ensure that aU segments of the
community - rich and poor - are being served from the funding raised in that community.

Credit unions say they shouldjiotJiave to adhere to-CRA because they -already serve the
"common man." This statement may have been true at one point, but no longer. As the
GAO pointed out in 1991, "the available data clearly indicate that credit unions do not
exclusively serve people of 'small means' today." Regulatory aid for credit unions - such as
the federal tax and CRA exemption ~ actually then may perversely benefit those with higher

incomes at the expense of those with lower incomes.

Credit unions say that CRA should not be applied to them because of their not-for-profit
status. Certainly, banks and savings institutions have CRA responsibilities regardless of
whether or not they make a profit. My mutual savings bank is just like a credit union.
Everything we make goes back into the institution or to our customers. The way credit
unions operate - where income earned from borrowers is returned to savers after expenses
and required allocations to reserves - is not different in substance from that of a mutually
organized savings and loan association, a mutual savings bank, or even a mutual life
insurance company. Thus credit unions' not-for-profit status is no justification for CRA
exemption.

Credit unions certainly do not want CRA applied to them, but CRA policies allow banks to
balance their thinking about how things are and how they might be. Community banks like
Woronoco Savings Bank try to seek a balance between what it takes from and what it gives
back to the community. At Woronoco, senior managers and employees are involved in
community charities, programs and events. Sharing the work of community progress
through involvement continues to be a character trait necessary for success. Because our
business is directly tied to the success of the areas where we operate, Woronoco has a great
interest in ensuring the vitality of the communities we serve, at all income levels.
Woronoco Savings Bank has a strong commitment to youth and the staff is very responsive to
community needs.

Woronoco Savings Bank tries to help maintain and enhance our community's economic and
social strength. As evidence of commitment even beyond CRA, in addition to First Time
Home Buyer special programs, loan counseling, sponsorship of programs with the Small
Business Development Center and local community development corporation, sponsorship of
local Chambers of Commerce functions, officers, managers and employees at Woronoco
Savings Bank are involved in a host of programs, including:

• serving on the boards of directors of most of the non-profit organizations in our area;

• working with the local college to provide week-long seminars for individuals in
transition and in setting up the Leadership Westfield Program, which helps train
individuals for leadership positions in non-profit organizations;

• helping with the upkeep and support of the local homeless shelter, and providing
necessary contributions to keep the shelter open during the summer when it was
threatened with closure for lack of funds;

• participating in "Downtown Clean Up Day" each year;

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holding a very successful food drive raising funds, which the Bank matched, when the
local Food Pantry was dangerously low on supplies;

opening the first Educational School Branch, which serves a training facility for local
high school students providing hands-on experience in the banking world;

conducting Personal Economic Programs, which help educate consumers about
banking and the financial marketplace;

providing scholarships to graduating seniors at all eight high schools in our delineated
market, and humanitarian and achievement awards at area middle schools;

sponsoring youth sports teams in most of the local programs;

committing a $12,000 grant to ensure that programs producing positive alternatives
for teens was continued through-out the summer at local YMCAs and Boys & Girls
Clubs; and,

• contributing over $200,000 to community outreach in 1994.

SCBA member institutions are active in this same way in their communities all across the
nation, investing and otherwise demonstrating their commitment to their local communities.
CRA would give broad-based credit unions an incentive to do the same.

CREDIT UNIONS ARE UNDER NO OBLIGATION TO REINVEST IN AFFORDABLE
HOUSING AND ECONOMIC DEVELOPMENT

Credit unions are deposit-taking entities, and most of the accounts of their members are
insured by the federal government through the NCUA. But the federal government provides
insurance of accounts protection to credit unions without ensuring whether the credit union
industry is deploying its available funds to help fulfill the home ownership dreams of low-to-
moderate income families or to meet other family credit demands.

In an attempt to prevent congressional action to do just that, the Board of the NCUA on May
12, 1994, adopted charter amendments designed to ease significantly the hurdles for the
creation of low-income credit unions and the ability of other credit unions to offer services in
low-income areas. The NCUA, for the first time, publicly recognized the obligation of
credit unions to serve the credit needs of low-income areas. The NCUA may say, therefore,
that CRA does not-need to be extended-to credit-unions. -However ,-the opposite argument
can be made: by making these changes, NCUA is recognizing the appropriateness of CRA-
like requirements for credit unions.

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The NCUA rules have additional weaknesses. Most notably, the NCUA rules offer no
method to consider whether deposits taken in low-income areas are reinvested in loans in
those same areas. The NCUA is only now just beginning to experiment with programs
aimed at increasing the availability of credit to low-income areas. Indeed, credit unions
coming into low-income areas will be required to file business plans delineating how deposits
will be solicited and funds reinvested in that community through the granting of loans.

These are welcome steps. However, they are merely small beginning steps just touching the
outer fringes of full CRA commitment.

CONCLUSION

Mr. Chairman, I once again applaud you for your decision to hold a hearing on this subject.
Debates over the common bond, CRA, and taxes are warranted. The "most-favored lender"
status of credit unions needs to be re-examined in light of sweeping changes that have
occurred in the financial marketplace.

Credit unions are worthy competitors who should have the confidence to operate without
special benefits in the effort to service the public most efficiently. The sad fact is that
special treatment creates dissension and bitterness among institutions that otherwise have a
great deal in common and that could learn a great deal from each other.

Many credit unions today are full-service lenders, competing in all aspects of the financial
services market, no longer voluntary associations of closely-linked individuals with a
common bond. Congress should encourage credit unions to graduate to CRA-complying and
taxpaying status.

Broad-based credit unions should face reality and view CRA as a challenge to be met and an
opportunity to be recognized. Just like banks and savings institutions, such credit unions
should reinvest in affordable housing and economic development. And just like banks and
savings institutions, credit unions have an irrefutable responsibility to demonstrate
investments in their local communities. Credit unions can and should join banks and
savings institutions in demonstrating service to their communities. Credit unions can and
should join banks and savings institutions in becoming leaders in the availability and quality
of mortgages for low- and moderate income homebuyers. This should be done for the good
of the nation.

Extending CRA to credit unions can increase overnight the pool of funds available for
community reinvestment. If .this is not-done, the-number^of-those persons who would benefit
from CRA will eventually be reduced. And if this is not done, the CRA's full potential will
remain unrealized.

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Savings & Community Bankers of America stands ready to assist in any way possible to
address these issues. Passage of legislation in the next Congress to extend CRA to
community-chartered credit unions and to credit unions with many employer groups in one
area should be made a top priority. The potential harvest of additional CRA benefits should
not be missed.

This concludes my prepared remarks. I will be happy to answer any questions you may
have.

TESTIMONY OF

ARMANDO R- CAVAZOS

ON BEHALF OF

THE

CREDIT UNION NATIONAL ASSOCIATION

BEFORE THE

SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

U.S. HOUSE OF REPRESENTATIVES

SEPTEMBER 22, 1994

Mr. Chairman, members of the Subcommittee, my name is Armando R. Cavazos and I am
the President/Chief Executive Officer of Credit Union One located in Femdale, Michigan (a
suburb of Detroit). I thank you for the opportunity to appear before you on behalf of the
Credit Union National Association and Affiliates (CUNA) to oppose extending the
requirements of the Community Reinvestment Act to the nation's credit unions. CUNA is
the major trade association serving our nation's 12,733 credit unions with S300 billion in
assets and 67 million members. Through its 50 leagues, CUNA continues its 60 year history
of organizing, serving, and supporting credit unions. Today 91% of all credit unions are
affiliated with CUNA and 87% of all credit union assets are in credit unions that are
affiliated with CUNA.

"Field of membership" is a term that you will hear used repeatedly during this hearing.
The concept is one that means that a credit union serves identified groups or an identified
community, not the general public. I was asked to represent CUNA today because I serve
on CUNA's Field of Membership Task Force. Our task force is looking for ways more
consumers can become credit union members. Our discussion has focussed on the need to
provide credit union services to more low-income people. CUNA was very pleased that the
National Credit Union Administration revised its policy two months ago to provide federal
credit unions with much greater opportunities to reach out to low-income individuals and
communities, and our task force continues to discuss ways to make such service a reality in
urban and rural areas of the nation.

My credit union. Credit Union One, has a long history of serving groups from all economic
levels of society. Our credit union has 120,000 members and $350 million in assets. Our
members live throughout Michigan and we serve them through 17 offices and 14 facilities
we share with other credit unions. Credit Union One was chartered in 1938 as an
outgrowth of the Femdale Food Cooperative. People saw the benefits of the cooperative
structure for food distribution and realized there could be benefits of a cooperative
structure for serving their financial needs.

Members of Credit Union One are convinced that credit union resources generated from
serving our more affiuent members can and should be allocated towards initiating and
continuing service to lower income people within our field of membership. At present,
about 20% of our membership are from low income areas in metropolitan Detroit. We
serve these members through our branches in Southwest Detroit and at the Detroit Medical
Center, as well as a shared service center in Detroit.

Mr. Chairman, our Southwest Detroit branch was started primarily to serve a parish and
has gradually expanded to serve about a five mile radius from the church. This area has
70% minority population and the median household income is S16,900. The credit union is
the only financial institution available for many of the residents as well as for a number of
migrant workers whom we also serve. A great percentage of the loans we make are
unsecured and are often for auto repair, schooling for children, debt consolidation, and

financial emergencies. At our three inner city locations, we also cash checks and sell a large
number of money orders.

I'd like to share with the Subcommittee the following information about Credit Union One:

* We make small unsecured loans for periods up to 30 months at a rate of 8.75%.

* There is no charge for check cashing if: 1) the member is under 21 or over 65 years
of age; or 2) the member has more than one account at the credit union (savings and
a loan, or checking account); or 3) the member has a savings balance of S300.
Otherwise the charge is S2.50.

* We offer money orders for Sl.OO, and we waive this if the member u on direct
deposit or payroll deduction.

To ensure that we carry out our philosophy of serving all income levels within our field of
membership:

* we guarantee that our Board of Directors, who are volunteers, contain a rich
diversity of backgrounds.

* we establish liaison groups with each community we serve and initiate outreach
programs in the community.

* we ensure bilingual staff wherever necessary.

Mr. Chairman, I am proud of the record of our credit union and I feel that we are doing an
excellent job of serving our existing members and of reaching out to people of all income
levels in our field of membership. My state regulator, Patrick McQueen, feels that there is
no justification whatsoever for bringing Credit Union One, or any other credit union, under
CRA. CRA would not cause my credit union to change the way it is serving its members,
but it would mean additional cost to document the work we are already doing. CRA should
only be expanded if there is definitive evidence of a wide-spread problem. This was the case
when it was enacted for banks and savings and loan associations. It is not the case for my
credit union nor, I believe, for others.

Neither the National Credit Union Administration nor state regulators have received
complaints of a CRA nature about credit unions with community charters or those with
traditional fields of membership. The annual survey on financial institution customer
satisfaction by the American Banker newspaper consutently rates credit unions far ahead
of banks and savings and loans. I urge you not to amend a law simply because some
bankers would like to see a burden imposed on credit unions, thereby making them less
competitive.

While I am on this subject, I can't fail to note a certain irony, if not hypocrisy, on the part
of the three witnesses testifying here today on behalf of the banking and thrift industries.
They are calling for the extension of CRA to other financial entities. These three trade
groups represent the very people who were responsible for the enactment of CRA in the

first place. They are the same organizations which have spent millions of dollars since the
date of enactment of CRA in trying to either repeal it or water it down until it is
meaningless. They have funded untold sums of money on studies and lobbying campaigns
to accomplish that goal. In fact, the Independent Bankers are continuing to wage a major
campaign to exempt or water down CRA for up to 88 percent of the nation's commercial
banks.

I am amazed that their testimony can be delivered with a straight face. It is apparent to me
that the real motivation must be to damage their competition; and at a time when they have
had several years of record profits. Unfortunately for credit unions, we are the smallest
segment of the market, so we don't have billions of dollars to fight the thrifts and bankers
as do the insurance and securities industries. A further irony is that the thrifts have elected
not to testify against the mortgage bankers. Perhaps because many are members of their
trade association.

It is truly ironic that those who caused the problems which gave birth to CRA are now
calling for fair competition and free trade in a not-too-veiled attempt to squelch competition
from the one financial entity— the credit union—which offers the consumer truly
competitive rates and services. And it is even more ironic that in their zeal to reduce credit
union competition by including us in CRA, they overlook the fact that in order to fully
comply with CRA, credit unions would need expanded powers. Namely, an expanded
lending authority and the removal of any geographic limitations on membership. But we
don't want expanded powers, Mr. Chairman. We simply want to be left alone to provide
the kind of personalized service and lower rates on loans that our members expect.

The bankers have expended a great deal of time and energy not only trying to bring credit
unions under what they consider a bad law, but also have expended a great deal of
resources suing credit unions around the country because of field of membership
expansions. We were pleased last week when the U.S. District Court for the District of
Columbia "dismissed with prejudice" the American Bankers Association's lawsuit
challenging the National Credit Union Administration's authority to allow a federal credit
union to serve a variety of groups. We are also pleased that in the recently-passed
interstate branching bill that Congress recognized that credit unions can play an important
role in providing credit to distressed areas. A section of the bill specifically encourages
parties to consider the establishment of community development credit unions in
communities where a bank was closing a branch.

I also understand that the banks in particular do not like the very common practice for
community groups to dictate, through opposition to bank expansion plans, what changes in
bank operations must be made prior to removing the block to expansion. I certainly hope
that today lawmakers are not considering a law which would enable a group outside the
field of membership of a credit union to force a credit union to change the way it operates.
To me this would mean that we have determined not only that credit union members need

to be protected from their credit unions, but that some outside entity is likely to make
superior decisions to those of the elected volunteer board of directors.

I have examined closely the 12 factors with which I would have to comply were I under the
CRA. These factors are vague and general and appear to me to demand very subjective
appraisals. They require the assessment of many activities not normally permitted for my
credit union and most others. For the benefit of all readers of this testimony, the 12 factors
would be as follows if CRA were extended to credit unions:

(a) activities conducted by the credit union to ascertain the credit needs of its community,
including the extent of the credit union 's efforts to communicate with members of its
community regarding the credit services provided by the credit union;

(b) the extent of the credit union 's marketing and special credit-related programs to make
members of the community aware of the credit services offered by the credit union;

(c) the extent of participation by the credit union 's board of directors or trustees in formulating
the credit union 's policies, and reviewing its performance with respect to the purposes of
community reinvestment as set forth in this section;

(d) any practices intended to discourage applications for types of credit set forth in the credit
union 's community reinvestment statement;

(e) the geographic distribution of the credit union's credit extensions, credit applications and
credit denials;

(f) evidence of prohibited discriminatory or other illegal credit practices;

(g) the credit union 's record of opening and closing offices and providing services at offices;
(h) the credit union 's participation, including investments, in local community development
and redevelopment projects or programs;

(i) the credit union 's origination of residential mortgage loans, housing rehabilitation loans,

home improvement loans and small business or small farm loans within its community, the

purchase of such loans originated in its community, and the use of more flexible lending

criteria, consistent with safe and sound credit union practices;

(i) the credit union's participation in governmentally-insured, guaranteed, or subsidized loan

programs for housing, small businesses or small farms;

(k) the credit union 's ability to meet various community credit needs based on its financial

condition and size, its legal impediments, local economic conditions and other factors;

(I) other factors that, in the regulator's judgement reasonable bear upon the extent to which a

credit union is helping to meet the credit needs of its entire community.

In addition, there is one state, Massachusetts, that has a state CRA law that applies to all
financial institutions including credit unions. The Massachusetts statute has added an
affordable housing provision to its CRA requirements.

A quick review of thse 12 factors reveals that because of statutory and regulatory
restrictions on certain kinds of lending, and the requirement to serve only those within our
fields of membership it would be impossible to meet many of these requirements.

In your letter of invitation, you asked for comments on four specific questions concerning
credit unions. My observations on the questions submitted by the Subcommittee are as
follows:

Question #1. "Many people who speak on behalf of credit unions contend that imposing
community investment requirements on credit unions is unnecessary because credit unions
are by nature chartered to serve specific communities or groups. Recent data produced
pursuant to the Home Mortgage Disclosure Act HMDA demonstrates disparities between
credit unions and banks in serving minority areas. In 1992, credit unions received only
8.1% of their applications from African-Americans and Hispanics, while 9.5% of mortgage
applicants at insured banks had these backgrounds. At the same time, credit unions have a
greater ratio than banks of minority to white application denial rates. At credit unions, a
Black or Hispanic applicant is 2.7 times more likely to be rejected than a white applicant.
At banks, the denial rate ratio is just 2.1. This disparity between banks and credit unions is
made even more significant by the fact that the average credit union customer has a higher
income and education level than the average bank customer. In light of these facts, do you
believe it is appropriate that credit unions should meet community investment
requirements identical or similar to those under the Community Reinvestment Act CRA?
Why or why not?"

Answer #1. It is important to note that the denial rate for blacks, Hispanics, and all
minorities applying for home mortgages is lower across the board for credit unions than for
banks. With respect to the HMDA statistics, I refer you to the April 11, 1994 report by the
National Credit Union Administration on Special Examinations For Discriminatory
Practices By Credit Unions. In this report, NCUA found no evidence of any overt lending
discrimination in the credit unions reviewed. The report suggests that certain mitigating
factors such as zip code errors and strict adherence to secondary market standards may
account for some of the problems. Efforts are underway to correct and improve the
situation.

Interestingly, the study went beyond just HMDA statistics to determine if there are
discriminatory practices in field of membership expansions and conversions to community
charters. The study found no examples of a community credit union excluding minority
areas. With respect to expansions, it found no evidence of any discrimination by the credit
unions reviewed. The NCUA study follows my testimony as Attachment #1.

Further, Mr. Chairman, it is important to understand the overall lending patterns of credit
unions in order to see why CRA is inappropriate for credit unions, considering that the
main purpose of CRA is to increase mortgage and business lending in low-income areas.
Let me explain how these loans are defined for credit unions. A "member business loan"
(MBL) as deflned by section 701.21(h) of NCUA's Rules is any loan that a federally-insured
credit union makes to a member for a commercial, business, investment, or agricultural
purpose that is:

• for an amount greater than $50,000;

• not secured by the member's primary residence, or shares in the credit union, or
deposits in another financial institution; and

• not fiilly insured or guaranteed by the state or federal government.

In addition, NCUA's Rule limits MBLs made to one member or group of associated
members to 15% of the credit union's reserves (less the Allowance for Loan Losses account)
or S75,000, whichever is higher, though the credit union can seek a waiver from the agency
to this limitation. Thb same regulation limits the amount a federally-insured credit union
can invest in "construction and development lending," that is a loan to purchase land or
property with the intent to convert it into income-producing property. The aggregate of^
such loans at a credit union may not exceed 15% of its reserves (less the Allowance for
Loan Losses).

With these regulatory restrictions in mind, it is easier to see why credit union lending in
these areas is of such low volume. First, the average credit union has less than 1% of its
assets in business loans outstanding; second, the average credit union has less than 5% of
its assets in first mortgages on its books; third, in the first half of 1994, the amount of new
first mortgage loans granted by the average credit union was less than 1% of assets. For all
of 1993, the figure was about 2%; and fourth, only 12% of credit unions offer non-
agricultural business loans, and only 3% offer agricultural business loans.

Question #2. "Some have argued that imposing CRA-type requirements on credit unions
would be excessively burdensome. In Massachusetts, state-chartered credit unions have,
along with state-chartered banks and savings and loans, been required to comply with a
state CRA law for 12 years. Yet, no state-chartered credit union has converted to a federal
charter during that time in an effort to avoid coverage under the state CRA law. Do you
believe a federal CRA-type standard would be excessively burdensome to credit unions?
Why or why not?"

Answer #2. Yes, it would be tremendously burdensome and costly. Although the state of
Massachusetts has had a state CRA law since 1982, the new Commissioner of Banks for the
State recently issued a revised set of guidelines for compliance. In fact, the guidelines are
the same 12 factors used at the federal level plus one additional one. The Commissioner
sent a lengthy Administrative Bulletin to all financial institutions, including credit unions,
on August 31, 1993. The Bulletin specifically stated that all institutions would be expected
to be in compliance with all criteria on November 1, 1993. This means that there have only
been 10 months for the real burden to be felt; hardly time for credit unions to even
contemplate converting.

Compliance has been a problem for state-chartered credit unions in Massachusetts. The
factors simply don't adapt themselves easily to credit union operations. Credit unions have
indeed expended a good deal of resources on compliance. Some are still graded low for

inadequate documentation of their activities. No outside group, however, has issued a
challenge to a credit union eipansion because of CRA. If this does happen, I strongly
suspect that dissatisfaction with CRA by state-chartered credit unions will skyrocket. The
most distressing thing, however, is that the CRA law has caused compliance changes, not
changes in operating practices.

On a national scale, the impact would be severe. Thousands of small credit unions operate
with limited staiT and would be unable to handle the burdensome documentation
requirements that would follow. They would be forced to close or merge with larger credit

As of year-end 1993, 776 credit unions were categorized as religious organizations for their
common bond. Their average asset-size was $3.7 million, while they average 1.75 full-time
employees and 1.5 part-time employees. More broadly, there were 6,690 credit unions with
less than $5 million in assets ~ that's over 50% of the nation's credit unions! For those
credit unions with less than $2 million in assets, few have any full-time employees at all, and
average only 1 part-time employee. Credit unions with S2-S5 million in assets average only
1.9 full-time employees and 1 part-time employee.

Question #3. "To the extent that a federal community investment standard applied to
credit unions would be appropriate, do you believe that such a standard should recognize
the different sizes and types of credit unions that exist? For instance, many large
geographic credit unions operate essentially like large banks or thrifts. One Illinois credit
union has a nine-county field of membership and SI. 2 billion in assets. Do you believe such
credit unions ought to be held to the same or similar standards of community investment as
other federally insured depository institutions? Why or why not?"

Answer #3. No evidence has been presented that credit unions are improperly serving
their communities. Because of this, CUNA does not think it appropriate to implement a
complex and burdensome solution to a problem that doesn't exist. You asked a question in
your letter of invitation about an Illinois credit union that is serving nine counties in the
state. Th^rucial question is not whether or not that credit union should be serving nine
counties, but whether or not that credit union is providing for the credit needs oAts
membership. In m^case. Credit Union One encompasses twenty counties. Are you asking
us to stop serving some of these areas?

CRA was motivated by the fact that banks were taking deposits from their communities
and loaning them elsewhere. This is not possible for credit unions because by statute credit
unions can only lend to their depositor/members. Whether it's the Illinois credit union or
others, credit unions of all types continue to serve their members without any evidence of
discrimination or redlining. We therefore object to any attempt to impose CRA on credit
unions regardless of size, type or charier.

Consumer groups also oppose applying CRA to credit unions. In addition to support for
our position by the Consumer Federation of America, the Center for Community Change,
in its January 3, 1994 comments to the Federal Housing Finance Board stated that credit
unions need not comply with CRA, but rather should submit their HMDA data, or the
equivalent in the case of a credit union having less than SIO million in assets.
For the record, Mr. Chairman, I have attached at the end of my testimony a chart
(Attachment #2) which gives complete statistics on the number and size of all community
charters presently in the credit union movement For now, I would simply point out that
community charters comprise only 6% of all credit anions with about 7% of all credit
union assets.

Question #4. "Credit unions deposit excess funds in corporate credit unions, which
generally redeposit these funds in the U.S. Central Credit Union, a S27 billion asset
institution. According to U.S. Central, between S4 billion and $8 billion of these member
funds are invested in foreign banks. In a widely publicized case, U.S. Central deposited
S255 million in uninsured accounts in a Spanish bank. Banco Espanol de Credito, months
before that bank collapsed. To the extent that credit anions are generally chartered to
serve the needs of working people, and assuming that the credit needs of low-and moderate-
income consumers continue to go unmet, do yon believe it is appropriate for credit unions
to place depositor funds in risky, foreign-controlled investments. Why, or why not? What
role, if any, should the federal government play in directing these resources to U.S.
consumers?"

Answer #4. The heart of the question, as I understand it, is should credit unions (or any
financial institution for that matter) place funds into investments rather than loans when
there are substantial credit needs of low-and moderate-income consumers going unmet?
From a credit union perspective, the answer to this question has always been absolutely no!
Credit unions have a primary mission of lending. That is why they are called credit unions.

Credit unions are trying to make loans. They try and succeed better than any other group
of institutions. In fact they disproportionally serve members' borrowing needs versus
members' savings needs. The U.S. household savings market (deposits in banks, savings
and loans, credit unions, money market mutual funds and savings bonds) is S33 trillion.
Credit unions hold about 8J% of thu market or $270 billion. While credit anions hold
about 8% of the savings market, they hold 13% of consumer loans. Farther, for the
economy as a whole, only 26% of household savings are channeled back into consumer
loans. At credit iininns. fiiiiy 41% of savings at credit unions are directed back to member
consumer loans.

With respect to mortgage lending, credit anions are relatively new to this market and have
been under regulatory pressures to limit the holding of mortgage loans ou their books. In
the future, credit anions can be expected to increase their present volume of mortgage
lending.

I would be remiss, Mr. Chairman, if I did not comment on the regulatory climate in the
80's and 90's as a contributing factor in limiting the ability of credit unions to meet
members loan demand. In my judgement, the tougher standards imposed by regulators
since the thrift and bank crisis had a definite impact on lending to low income members. A
number of credit unions shut down or merged which primarily served marginal areas or
which were struggling because their membership was less aflluent, but marginal activities
by credit unions in general were curtailed. I have personal experience along these lines in
my own credit union. For instance, it's difficult for me to make loans to migrant workers
and other members with virtually no credit history, if regulators are not willing to let me
take reasonable risks.

The new Chairman of NCUA appears to be committed to a more expansive effort for credit
unions to serve low income areas. Many of us in the movement see this as a signal for a
return to basics and we are optimistic that his commitment will be conveyed and executed
by the front-line field examiners. We are now seeing efforts not only to expand the number
and scope of low income credit unions themselves, but also a very recent change in the Field
of Membership policies which would permit any credit union to expand its activities to
include a low income group or area. I have long believed that such a change was
appropriate and would even have been a supporter of a legislative change to accomplish
this. Earlier this month, NCUA reported that in the state of Texas there has been a
dramatic increase in the number of low-income credit unions. In 1992, there were only 2
credit union in Texas with the low-income designation. At present, there are 30! This is a
very good sign indeed and is welcomed by myself and other credit union representatives.

Included as Attachment U3 are examples of how credit unions are serving lower income
areas and members.

Finally, turning to Banco Espanol (Banesto), I would like to make several points. First,
credit unions have more excess funds invested outside the corporate system than within it.
Second, U.S. Central was authorized to invest in Banco Espanol in June, 1992; at that time
Banesto had all the highest ratings from Moody's and Thompson's financial rating services.
Banesto did not "collapse"; it was reorganized by the government. No depository
institution, including U.S. Central, lost money on investments in Banesto. The institution
was not insolvent, nor was it liquidated. In fact, when Banesto was sold, its stockholders
received a substantial return on their investment.

Further, Mr. Chairman, NCUA recently commissioned a study to look into corporate
investments. An independent study, "Corporate Credit Union Network Investments: Risk
and Risk Management," authored by Dr. Harold Black of the University of Tennessee,
concluded that sound foreign investments were justified for credit unions.

In closing, Mr. Chairman, let me state that I believe that credit unions are simply not guilty
of refusing to serve all their members or all of their communities. If there are isolated

problems, NCUA and state regulators should clamp down hard when they find them.
NCUA has extensive authority over credit unions and should use it I urge the
Subcommittee to take no action at the present time and monitor the credit union movement
as we push even harder into these marginal areas. I think we will achieve very significant
results.

Thank you, I will be happy to answer any questions which you or members of the
Subcommittee might have.

ATTACHMENT 1

National Credit Union Administration

REPORT ON

SPECIAL EXAMINATIONS FOR

DISCRIMINATORY PRACTICES BY CREDIT UNIONS

April 11, 1994

This report summarizes the findings of Regional Office special examinations into field of
membership expansions, community cbarlered credit union practices, and Fair Lending
by selected credit unions in the respective regions. The special examinations were to
look into field of membenhip expansions and community charter activity for possible
discriminatory practices and to offer further insight into the significant racial and ethnic
differences in loan denial rates at credit unions as evidenced by recent Home Mortgage
Disclosure Act data.

PTRT r> r\v >^T7MEBRSHIP EXPANSIONS

In general, the Regional Offices woited through their Supervisory Bxaminen(SEs) to
review all recent expansions by credit unions under their supervision. The SEs were also
directed to look at new charters for credit unions in their areas. The SEs were asked to
look at each credit union £rom the following perspective:

1 . Has the credit union intentionally excluded from its field of membexshq) geographic
or business areas for low income or misoiity/ethnic groups in its field of membership
requests?

2. Is there any indication that low ijocome, minonty, or ethnic considerations are part of
the credit anion's e;q>ansion policies or practices?

3. Are there indications of any other problems related to disciimisation in lending or in
other areas?

None of the regions found any evidence whatsoever of any overt discrimination by the
credit unions reviewed. The bylaws were examined to ensure that minorities have the
potential to be included in each credit union. Segions reported that nuny recent charters
were by minority groups. The observation was made, however, that some credit unions
do seek groups that are eligible for payroll deduction when they decide to exfand. The
observation was also made that discriminadon in select group expansion wouW be very
difficult to detect. A number of conversions to community charter were reviewed and,
again, areas containing minorities were found to be included in the charter.

rnKfMTJNITY CHAR11ER ACnVITIES

With respect to community charters, several areas were reviewed. First, the regional
offices, mostly through their SEs, looked at existing community chartered credit unions
in the region for any discriminatory practices against low-income, yninority, or ethnic
groups within the service area; second, community charter conversions and expansions
were examined to see if there was a pattern of discrimination in excluding communities
or areas from the expansion or conversion request; and third, one community chartered
credit union from each region was selected for a close review of its dedication to its
community from the perspective of both the Home Mortgage Disclosure Act and the
Community Reinvestment Act.

No indication of discrimination was found in the general review of the practices of
community chartered credit unions. Community boundaries were generally found to be
comprised of specific political jurisdictions, such as villages, towns, townships, or
counties which are all-inclusive of the population, regardless of income or
minority/ethnic status, within the geographic area. No patterns of discrimination were
foimd in lending practices nor in charter conversions or expansions in any of the regions.
No examples were found whereby minority areas were excluded firom the field of
membership of the community charter. Bylaws of community charters did not preclude
the inclusion of any area in the membership of the credit union.

The sue community chartered credit unions (one from each region) selected for close
review of their overall activities demonstrated admirable records. Their HMDA lending
recoids were outstanding. In feet, two of the credit unions qjproved all applications
from miniority group applicants, and two others only denied I minority applicant. There
was also no evidence of redlining. Tlie credit unions were very active in making small
loans in the community to their members for business purposes. They were making loans
that other institutions would not make. Th^ were involved in efforts to educate their
members and to participate in the affiain of the local community. One opened a branch
in a neighborhood that had been abandoned by other institutions as being not profitable.
This branch is very successful today. TTie credit unions try very hard to serve their
marginal members. Fbr example, one credit union markets teal estate bans to its lower
income memben who have been tamed down elsewhere and they make variable rate
loans which are not necessaxity written to standards for sale on the secondary market.

In an attempt to obtain further insight into the di^aiate rate of denial to minority credit
union members for mortgage related loans, each region conducted special in-depth Fair
Lending reviews of the particular credit unions identified by the HMBA data as having
disparate rates. A total of 44 credit unions in 20 states were reviewed. Within these
credit unions, a total of 1,663 denied loans and 809 approved kuns were reviewed for
consistent application of credit-worthiness standards.

A study of the completed reviews reveals the foUowing: that there was no evidence of
any overt discrimination on the pan of the credit unions reviewed; that some mitigating
factors were found which contributed to the disparate rate such as uicorrect codes on
HMDA reports, secondary market standards, declining real estate values in certain parts
of the country, and careless record-keeping. While the results of these reviews do not
fully explain the disparate rate, NCUA is more confident of the performance of credit
unions' fair lending record. In addition, the reviews have assisted in pointing out areas
where NCUA and credit unions can seek improvement.

CONDUCT OF THE REVIEWS

In reviewing their credit unions, the regional examiners looked closely at the following
areas: lending policies; lending procedures and approval practices; the results of staff
interviews; and all supporting documentation in the applicants' files. The objective was
to deteimine if all mortgage-related loan applicants at federal credit unions were provided
fair and equal treatment.

The examiners reported that all mortgage loans reviewed appeared to be approved or
denied based on nondiscriminatory credit criteria. The findings were very similar in each
of the reports. Denials and approvals were supported by such documentation as credit
reports, debt-to-income ratios, appraisals, loan-to-value ratios, monetary assistance
provided to each applicant, follow-up for infoimation requests, etc.

The reasons for denial in most cases were very similar. The most commoa reasons for
denial were: adverse credit reports; high debt to income ratio; and insufficieat equity in
the collateral. A complete breakdown of the denials is as follows:

Reason

/y Ifi^jis Pgnjed

Reason iiXgaiwPgpM

Credit Report

515

Debt Ratio

368

Equity in Property

205 .

Withdrawn by Member

163

Incomplete/No Response

Collateral/Appraisal
Value (LTV)

Income/Stability of Employmeot

Moi^age Product Not
Offered

Cash for Closing or Down F

•aymec

It 14

Other Reasons*

224

TOTAL: 1.663

*Other Reasons included; insufficient income; unable to verify self-employment or
income; unable to veiify other income (rental); VA would not guarantee loan; denial
requested by applicants; other lien bolden would not subordinate; would not pay for

appraisal; unfavorable share or loan history at credit union; failure to provide additional
information; counter-offers not accepted; delinquent taxes; etc.

MITIGATING FACTORS

A major problem disclosed in the reviews was that some credit unions did not code
information correctly on their HMDA report. Making errors on HMDA submissions has
been an historic problem for credit unions and one that has required costly editing by the
Federal Reserve HMDA processing unit. Errors noted in the reviews were mostly racial
and gender code errors. However, there was no indication of any intent to falsify any
applicant's infonnatioa.

Many credit unions had mortgage lending policies that required adherence to secondary
market standards. A majority of the denied loan applicants for purchases and refinances
failed to meet the requireraents of the "secondary market standards". These standards are
quite specific regarding debt ratio maximums, credit report evaluations, employment
stability, equity limits and condition, income consideration etc. Although many credit
unions had no plans to sell part or all of their mortgage loans, they felt it prudent to
adhere to secondary market standards in case they had to sell mortgage loans in the
future.

Two credit unions had addressed the problems caused by the secondary market standards.
One of them hzd started a special progtani for mortgage bans that did not meet
secondary maitet standards. As a result, this credit union later was able to approve 6 of
the 20 applications that it had preyJousU denied. Another credit union holds all
mortgage-related loans in its portfolio and does not adhere to the secondary market
standards. All mortgage loam at these credit unions are peifonning adequately.

NCUA has traditionally encouraged credit unions to write mortgage loans to secondary
market standards. This itself could have been a contributing factor in credit union
practices. One result could be the exclusion of many low and moderate income
individuals from qualifying for a mortgage loan. Presently, however, we are sending a
letter to all credit unions encouraging them to examine the benefits of making a certain
percentage of their loans on a non-conforming basis.

Finally, it was noted that in the northeast and the west a mmiber of refinance and equity
loan 'iequests were denied due to high loan-to-value ratios resulting from declines in real
estate values. Further, in some credit unions enon of omission and careless
record-keqjing distorted the denial rates significantly.

SUMMARY

While the results of the reviews do not disclose any overt discrimination on the part of
individual credit unions, UCUA. will continue to improve our analysis of this area to
ensure that there is no disciiniinatioa in credit unioiu. Obviously, the HMDA data alerts

us to the fact that credit unions can do better in serving all segments of their membership.
The data also suggests that improvements are needed in NCUA's examination procedures
and training in this area.

Some steps have already been taken to try and improve this area of lending. They
include: selected Fair Lending reviews by the Compliance Officer from NCUA's Office
of Examination and Insurance; adoption of interim Fair Lending Procedures which
included a Fair Lending Checklist; inclusion of credit unions in the Federal Financial
Institute Examination Council's (FFIEC) Fair Lending study. This study will produce
uniform Fair Lending examination procedures that will be adopted by all financial
regulators, including NCUA; initiation of a "Consumer Compliance" seminar with
emphasis on Fair Lending and HMDA; distribution of the publication "Compliance, A
Self -Assessment Guide" which gives credit unions guidelines on what a good Fair
Lending program should encompass; and appointment by each region of a staff person
for the compliance area.

In addition, plans are underway to:

* Conduct a conference with the regional compliance persons to map out a strategy for
;; uniform compliance tracking and strategies;

* Provide expanded training in Fair Lending, HMDA, and other compliance areas to the
vregional compliance persons; and

* Use the further training of these individuals to expand the review of Fair Lending in
r credit unions where examiners deem it is warranted.

RECOMME^ATTONS

1. That NCUA encourage credit unions to make a proportion of their real estate loans
non-conforming to the secondary market standards. Establish management policies for
such loans.

2. That NCUA conduct additional training to improve its ability to detect disciiminatory
practices by credit unions.

3. That NCUA examiners ensure that credit unions use proper codes on HMDA reports.

4. That NCUA examiners look closely at credit unions for efforts to reach out to
minorities ia lending programs and to educate members on financial matters in general

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ATTACHMENT 3

In addition to the activities of Credit Union One, CUNA would like to point out other examples
of credit unions participating in community development. Illustrations from the following states
provide a small sample of the many examples of credit union philosophy at work.

Alabama

America's First Credit Union, with main offices in Birmingham, was considering ways to reduce
costs last year. A study concluded that a branch located in a poor, minority area was less
efficient than other branches of the credit union. The branch is located in an area many banks
have abandoned through the years. Instead of closing the branch, America's First's management
decided to continue to serve the needs of its members in that community by leaving the branch
open.

Stillman Community Development Federal Credit Union received its charter in late July and will
serve 100 minority-owned businesses in the Tuscaloosa area. Alabama Mental Health Credit
Union supports the operations of Stillman by assisting in month-end closings and providing
technical training to Stillman's staff.

California

A new community development credit union. Episcopal Community Federal Credit Union,
recently opened in the Los Angeles area. Episcopal is up and running thanks in part to the efforts
of nearby Los Angeles Water and Power Credit Union. LA Water and Power provided technical
assistance in the planning stage. Three of LA Water and Power's managers, plus the CEO,
continue to work with Episcopal to provide support as needed.

South Central Peoples Federal Credit Union, which serves residents of riot-scarred South Central
Los Angeles, opened in September, 1993. South Central currently has 800 members, 190 of
whom have loans worth a total of $556,000. The California Credit Union League as well as a
number of area credit unions were instrumental in providing start-up funds for South Central.
South Central receives interest on $3.5 million that California Credit Unions have deposited with
the California corporate credit union; approximately half the principal amount is available for
South Central Peoples to use as loan demand grows. Now that South Central is up and rurming,
credit union involvement continues. Xerox Federal Credit Union serves as South Central's
sponsor, providing substitute employees when South Central's employees attend training sessions
as well as technical advice and support.

Florida

Florida Central Credit Union is in the process of opening a branch in East Tampa, a minority
neighborhood which currently has no depository institutions. The branch is scheduled to open in
January of 1985 and reflects a combined effort by Florida Central, as well as city and non-profit
agencies, to spur economic development in East Tampa.

Georgia

Two credit unions have recently expanded to include low-income areas in their fields of

membership. First Railroad Community Federal Credit in Waycross is expanding to take in low-
income portions of Coffee, Brantley and Charlton Counties. Peachtree Federal Credit Union in
Atlanta is expanding to the predominately minority Cabbagetown area of E>eKalb County.

Idaho

Credit unions in Pocateilo are woridng with the Pocatello Neighborhood Housing Service to
provide loans to members who do not meet normal underwriting requirements for home
improvement loans.

New York

Central Brooklyn Federal Credit Union opened in April, 1993 to serve residents of the Bedford-
Stuyvesant, Crown Heights and Prospect Heights neighborhoods in New York City. In addition
to giving members a place to deposit money which is returned to the neighborhood in loans.
Central Brooklyn provides check-cashing and money orders at rates significantly below those of
neighborhood check-cashing outlets. Central Brooklyn currently has over 1600 members and
assets of $2.6 million with $300,000 in loans outstanding. To assist Central Brooklyn, other
New York credit unions contributed about $400,000 in zero- or very low-interest deposits to
provide an initial deposit base, and the New York corporate credit union provided free check-
processing services for a year.

Port Washington Federal Credit Union, a community credit union, cites a number of cases which
prove its commitment to low- and moderate- income members. A Hispanic couple turned to the
credit union after being discouraged by mortgage interviews at local banks. The husband has a
full-time job, but a part-time cleaning business provides a significant part of the family's income.
The credit union worked with the couple to document this income and the mortgage will close
shortly. In another case. Port Washington financed the first loan for a landscaping business
started by a refuge family from El Salvador. Today, this business supports- about 20 family
members and the family now owns their own multi-family house.

North Carolina

Self-Help Credit Union, opened in 1984, now has over $70 million in assets and provides loans
to small businesses and low-income people throughout the state. In 1993, Self-Help financed
106 mortgages worth $6.1 million; 46% of borrowers were minorities and 47% were households
headed by women. The average family income of the mortgage borrowers was $27,000. Self-
Help also provided 144 conmiercial loans worth $5.3 million in 1993, creating, saving or
stabilizing more than 950 jobs. In addition to their own lending activities, Self-Help's
management provides advice and support to other credit unions interested in expanding low-
income lending services.

Oregon

Portland Teachers Credit Union, which serves school employees in the Portland area, prides itself
on serving mortgage borrowers outside the usual qualifying standiirds. One such loan the credit
union funded this year was a loan to refinance a mortgage for a single mother who is a school
custodian. This member had numerous collections, judgements and unpaid bills and no savings
account. Her mortgage was with a finance company and carried a 17% interest rate. PTCU

consolidated her outstanding debts and judgements as well as her existing mortgage into one loan
with a lower interest rate.

Pennsylvania

In the Philadelphia area, American Heritage Federal Credit Union just signed an agreement to
purchase loans made by Germantown Federal Credit Union, a small community credit union
serving a low-income neighborhood. The loans purchased will be primarily first mortgages and
home equity loans. American Heritage's purchase of these loans will allow Germantown to make
more loans in the community it serves.

Texas

The Texas Credit Union League is assisting several new and existing low-income credit unions.
Currently, league staff are working with groups in San Juan, Washington County, Odessa and
TexArkana to form new credit unions to serve disadvantaged residents of these areas. League
efforts paid off this summer, when Canyon Lakes Credit Union, serving a low-income area of
Lubbock, received its charter. The League coordinated efforts to obtain equipment for Canyon
Lakes, resulting in the donation of a computer and a commitment for a start-up deposit fi^om
WestTex Credit Union.

Another low-income credit union Texas credit unions assist is the Alpine Community Credit
Union in Alpine. The League coordinated efforts to obtain $600,000 in non-member deposits for
the $1.3 million Alpine in order to meet sUong loan demand.

Vermont

Vermont Development Credit Union in Burlington specializes in serving the needs of low and
very-low income Vermonters. The median income of VDCU consumer loan borrowers is
$16,650 and loans granted range from $140 to $1 5,200. VDCU also recently began mortgage
lending. To date, VDCU has made 22 mortgage loans in amounts of $22,733 to $97,000. Most
of the mortgage applicants require assistance in budget and debt management before they can
qualify for a mortgage. VDCU works intensively with borrowers to prepare them to qualify.

CUNA Activities

CUNA is also working to make mortgage loans more accessible to low- and moderate- income
credit union members. CUNA Mortgage initiated its Unique Mortgage Program this year to
provide nonstandard loans that credit unions could hold in their portfolios. The Unique
Mortgage Program will work with credit unions desiring to make such loans, creating a new set
of underwriting standards for mortgage lending and arranging sales of nonconforming mortgages
within the credit union system. The Unique Mortgage Program will begin working with several
low-income credit unions in the Rio Grande valley of Texas later this year.

CUNA has also initiated efforts to bring fmancial services to a number of Indian tribes located in
Wisconsin. Currently, discussions are underway with three tribes who are nearly ready to start
credit unions, and at least five other tribes have been offered assistance in organizing credit
unions.

STATEMENT OF AUGUSTO GOMES,

CHIEF EXECUTIVE OFFICER OF LUSITANIA

TO THE HOUSE SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

(SEPTEMBER 22. 1994)

Chairman and members of the Committee, my name is Augusto Gomes and I am the
Chief Executive Officer of Lusitania Federal Credit Union, a federally chartered credit union
with two offices located in Newark, New Jersey.

Lusitania was chartered in 1980 to serve the savings and credit needs of our community,
which consists primarily of the Portuguese community located in the so called "Ironbound"
section of Newark. The field of membership for our credit union is the Portuguese community
of Newark, New Jersey. Specifically, our charter states that our field of membership shall be
limited to "dues paying members of Filantropica Botiquense, Inc. in Newark, New Jersey."
Filantropica is a Portuguese Society, and our community is primarily Hispanic. The officers,
directors and employees of Lusitania generally speak the Portuguese and Spanish language and
are familiar with the difficulties encountered by the local community and by recent immigrants.
Lusitania has been one of the primary sources of loans for many of the local retail businesses
and for much of the area's individual and multi-family dwellings.

Lusitania is not the traditional Company or Employee credit union, which makes
consumer loans and deducts the loan payments from the paycheck of the employee members.
Lusitania is located at a street front location in Newark, New Jersey, and was created for the
purpose of serving the local Portuguese community by making mortgages and other real estate
loans to purchase homes and businesses. Our credit union has grown and operated profitably,
by originating mortgages secured by real estate located in our community. Historically, these
loans have consisted of mortgages secured by residential real estate, commercial real estate and
mixed-use real estate, consisting primarily of stores and businesses with an attached residence.
As of June 30, 1994, Lusitania had total assets of $51.0 million and net worth of $6.8 million
or 13.48% of assets. As of June 30, 1994, real estate mortgage loans and home equity loans
totalled $26.0 million or 92% of our total assets.

The NCUA has severely criticized Lusitania during recent years for granting loans
secured by real estate. It is the position of the NCUA that a credit union should offer primarily
credit card loans, car loans and other consumer loans. The reports filed with the NCUA
indicate that it is not safe for more than 23% of a credit union's assets to consist of real estate
loans. As a result, the NCUA has been highly critical of our Credit Union making real estate
loans. Credit unions are prohibited from granting loans on multi-family real estate or
commercial real estate with a maturity in excess of 12 years. This has essentially foreclosed
Lusitania from a major segment of our lending. A large segment of the buildings in our local
market area consist of commercial real estate or real estate for mixed use. In addition, there
is significant demand in the area for units which contain two-to-four residences.

The NCUA originally issued Lusitania a directive, which prohibits the Credit Union from
originating mixed use, multi-family and commercial real estate mortgages, and in May 1994,
the NCUA notified Lusitania that it was to cease originating any new real estate loans for its
own portfolio because its asset portfolio already contains too high of a percentage of real estate
loans. As such, Lusitania, under its Federal Credit Union Charter, is unable to fulfill its
purpose to grant mortgages to the ethnic community located in the Ironbound section of Newark,
New Jersey.

Accordingly, on August 3, 1994 Lusitania filed an application with the Office of Thrift
Supervision ("OTS") to organize a federal mutual savings bank and through a statutory merger
transfer all the assets and liabilities of Lusitania Federal Credit Union to "Lusitania Savings
Bank, fsb", a de novo Federal savings bank. Lusitania has applied to become a federal mutual
savings bank for numerous business reasons and to serve the needs of its community. While the
NCUA and other credit unions are strenuously opposing the requirement for credit unions to
comply with the Community Reinvestment Act, it is our desire to meet the CRA needs of our
community. Since our incorporation, we believe that we have filled our mission to serves the
credit needs of the community, and we desire to continue to do so.

The Subcommittee has asked us to address several issues including the following:

1. Do we believe it is appropriate for credit unions to meet community investment
requirements identical or similar to those under the Community Reinvestment Act?

— There are certain types of credit unions, for which we believe it is unnecessary to
impose CRA requirements. For example, many credit unions solely serve the credit
needs of the employees of a company or a similar limited and specific group of persons.
For so called "company credit unions" imposing a need to serve the credit needs of the
community would make no sense or serve no purpose. However, for street front credit
unions which were chartered to serve a specific geographical community, such as
Lusitania, we believe that such credit unions should have a duty to serve the needs of the
community, as is the case with other financial institutions pursuant to the CRA.

2. Would compliance with the CRA impose an undue burden? —We do not believe
that imposing CRA requirements on community credit unions (as opposed to company
credit unions) would be unduly burdensome. As evidenced by the fact that we have
applied to become a federal savings bank, which is subject to the CRA, we believe that
by promoting Lusitania's business interests to make loans to local businesses and
residences secured by local real estate, we will be able to grow and prosper without
being subject to undue regulatory burden. We note that many small community savings
banks and traditional savings and loan associations operate a business very similar to ours
and have always been subject to CRA since its inception without it constituting an undue
regulatory burden.

100

3. To the extent that CRA standards apply to credit unions, do we believe that such
a standard should recognize the different sizes and types of credit unions? -- As
previously indicated, although we believe that is appropriate for CRA standards to be met
by community credit unions, such standards should not apply to company or similar type
credit unions serving a limited population of members. In addition, we believe that CRA
for all types of fmancial institutions, not just credit unions, should recognize different
requirements based upon the size of the institution. Although all institutions should
substantively be required to serve their community, we believe it is necessary that the
administrative procedures and examinations associated with meeting CRA reporting
requirements be kept to a minimum, especially for institutions of a small asset size.

4. The U.S. Central Credit Union reportedly invests between $4 billion and $8
billion of credit members funds in foreign banks. Do we believe that is appropriate for
credit unions to place depositor funds in foreign controlled investments? ~ As we have
indicated, it is the desire of Lusitania to invest its funds primarily in loans secured by
commercial and residential real estate located within its community. We believe that
credit unions should primarily invest their funds by making consumer and real estate
loans to meet the credit needs of their members. However, we recognize, that depending
upon interest rates and market conditions, there is often excess liquidity when a financial
institution has deposits that exceed the demand for loans. In such cases, we generally
invest such funds in mortgage-backed securities or government insured investment
securities. Although these types of investments produce a lower yield, they are backed
by the U.S. government, pose essentially no credit risk and generally have a short term
to maturity. As a general matter, we do not believe that it is appropriate to place the
funds of credit union members in foreign banks, unless such funds not only yield a
sufficient return but also constitute a low-risk, high-grade investment.

We are confident that we can meet the substantive requirements of the CRA, if we are
permitted to complete our charter conversion to a Federal savings bank. As such, we support
the idea that community credit unions should be required to fulfill the CRA needs of its
community, but caution that the reporting requirements be kept to reasonable level, especially
for small savings institutions and credit unions such as Lusitania.

We have applied with the OTS and the FDIC to become a federal savings bank for the
following reasons:

1 . By becoming a federal savings bank, Lusitania will be able to accept deposits and
originate loans to all businesses and residences located in its market area, not just persons
of Portuguese descent, as required by its field of membership.

2. Thrift institutions are specifically chartered for the purpose of originating real
estate loans. In fact, pursuant to the qualified thrift lender CQTL") test imposed upon
thrift institutions, savings and loan associations are required to invest most of their funds
in loans secured by real estate.

101

3. The NCUA directive to cease originating all real estate loans for portfolio
prohibits Lusitania from carrying on an active profitable business. Without real estate
loan originations, Lusitania is likely to lose money.

4. Upon obtaining a federal savings bank charter, Lusitania believes that it will be
able to continue to grow by originating real estate loans to the residents and businesses
of its community. Furthermore, Lusitania believes that there is an active need and
demand for such lending in its market area.

5. In the future, if necessary, as a federal savings bank, Lusitania will be able to
raise capital through methods not available to credit unions.

Lusitania has met with representatives of the OTS in Washington, and they have indicated
that the economic and operating profile of Lusitania fits squarely within the traditional operations
of a federal savings association. If the FDIC and the OTS grant Lusitania a de novo charter and
insurance of accounts, we believe that we should be permitted to transfer the assets and liabilities
to our new federal savings bank charter. However, since the filing of our application on August
12, 1994, the NCUA has indicated that Lusitania must first obtain its approval to become a
federal savings association. Furthermore, NCUA has notified us that they will not act upon our
application until they adopt regulations. Since we plan to terminate our federal credit union
charter and terminate NCUA insurance of accounts, the NCUA will have no further interest in
our operations. As such, we ask Congress to affirmatively support our right to transfer our
assets and liabilities to become a federal savings loan association if the OTS and the FDIC
approves our application without any approval from the NCUA

Conclusion

In conclusion, I would like to reiterate the following three comments:

1 . For certain types of credit unions with a narrow field of membership, such as
credit unions which only accept deposits and make loans to persons employed by a
particular company, the imposition of CRA makes no sense and serves no purpose.
However, for "street front" credit unions which are organized to serve a particular
geographical region, we believe these institutions should be subject to CRA requirements
to serve the needs of the community just like any other financial institutions.

2. We do not believe that the imposition of CRA requirements upon community
credit unions would be an unduly burdensome requirement. Community banks and
traditional thrift institutions run very similar operations and have been able to meet the
requirements of CRA since its inception. We caution, however, that although we believe
that the substantive requirements of CRA should be applicable to community credit
unions, the administrative requirements, reports and examinations necessary to

102

demonstrate compliance with the CRA should be kept to a minimum, especially for
smaller institutions.

3. Current legislation and regulations permits charter conversions from credit unions
to thrift institutions, thrift institutions to commercial banks, state chartered to federal
charted and vice, versa. Over a period time, the business and community needs of an
institution change along with economics, the regulatory environment, the community,
customers and the business objectives of an institution. As such, we believe it is
important that all types of financial institutions be permitted to switch their charter
without the approval of the agency from which they are exiting. The ability to change
charters is an important means to assist institutions in reaching their business goals and
to serve the needs of their community.

h:\Oia9lusjV(aiict2 I

103

MASSACHUSETTS 25 WEST STREET

AFFORPABLE^^ THIRD FLOOR

HOUSING jM. ^'^'2'^:^j^::i

^_ , 617«7SB«9100

ALLIANCE ^^B r~ ' I-' ' — ' 1-" '■■■■■■''- ■.nci,i.LHini->...< ,, ,-....i:'.,-i ■■■•.■■ ■— • . . '" - •.•_!_

Thank you for the opporhiftlty to testify here today. My name is Thomas
Callahan and I am executive director of the Massachusetts Affordable Housing Alliance.
MAHA is a statewide coalition of 140 organizations seeking to increase both public and
private sector investment in affordable housing. In the past five years we have helped to
win over a half a billion dollars In bank investment in low Income neighborhoods
throughout the state. MAHA has entered into CRA agreements with seven of the largest
financial institutions in the state. We have provided technical assistance to local
organizations in their efforts to engage financial institutions in cities and towiw aaoss
the state.

"Credit uiuons by definition must serve their community."

Undoubtedly each member of this subcommittee has heard this, and will
continue to hear this from credit unions and their lobbyists. In Massachusetts however
that is not the case!

Massachusetts gives Community Reinvestment Act ratings to all state-chartered
credit unions. Fully 37% of the 78 ratings given to credit unions have been failing grades
of "needs to improve" or "substantial non-compliance". The Massachusetts Division of
Banks awards only 6% of banks a failing grade. The Federal Deposit Insurance
Corporation gives 5% of its Massachusetts banks a failii\g grade. The Office of
Comptroller of the Currency 0%. The Office of Thrift Supervision 11%. But 37% of
credit unions fail the CRA test. That does not sound like an industry that by deflnldon Is
serving conununity needs

Furthermore, no credit tmion in the state has received an "outstanding" rating
compared to 12% of the state's banks that have received an "outstanding" grade. This
year banks are receiving 17% "outstanding" grade. This is from s state regulatory
agency that for much of the past four years has been led by a commissioner, in our
opinion, who has been a very lenient grader.

In Massachusetts, five credit unions have been examined for CRA twice. In four
of the five cases, those credit unioru improved their rating — showing that the CRA law
can have an impact.

Credit unions have responded, albeit slowly, to a state examiner asking questions
about geographic distribution of mortgages, services for low income consumers, branch
patterns and hours, marketing, and outreach to community groups.

Credit unions compete with baiUcs. In Brockton, Brockton Credit Union is a $400
million institution. Crescent Credit Uiuon is a $164 million institution. Brockton
Brotherhood Credit Union is a $55 million institution. They compete with Boston-based
banks very well thank you. Baybank has $188 million in assets in the county. Citizens
Bank has $236 million. Fleet has $258 n\illion.

.1 i.».xi..im.> J ■..■■■ j..PCTgirr

C^nwMoKiKtattrofi ^^*

104

In Plttsfield, Greylock Credit Union has $261 million in assets. Only one bank has
more assets in Berkshire County. Greylock Credit Union dwarfs most other banks in the
county.

For credit union customers, and my family is one, there is little difference
between a bank and many credit unions. If CRA did not apply to credit unions, many
communities would not be fully served by all their financial Institutions.

In the 1992 Annual Report to the Commissioner of Banks, only 7 aedit unions
reported that they offer flexible mortgage products. Over half (87) of the credit unions
did not even offer a low cost cheddng account to their customers.

OiUy 3 credit unions reported that they were engaged in special commtmity
housing and economic development lending. Clearly, a CRA law and strong
enforcement are needed if credit unions are to truly meet low and moderate income
aedit needs.

Let us talk about a few examples. My hometown of Brockton is home to at least
three significant credit luuons. They compete very well with some very large banking
institutions in the dty. The Brockton Credit Union has stepped forward over the past
two years and is now taking a leadership role in affordable housing in the city of
Brockton.

Brockton Credit Union Is an active member of the Brockton Housing Partnership,
a ootvsortlum of banks, government and community groups that is seeking to revitalize
housing stock in Brodcton. Brockton Credit Union offers a special first time home buyer
program. Brockton Credit Union has worked closely with the Brodcton Community
Corporation, a non-profit housing devdopment organization.

The Pittsfteld GE Credit Union (now called Greylock Oedlt Union) is a leading
finandal institution in Berkshire County in Western Massachusetts. Greylock Credit
Union has been an important player with the county's top non-profit development
organization, Berkshire Housing. Greylock offers a first time buyer program (Good
Samaritan) at 1% below Ae market rate, with low down payments and reduced dosing
costs. Greylock is an active partner with many of the area's conununity organizations.

CRA has also been an incentive for Greylock who is looking to expand its charter
and has needed state regulatory approval — which includes a diorough CRA review and
opens the credit uiUon to a public challenge of its application.

If you read through the narrative evaluations of the credit unions, as we have, it
is clear that credit unions are not being penalized for failure to produce the sometimes
voluminous documents and glossy CRA statements of some of the larger retail banks.

Instead regulators look at whetiier the board has discussed CRA, at where the
bank markets its services, at how loans are distributed throughout the credit union's
geographic area. If you are already meeting low and moderate income community
credit needs, it is clearly not a burden to prove it under CRA.

105

WHO'S WATCfflNG THE BANKS ?

Third Annual Report on How Weil Banks and Banlc

Regulators Are Meeting Their Obligations Under

the Community Reinvestment Act

Prepared for

Massachusetts Affordable Housing Alliance

25 West Street, Third Roor
Boston, MA 02111

Jim Campen

Department of Economics

University of Massachusetts/Boston

Boston, MA 02125

November 10, 1993

106

14.

CRA RATINGS OF OTHER INSTTrUTIONS

As noted earlier, there are Mauachusens financial Insiituiioiu other than banlcs that are subjea
(0 CRA supervision. (In addition, as discussed above, a one-page supplement immediately
r'ollowing the main lisiir.; of current ratings provides detailed information on all ratings of current
banics that have subsequently been superseded by later ratings from the same regulator.) This final
section identifies a total of 219 financial institutions not included In the listing of current
Massachusetts banks, and provides detailed information on the 62 CRA ratings received by 60
different institutions.

Credit Unions. State-chartered credit unions are covered by the Massachusetts CRA.
although federally-chartered credit unions are not covered by the federal CRA. Of the 142 state-
chartered credit unions in business as of September 30, 1S>93, only 29 (20%) have so far
received public CRA evaltiatioiis: Just five public CRA evaluations of credit unions were listed
by the state during the past year. The ratings of these credit unions, listed in Table 8. are
substantially lower than those received by banics: fewer than half of the credit unions evaluated
(14 of 29. or 48%) were judged to have a "satisfactory" record of meeting community credit
needs (and none were rated as "outstanding"), while another 14 received ratings of "needs to
improve." and I (3%) was rated in 'substantial noncompliance* with the CRA. (Two of the
satisfactory" ratings resulted from upgrades of previously lower evaluations.) The extraordinarily
slow pace of CRA exams by the state and the exceptionally low ratings received by the credit
unions raise obvious questions about the performance of both the Division of Banics and the credit
unions themselves.

Loan Offices of Foreign Banics. Three foreign banics maintain offices in Boston that make
loans but do not accept deposits: these offices arc subject to the state (but not the federal) CRA.
All three of these have received CRA evaluations from the Division of Banics: both Daiwa Banlc
and ABN AMRO Bank received ratings of 'satisfactory" in January 1993. while the Bank of Nova
Scotia received a rating of "needs to improve" In August 1992. Two other loan offices of foreign
banks closed in the last year: Sanwa Bank had received a rating of "needs to improve" in
September 1992. while Barclays Bank had not been rated.

Branches of Out-of-State Banks. Two banks that are based In other states but operate
br.inches m Massachusetts are not counted as Massachusetts banks in this report. Northeast
Savings. N.A.. is based in Hartford. Connecticut and the First Federal Savings and Loan
Association (Hyannis) is based in Rochester. New York. "Satisfactory" ratings for the former
were reported on the OTS lists for the first quarters of 1991 and 1993; the latter received an OTS
rating of "satisfactory' in the fourth quarter of 1992.

Investment Companies. Four non-bank investment companies are subject to CRA
examinations by the state. Of these. Brown Brothers Harriman & Co. received a rating of "needs
to improve" in October 1992. and Fiduciary Trust Co. received a rating of "satisfactory" in
December 1992. Fidelity Management Trust Co. and Putnam Fiduciary have not yet been
evaluated.

Failed and Merged Banics. Of the 346 banks operating on July 1. 1990 (when the
requirement tliat CRA ratings be made public became effective), 61 have since disappeared - more
than one-sixth of the total. 38 banks feiled and another 23 merged Into other banks. The pace of
disappearances slowed considerably during the past year, as only six banks were lost - two as a
result of failures and four through mergers. Ten of the 38 failed banks and 8 of the 23 merged
banks received public CRA performance evaluations before they disappeared (these 18 banks
received a total of 20 evaluations). These banks and the ratings that they received arc listed in
Table 9. Tlie distribution of ratings was very similar to that for the surviving banks: 1 rating
(5%) was "outstanding." 15 ratings (75%) were "satisfaaory," and 4 ratings (20%) were "needs to
improve."

107

TABLE 8

ALL CHA EVALUATIONS RECEIVED BY CURRENT MASSACHUSETTS CREDIT UNIONS

Curr

Mass

Mas*

Mass

Ust

Exam

Bank

City/Town

Eval

Ust

ExamOale

Eval

Oats

Al^ol CU

Athol

SAT

Jan-»3

08/04/92

BridgBwatsf CU

Bridgewatsr

SAT

Oct-93

07/08/93

BrocKton Brotfiottiood CU

Brockton

SNC

Jul-92

07/01/91

Brockton CU

arocklon

SAT

Jul-92

09/03/91

Cambfldg* Portuguoio CU

Cambridge

Aug-92

08/16/91

Charlton CU

Charlton

Jun-92

05/10/91

Communily CU o( Lynn

Lynn

Jijl-92

07/01/91

Everett CU

Everett

Seo-92

02/20/92

Fall River Mum Employees CU

Pall River

I^JI

Aug-93

OS/12/93

Haverhill Ital-Amer CU

Haverhill

SAT

ciimOnly

10/18/91

Holyoke CU

Holyoke

SAT

Jul-92

09/09/91

inOustrltl CU

Boston

SAT

Sep-92

03/1 e/S2

SNC

09/04/90

Joanne O'Arc CU

Lowell

Jijn-92

05/13/91

Leominster CU

Leominster

SAT

Jul-92

07/25/91

Luso-Amencan CU

Peabody

SAT

04/09/91

Marquette CU

Winohendon

Aug-92

09/20/91

Uaaa SUte Employeee CU

Boiton

SAT

07/30/90

MetropoUtan CU

Chelsea

Aug-&2

08/29/91

Mlllbury CU

Millbury

Sep-92

02/24/92

New Ssdlord CU

New Bedford

Jun-g2

05/08/91

PIttslleld GE Employees CU

Pitttfleld

SAT

Jul-S3

04/01/93

Polish National CU

Chk:opeeFalls

Aug-92

08/12/91

Sharon CU

Shan^n

SAT

03/01/91

Southbndge CU

SouthbndQB

Sep-92

01/17/92

St. Jean s CU

Lynn

Aug-92

08/21/91

St. Joseph t CU

Salem

Jun-92

OS/20/91

St. Mary « CU

Marlboro

SAT

Jan-92

04/16/81

Webstar CU

Webster

SAT

Jul-93

05/11/93

Sep-92

01/14/02

Wlllimantell CU

Chicopee

SAT

Jan.92

05/08/91

108

M«>iacnusettj Credit Unions and CRA Railngs

Atof JuJy 10, 1994
Compiled by Jim Campen

SanK

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109

Ortd Statement of

Richard L. Mount

Independent Bankers Association of America (IBAA)

Before the

House Committee on Banking, Finance and Urban Affairs

Subcommittee on Consumer Credit and Insurance

Washington, D.C.

September 22, 1994

Mr. Chairman, distinguished Members of the Committee, my name is
Richard L. Mount, and I am president and CEO of the Saratoga National
Bank in Saratoga, California. Today I am pleased to appear before you as
president-elect of the Independent Bankers Association of America (IBAA),
the only national trade association that exclusively represents the interests
of our nation's community banks. With your permission, I will summarize
my remarks and submit my entire statement for inclusion in the Record.

I commend you for convening this hearing today on two subjects near
and dear to the hearts of commercial bankers: credit unions and CRA.

2
(Lightly) I believe if you would have thrown in non-bank banks

and the Farm Credit System and other flnancial service providers, we could

have had a majority of our membership here today. While these subjects

may be controversial, they are important subjects that deserve serious and

thorough attention, and soon.

The Community Reinvestment Act is the law of the land and
community bankers are committed to the effective implementation of this
statute. Community lending, including lending to low- and moderate-
income areas, is the lifeblood of our industry.

Last year. President Clinton called for reform of the CRA process,
and the regulators issued a proposal for public comment.

We support parts of that proposal, particularly the proposed
streamlined examination for small institutions.

At the same time, we do not believe CRA will be fully effective until
it is applied to all sectors of the Tmancial services industry.

Ill

3
Should that include credit unions? The answer is an unequivocal yes.

The remainder of my testimony today will be devoted to explaining why.

It wasn't long ago, Mr. Chairman, that banks and thrifts held 70
percent of the assets in our nation's financial services industry. Today, we
hold less than 30 percent. While banks and thrifts have been losing market
share, the growth of the credit union industry has been nothing short of
phenomenal. Since 1980, share growth in credit unions has gone up 450
percent, and loans have increased some 360 percent. At the end of last
year, total assets held by credit unions approached $300 billion, and they
had more than 65 million members. There is no longer any valid argument
for continuing to exclude this industry from the requirements of CRA.

Credit unions argue that they should not come under CRA because
they are already fulfilling the "spirit" of CRA. Unfortunately, fulfilling the
spirit of CRA is not enough. More importantly, we believe that there is a
strong case to be made that credit unions are qM fulfilling even the spirit of
this law.

112

They also argue that since CRA is a geographically-based law, it

should not apply to credit unions since, and I quote from a September 12
NAFCU newsletter - "Most credit unions do not serve their members based
on where they live..." Well, I would certainly agree with that statement.
In fact, most credit unions serve their members based on whether they live,
rather than where they live, but I'll get into that a little bit later in my
testimony.

Since credit. unions accept deposits from all segments of their
community, there is no justification for exempting credit unions from the
reasonable requirement that they meet the credit needs of all segments of
that community, including the low- and moderate-income segments.

In adopting CRA, Congress stated that regulated financial institutions
"have a continuing and affirmative obligation to help meet the credit needs
of the local community in which they are chartered." The law does not
define "community," in geographical terms. In fact, military banks define
their community to include its entire deposit customer base without regard
to geographic proximity."

113

Mr. Chairman, since the common bond issue is so central to the
question of credit union membership and therefore the applicability of
CRA, I would like to spend a few minutes examining this issue in more
detail.

The Federal Credit Union Act of 1934 said credit union membership
should be "limited to groups having a common bond of occupation or
association, or to groups within a well defined neighborhood, community,
or rural district."

Since 1989, the National Credit Union Administration - the
industry's regulator — has been unraveling this fundamental statutory
principle of membership. Recent NCUA actions have expanded the
common bond rule to permit virtual unlimited membership. I draw your
attention to this ad from a Wisconsin credit union, which I will submit for
the Record.

114

6
Yet there is no requirement that credit unions serve all segments of

their communities, including the low- and moderate-income areas. More

importantly, since credit unions are exempt from CRA there is no

evaluation of a credit union's performance. Even credit union members do

not have access to the type of public evaluation on the credit union's

community performance that can be obtained from any bank or thrift.

What public policy purpose is served by not performing a CRA
analysis? Do we just allow credit unions to continue to expand without
considering what services are being provided, and where they are being
offered?

In July, 1991, the U.S. General Accounting Office (GAO) issued a
report on the NCUA's relaxation of common bond requirements.

Changes to the common bond principle should be decided by
Congress, and not the NCUA. We hope that this hearing will be the first
step in that process.

115

7
Credit unions today bear little resemblance to the credit unions

originally chartered by Congress.

As you, Mr. Chairman, noted in the AMERICAN BANKER last
week, when credit unions were small organizations, the argument that they
were fulfilling the requirements of CRA may have made sense. Today,
however, many credit unions operate just like a bank or a thrift. Many of
them operate across state lines. Yet unlike banks and thrifts, credit unions
are under no obligation to serve the low- and moderate-income segments of
their community.

CRA is premised on the finding that banks and thrifts have a
continuing and affirmative need to help meet the needs of the local
communities in which they are chartered. This finding stemmed from the
view that the government has granted these institutions special privileges
including: charters to do business; deposit insurance; and access to the
Federal Reserve discount window and Federal Home Loan Bank System
advances.

116

8
Mr. Chairman, I note that credit unions have aM of these special

privileges, just like banks and thrifts.

And they also have the very special privilege of a tax exemption.
Last year, commercial banks paid $14 billion in taxes. The $300 billion
credit union industry paid nothing, while competing with community
bankers for a shrinking deposit and customer base. This is grossly unfair,

can no longer be justifled on any grounds, and should be remedied by

/'
Congress.

In 1990, CBO estimated that if credit unions paid taxes like other
mutual financial institutions, it would yield an additional $3.7 billion in tax
revenue for the period 1991 through 1995. This source of revenue should
no longer be ignored.

Community banks challenge credit unions to step up to the CRA
plate. If, as they contend, they are complying with the spirit of CRA, then
extending this law should pose no problems.

117

9
If, credit unions are not complying with tlie spirit of CRA, then the

public and our communities are entitled to know.

Thank you, Mr. Chairman, for the opportunity to present the views
of our nation's community bankers. I would be happy to answer any
questions you or the other Members of the Subcommittee may have.

118

'm^^

MAIN OfFIC! 555 W. WASHINGTON AVE • 2827000

THIRD LAKE MARKH 944 WIIUAMSON ST • 2827050

VERONA NEXT TO THE POST OFFICE • 845-9880

Also SERVING DODGlVlllE AND LANCASTER

119

Statement or

Richard L. Mount

on behalf of the

Independent Bankers Association of America (IBAA)

Before the

House Committee on Banking, Fmance and Urban Affairs
Subcommittee on Consumer Credit and Insurance

Washington, D.C.
September 22, 1994

Mr. Chairman, distinguished Members of the Committee, my name is Richard L.
Mount, and I am chairman, president and CEO of Saratoga Bancorp, and president and CEO
of the Saratoga National Bank in Saratoga, California. Today I am pleased to appear before
you as president-elect of the Independent Bankers Association of America (IBAA), the only
national trade association that exclusively represents the interests of our nation's community
banks.

Saratoga National Bank is an $82 million bank founded in 1982. It is located in a
community of 36,000 people just outside the San Jose/San Francisco metropolitan area. The
current tier one capital of the bank is 24 percent, and we have consistently been one of the
top performing banks in California as well as the United States. I'm very happy to be with
you today to share the views of our nation's community bankers.

Mr. Chairman, I commend you for convening this hearing today on two controversial
subjects: credit unions and CRA. While they may be controversial, these are important
subjects that deserve serious and considerate attention.

Community Reinvestment Is Our Business

The Community Reinvestment Act is the law of the land and community bankers are
committed to the effective implementation of this statute. We also are committed to
community reinvestment. It is our ongoing business. Community lending, including lending
to low- and moderate-income areas, is good for banking.

Credit Unions Should Not Be Exempt

Last year. President Clinton called for reform of the CRA process, and the regulators
issued a proposal for public comment. We understand that a revised proposal will be

120

published soon. We support parts of that proposal, particularly the proposed streamlined
examination for small institutions. At the same time, we do not believe CRA will be fully
effective until it is applied to all sectors of the financial services industry.

Should credit unions be subject to CRA? The answer is an unequivocal yes. The
remainder of my testimony today will be devoted to explaining why.

Credit Unions Enjoy Phenomenal Growth in Market Share

Mr. Chairman, the growth of the credit union industry has been nothing short of
phenomenal. Twenty years ago, the total assets held by credit unions was around $18
billion. At the end of last year, total assets held by credit unions approached $300 billion!
Share growth in credit unions has gone up around 450 percent just since 1980, with loans
increasing about 360 percent during that same period.

Twenty years ago, credit union membership totalled around 23 million. Today,
federal and state credit unions have more than 65 million members, with a potential of more
than 210 million members. That's nearly the entire population of the United Slates.

Put another way, Mr. Chairman, it wasn't that long ago that banks and thrifts held
more than 70 percent of the total assets in the financial services industry. Today, we hold
less than 30 percent. And as is evident by these figures, credit unions have captured a
significant portion of that lost market share.

Credit Union Arguments Lack Merit

The National Association of Federal Credit Unions -- a political arm of the credit
union industry here in Washington — argues that credit unions should not come under CRA
because they are already fulfilling - and I quote -- "the spirit of CRA." Well, as a banker
who has made the very same argument — if community banks didn't serve the financial needs
of their communities they could not long remain in existence — I can assure them that
argument just won't wash. Under today's rules, fulfilling "the spirit of CRA" is not enough.
More importantly we believe that there is a strong case to be made that credit unions are njjt
fulfilling even the spirit of this law.

NAFCU also argues that since CRA is a geographically-based law, it should not apply
to credit unions since, and again I quote from their September 12 newsletter - "Most credit
unions do not serve their members based on where they live..." Well, I would certainly
agree with that statement. In fact, most credit unions serve their members based on whether
they live, rather than where they live, but I'll get into that a little bit later in my testimony.

Credit unions accept deposits from their community that they define by a common
bond. There is no justification for exempting credit unions from the reasonable requirement
that they meet the credit needs of all segments of that community, including the low- and

121

moderate-income segments, regardless of how the common bond is defmed.

CRA requires that banks and thrifts demonstrate that their deposit facilities serve the
convenience and needs of the communities in which they are chartered to do business. This
requirement includes both deposit and credit needs. In adopting CRA, Congress stated that
regulated financial institutions 'have a continuing and affirmative obligation to help meet the
credit needs of the local community in which they are chartered." The law does not defme
"community,' and need not be limited to geographical terms, as NAFCU has suggested. In
fact, the law requires the financial institution to defme the community that it serves.

This is amply illustrated by the language included in the statute for military banks that
states that a military bank may defme "its 'entire community' to include its entire deposit
customer base without regard to geographic proximity." (emphasis added) So the argument
advanced by the credit unions that they should not be subject to CRA because CRA is a
geographically-based requirement is clearly without merit.

Common Bond Coming Unravelled

Mr. Chairman, since the common bond issue is so central to the question of credit
union membership and therefore the applicability of CRA, I would like to spend a few
minutes examining this issue in more detail.

The Federal Credit Union Act of 1934 said credit union membership should be
'limited to groups having a common bond of occupation or association, or to groups within a
well defmed neighborhood, community, or rural district." Moreover, the legislative history
of that Act clearly indicates that Congress sought the creation of a "cooperative society. . .
limited in each case to members of a specific group with a common bond of occupation or
association."

Since 1989, the National Credit Union Administration - the industry's regulator -
has been unraveling this fundamental principle of membership. Recent NCUA actions have
expanded the common bond rule to permit virtual unlimited membership. Today, credit
unions draw members from areas that may encompass total states, whole regions, or even the
entire country. Mr. Chairman, I would raise the question whether or not that lies within
either the letter or the spirit of the 1934 Act.

Furthermore, there is no requirement that credit unions serve all segments of these
areas, including the low- and moderate-income areas. More importantly, since credit unions
are exempt from CRA there is no evaluation of a credit union's performance. Even credit
union members do not have access to the type of public evaluation on the credit union's
community performance that can be obtained from any bank or thrift.

Interestingly, credit unions are subject to the reporting requirements of the Home
Mortgage Disclosure Act (HMDA). Without giving too much credence to HMDA, which is

122

often used to reach inappropriate conclusions on discrimination, I would note that 1992
HMDA data shows that credit unions had a greater minority-to-white application denial rate
ratio than banks. Referring to this data. Chairman Kennedy last week was quoted as saying,
"I thought that was clear evidence that the notion that somehow credit unions should get by
without CRA was not the case." We fully agree.

Moreover, the NCUA signed-on to an interagency statement that called on all
financial institutions "to intensify their equal credit opportunity education programs for
management, lending personnel, and consumers." I can only assume that NCUA felt that
credit unions needed this encouragement and this suggests that credit unions may not be
meeting the credit needs of their entire communities.

Credit Unions on Expansion Drive

Columnist Jane Bryant Quinn, in an August 28, 1994 article in the WASHINGTON
POST, noted that credit unions were engaged in a "...ferocious expansion drive. By the end
of the decade, they hope to number their members at 100 million, up from 65.5 million
today." I contend that this kind of expansionist agenda is inconsistent with the principles of
common bond membership. Moreover, the actions of the NCUA — which we believe
sometimes acts more like a cheerleader than a regulator — have promoted this expansionist
drive, and makes a mockery of the common bond principle. Furthermore, this type of
expansion suggests that credit unions could selectively include new members to the pxjssible
exclusion, intentional or unintentional, of other low- and moderate-income persons from
those areas.

NCUA Acts More Like Cheerleader

Recently, NCUA enacted a proposal, adamantly opposed by the IBAA, expanding the
field of membership standards and community chartering policies for credit unions. They
defined the operational area of a credit union as a 25 mile radius, which effectively
empowers credit unions to cover whole towns and many metropolitan areas, including
crossing state lines. Again, this is a geographically-based expansion, akin to banks opening a
branch in a new area, that, at a minimum, warrants a CRA analysis to determine if the credit
and deposit needs of the entire area are being served.

Some banking groups have challenged this ruling. In July, the Independent Bankers
Association of Texas and the Texas Bankers Association sued the NCUA for allowing a
proposed expansion of the Communicators Federal Credit Union of Houston. They wanted
to serve all persons over the age of 49 within a 25 mile radius, giving them a potential
market of 578,000 customers! Calling this a credit union stretches credulity. We see no
reason why this institution should be exempt from CRA.

In Maine, the Saco Valley Federal Credit Union applied to convert to a community
charter and to expand to eighteen diverse geographic locations. IBAA filed a statement

123

opposing this application, which again defies all logic from a common bond standpoint. This
might be a good example of the common bond being based on whether the person is living,
rather than where the person is living. And again, what public policy purpose is served by
not performing a CRA analysis? Do we just allow credit unions to continue to expand
without considering what services are being provided, and where they are being offered?

NCUA issued another ruling that would permit credit unions affected by "base or
plant closing or similar shocks" to convert to a community federal credit union. A shift from
an employee-based, occupational charter to a community-based charter is the most sweeping
kind of credit union expansion. It fundamentally alters the credit union's field of
membership, operations and terms of competition in the financial marketplace. Credit unions
can now go to the general public for business rather than groups with a common bond.
What you have as a result is a bank - without comparable regulation. What the community
gets is an insured financial institution with no responsibility to the meet the credit needs of
all areas of the community.

Congress Should Decide Conunon Bond

In July, 1991, the U.S. General Accounting Office (GAO) issued a report on the
NCUA's relaxation of common bond requirements. They concluded that changes to the
common bond principle should be decided by Congress, and not the NCUA. We fully agree.
We hope that this hearing will be the first step in that process.

Mr. Chairman, community bankers are not afraid of competition. We welcome
competition. But the playing field must be level. The way the system has evolved, we no
longer have a level playing field.

Credit Unions Have Evolved

Credit unions today bear little resemblance to the credit unions envisioned by the
drafters of the 1934 Act. A by-product of the populist movements in Britain and Germany in
the 19th century, credit unions were originally designed as membership groups for low and
moderate income working people. Members would pool their resources in share accounts,
and credit unions could make loans that others might not make. And, in fact, for a long
time, the typical U.S. credit union was a non-profit cooperative that made small consumer
loans to people who belonged to the same church or club, or worked for a particular
company. They complemented, rather than competed with, the commercial banking
industry.

By contrast, today many credit unions operate just like a bank or a thrift, offering a
wide array of consumer and small business loans, paying interest on checking accounts, and
issuing credit cards. Since 1978, credit unions can even make 30-year mortgage loans. And
many of them operate across state lines. Yet unlike banks and thrifts, credit unions are
under no obligation to serve the low- and moderate-income segments of their community.

124

(We recognize that limited-income credit unions are designated to serve "predominately low-
income members." But with only 181 such credit unions in existence, most of them being
small, we felt this subset of credit unions was statistically insignificant in examining whether
or not the credit union industry as a whole was meeting the goals of CRA.)

While credit unions assert that membership is limited to a defined common bond, in
many instances the common bond is defined by geography. Particularly when geography
serves as the basis for the common bond, there is no reason that credit unions should not be
subject to a requirement to invest and lend in all segments of that geography.

In many instances, credit unions allow family members and other relatives or
sometimes even friends of a member to join. This is the worst example of an "old boy's
network." If you know someone you get in, but if you don't then you are out of luck.
While knowing your customers is good business - in fact, it's a slogan that many community
banks use, it is not justification for excluding or avoiding segments of your community.
Membership criteria suggests that some people will not qualify. This is so subjective that it
could lead to a disparate impact on a protected class.

Credit unions still enjoy the tax-free and relatively painless regulatory status that was
envisioned for the small mom and pop credit unions created by the 1934 Act. We believe
that if credit unions want to look and act like banks and offer bank-like products and services
and serve bank-like markets and compete with banks for customers, then they should be
subject to the same laws, rules and regulations as banks - including compliance with CRA.
Credit unions should become full-fledged members of the financial services industry, with all
the attendant duties and responsibilities that attach to such status.

Last Friday's AMERICAN BANKER, in an article in their credit union section
entitled, "Rep. Kennedy: Industry Should Come Under CRA," contained the following:

"Credit unions argue that they shouldn 't be subject to CRA because by lending
only to their members they are Julfilling the intent of the law.

"Rep. Kennedy said that argument was justifiable in the past but may now be
open to question.

" 'When credit unions were very small organizations. . . the argument that they
were already accomplishing the goals of CRA made sense, ' he said.

"Now credit unions are larger and have wider membership bases, and 'with
that comes a responsibility to meet the needs of the local community, ' he said. "

Mr. Chairman, your words reflect our concerns in this area exactly.

All we are asking for is a level playing field. And, just as importantly, we believe
our communities are entitled to the public results of a CRA examination.

Financial Landscape Has Changed

125

When Congress passed CRA in 1977 and applied it only to banks and thrifts, the
financial landscape of the United States was far different than it is today. Credit unions were
still just credit unions. Since then, the cost of deposit insurance has skyrocketed, securities
firms have gained access to the Fed's discount window, non-bank financial institutions have
grabbed significant market share from banks and thrifts, and products like mutual funds have
drained the deposit base of many community financial institutions. As a result of this change
in market structure and shift in market share, CRA now applies to a much smaller portion of
the financial marketplace than when the CRA legislation was enacted.

This is a serious public policy consideration. Banks and thrifts cannot carry the CRA
responsibility for the entire financial services industry. It is time to share that responsibility
and extend CRA to the entire range of financial service providers, including credit unions.

CRA is premised on the finding that banks and thrifts have a continuing and
affirmative need to help meet the needs of the local communities in which they are chartered.
This finding stemmed from the view that the government has granted these institutions
special privileges including: charters to do business; deposit insurance; and access to the
Federal Reserve discount window and Federal Home Loan Bank System advances.

Mr. Chairman, I note that credit unions have all of these special privileges, just like
banks and thrifts. And they also have the special privilege of a tax exemption. Last year,
commercial banks paid $14 billion in taxes. The $300 billion credit union industry paid
nothing, while competing with community bankers for a shrinking deposit and customer base.
This is grossly unfair, can no longer be justified on any grounds, and should be remedied by
Congress.

In 1990, the Congressional Budget Office (CBO) estimated that if credit unions paid
taxes like other mutual financial institutions, it would yield an additional $3.7 billion in tax
revenue for the period 1991 through 1995. This potential source of revenue should not be
ignored any longer.

Credit unions are government-protected, government-exempted, government-
privileged financial institutions that can select their clientele (members) and compete for their
business on uneven terms against community banks. We do not believe such special
treatment can be justified.

Credit Union Challenge

Community banks challenge credit unions to step up to the CRA plate. If, as they
contend, they are complying with the spirit of CRA, then extending this law should pose no
problems. If, credit unions are not complying with the spirit of CRA, then the public and
our communities are entitled to know.

126

Thank you, Mr. Chairman, for the opportunity to present the views of our nation's
community bankers. I would be happy to answer any questions you or the other Members of
the Subcommittee may have.

127

NAFCU

Testimony of VADM Thomas J. Hughes, USN (Ret.) on Behalf of
The National Association of Federal Credit Unions

Before the House Banking Committee's
Sut)committee on Consumer Credit and Insurance

Septeml}er 22, 1994

Concerning the Community Reinvestment Act (CRA)

128

Chairman Kennedy and Members of the Subcommittee on
Consumer Credit and Insurance, I am Thomas J. Hughes, Vice
Chairman of the National Association of Federal Credit Unions
(NAFCU) and President/CEO of Navy Federal Credit Union.
Thank you for this opportunity to appear before your Subcommittee
to express NAFCU's views with respect to the relationship of credit
unions to the Community Reinvestment Act (CRA).

The National Association of Federal Credit Unions (NAFCU)
is the only national organization dedicated to exclusively
representing the interests of our nation's federally-chartered credit
unions before government. As federally chartered credit unions,
NAFCU's membership is made up of non-profit, member-owned
financial cooperatives from throughout the nation that collectively
have over 18.6 million members and almost $91 billion in assets.
Navy Federal Credit Union is the nation's largest credit union, with
over 1.4 million members and assets of $8.4 billion.

Mr. Chairman, NAFCU and the credit unions that we
represent applaud the diUgence with which you and your colleagues
on this Subcommittee relentlessly pursue those issues that affect

129

the availability of financial services to those of modest means. Like
those credit union pioneers, Edward A. Filene and Roy Bergengren,
every credit union takes very seriously its statutory mandate "to
make more available to people of small means credit for provident
purposes...". (12 USC 1751). Today, we can confidently report that
credit unions remain dedicated to serving the needs of all of our
members.

By definition, every credit union serves a unique community
in that it is a member-owned, not-for-profit cooperative financial
institution formed to permit those in a specified, chartered field of
membership to pool their savings, lend them to one another, and
own the organization in which they save, borrow and obtain other
necessary financial services. Credit unions fill a unique and
important niche in today's society. Understanding the underlying
tenets of credit unions is vital to an appreciation of their
uniqueness. These tenets reflect a commitment to self-help,
cooperation and economic democracy.

Members are the heart of the credit union, the very reason for
its existence. Only the members own the credit union, and they are

130

its community. Clearly, credit unions are organizations of people,
not stockholders. This is reflected in the democratic structure,
process and control of credit unions, including one vote per
member, regardless of the number or value of shares owned.

Throughout history, people have worked together to do
collectively what could not be done individually. In a credit union,
members join together to encourage savings by offering a good
return, to use their collective monies to make loans to other
members at competitive interest rates, and to provide other
financial services.

The motto, "Not for profit, not for charity, but for service,"
captures the essence of credit unionism. Although a positive
"bottom line" (which remains as member-owner equity) is important
for economic viability, credit unions' primary focus is on service, a
characteristic distinguishing them from other flnancial institutions.
There is no group of stockholders or outside third parties for whom
"profits" must be generated. Credit union returns are redistributed
to their members - the source of the organization's income. Thus,
credit unions ofTer a sharp contrast to the profit-oriented

131

institutions of the financial services industry.

I'm sometimes amused by the vigor with which our friends in
the banking and thrift industries pursue their differences with
credit unions, as though credit unions are some sort of threat to the
survival of the banking and thrift industries. In reahty , the assets
of every single federally-insiired credit union in the country - a
total of $289.7 billion held by 12,138 credit unions on June 30 of
last year ~ are dwarfed by the combined assets of two -just two ~
banks. Bank of America and Citicorp, combined, hold $403 billion
~ and are growing!

Credit unions held just 7.8% of consumer savings as of
December 1993. This compares to 54.8% held by commercial banks,
21.7% by savings institutions, 10.5% by money market mutual
funds, and 5.2% held in U.S. Savings Bonds.

Our experience at Navy Federal Credit Union emphasizes the
dedication of all credit unions to meeting the credit needs of all of
their members. We are a large credit union (1.4 million members)
serving many low- and moderate-income people. I like to think of
us as the largest small credit union in the world.

132

Many of Navy Federal's 1.4 million members serve in the
Navy and Marine Corps in duty stations around the world. Our
corporate motto is: "We Serve Where You Serve"; this clearly
reflects no geographic locality, but rather our people orientation.
Prior to becoming President of Navy Federal, I served over forty
years in the U.S. Navy. As a result, I believe I am qualified to
address the need of our membership with emphasis on transient
active duty members. Specifically, Navy Federal is the financial
institution for transient members of the Navy and Marine Corps.
We provide them credit often denied by other financial institutions
because of their "transient" nature. We provide free checking
accounts to these people which allows them access to their funds as
they move from Sasebo, Japan ... to Sigonella, Sicily ... to
Singapore.

Let me share with you a few statistics:

• 680,000 members, or 52% of our entire membership, have less
than $100 in their share savings accounts.

• 350,000 of those members have less than $10 in their share
savings accounts.

133

• Over one-third of our consumer loans are for less than $2,500,
which is the smallest loan some large banks will make, given
the processing costs.

It may be tempting to dismiss anecdotal evidence about one
credit union; however, in order to assist this Subcommittee,
NAFCU is in the process of conducting a survey of its members.
Our data so far indicates that approximately 90% of all credit
unions offer low-cost deposit services, and 60% of those institutions
require a minimum balance of $10 or less! Almost 90% require
minimum balances of $50 or less! Furthermore, over 97% of our
respondents offer or plan to offer in the near future loan or credit
cards in small dollar amounts, with some as low as $50 for both
personal loans and credit card accounts. Our survey data clearly
shows that credit unions have not lost their commitment to small
borrowers.

We are proud of the record of member service that credit
unions have established over the decades, and these figures prove
that credit unions continue to offer low cost consumer financial
services directed to all of their members.

134

Now let me turn to some specific points about CRA and credit
unions. When CRA was first written in 1977, credit unions were
not left out by accident.

The rationale for excluding credit unions from CRA coverage
was enunciated quite clearly in a letter the Administrator ~ and
first Board Chairman ~ of the National Credit Union
Administration submitted to the House Banking Subcommittee on
Financial Institutions Supervision, Regulation and Insurance on
August 11, 1978, as that Subcommittee held six days of
comprehensive hearings relating to "community credit needs." In
his letter [see Appendix A] Administrator Connell wrote:

"Finally, I wish to comment on the exclusion
of federally chartered and insured credit
unions from the coverage of the [Community
Reinvestment] Act. I agree that the
exclusion is warranted, since a credit union's
"community", defined by the field of
membership provision in its charter, in most
cases is based on an occupational or
associational "common bond" rather than a
geographic one. Further, it is inherent in the
common bond concept that credit unions
must provide equal services to all eligible
members."

135

The years have not changed this situation. The difficulty
inherent in attempting to apply CRA or CRA-like requirements to
credit unions was succinctly stated earlier this summer in a letter
from the General Counsel of the National Credit Union
Administration Board to the Federal Housing Finance Board in
response to an FHFB proposal to extend by regulation CRA-like
requirements to credit unions that belong to a Federal Home Loan
Bank. In that letter [see Appendix B] dated July 15, 1994, NCUA
General Counsel Robert M. Fenner wrote:

"Membership in an FCU is limited by its
charter to its common bond which may be
occupational, associational, or community.
Services at an FCU are. available only to its
members, not to the general public. Because
of field of membership requirements, there is
no standard measure to demonstrate how
much FCUs contribute to their communities.
As an example, there are many credit unions
which serve only employees of the sponsor
organization. Many of those employee/credit
union members do not Uve near the credit
union and, as in many instances, live in
other states or countries and yet maintain
accounts at their employer's credit union.
Defense department employee credit unions,
with a world-wide membership of many
thousands, are good examples. Defining a
"community" for a credit union with a large,
diverse and dispersed field of membership

136

would be a difficult task. Only a small
number of credit unions hold true community
based charters. Those credit unions receive
shares and make loans only within their
community boiindaries.

Any CRA-like specific standard issued by
FHFB for FCUs would be impossible to
follow due to chartering and field of
membership requirements as well as
statutory and regulatory limits on
investments and business lending. See 12
C.F.R. §701.2 (h). CRA-like requirements
which expand services beyond an FCUs field
of membership and into a geographically
defined community would be in contravention
of the FCU Act. Instead, we believe the
purposes behind community support
requirements are already being met by the
daily operations of FCUs within their
respective fields of membership regardless of
the credit union or members' location."

Even bank regulators reaUze the important role that credit
unions already provide in extending necessary financial services to
the un-banked and under-banked. An interagency task force
consisting of representatives of the Federal Reserve Board, the
Federal Deposit Insurance Corporation, the Office of Thrift
Supervision and the Comptroller of the Currency has published a
series of questions and answers "to provide useful guidance to
agency personnel, financial institutions and the public" regarding

137

CRA and CRA compliance. I would like to direct the
Subcommittee's attention to question 18:

"In addition to traditional direct lending
activities, what activities can financial
institutions consider in meeting obligations
and responsibilities imder the Community
Reinvestment Act?

... The following are some nontraditional
activities that financial institutions may
consider to help meet the responsibiUties
under the Community Reinvestment Act. . .

Assistance to community
development credit unions
in the institution's locgil
community through, for
example, provision of
technical assistance or
stable deposits to fund the
credit union's lending."

Against this backdrop it would seem unnecessary,
inappropriate and ironic to subject credit unions to CRA coverage,
when investments in credit unions are recognized as legitimate and
proper ways for banks and thrifts to meet part, if not all, of their
CRA obligation. This view was reinforced last month when an
official of the Comptroller of the Currency's Office, Rick Saillard,
speaking at a conference in Chicago noted that credit unions were

138

exempted from CRA because of their unique cooperative structure.
He went on to point out that he, personally, sees no reason to bring
credit unions under the CRA umbrella.

Mr. Chairman, there is absolutely no compelling reason to
bring credit unions under CRA. Credit unions' cooperative form of
ownership doesn't warrant it and credit unions' record of member
service doesn't justify it.

Of the responses we have received to our credit union survey,
over half of the responding credit unions report that 25% or more
of their members have annual household incomes of below $25,000
per year. The numbers rjinge from 25% to 95% of membership.
Further, 58% serve specific low-income select employee groups
(SEGs), and 62% are actively seeking to serve such groups.

In addition, credit unions offer a number of specific services
that are tailored towards meeting the special needs of low- and
moderate-income members. According to our survey, 86% of credit
unions offer their members financial counseling of some type. 80%
offer or plan to offer in the near future special programs geared to
first-time borrowers. Even more significantly, 87% have or plan to

139

establish special programs to ensure that minority borrowers
receive equitable treatment.

Credit unions also have a number of programs geared towards
potential homeowners. Almost 82% allow borrowers to pre-qualify
for mortgages before they begin to look for a home. 76% allow
borrowers to make a lower downpayment than the 20% industry
standard: 78% of those responding allow downpayments of 10% or
less, 61% allow 5% or less, and 18% allow 3% or less. In addition,
86% allow prospective borrowers to estabUsh their creditworthiness
by using alternate methods such as payment histories for utilities
or similar responsibilities, and 80% have a second look program
that automatically reviews appUcations that would be denied on the
first examination.

At Navy Federal Credit Union, we provide every avenue
feasible to meet our low- and moderate- income member credit union
needs and overall financial needs. Here are a few representative
programs to show how we meet our responsibilities to our members:

140

We offer totally free checking accounts, ATMs and OTS
on-line throughout the world. You have heard of
"lifeline services"; we provide them to our members.
We offer free budgetary counseUng to help members
keep meals on the table — not financial counseUng on
how to beat taxes, or where to invest in the stock
market. (134 new requests for help were received in
March 1994). We also give free personal financial
training to our members on our military bases at the
request of the command.

We operate many of our offices at a loss (particularly
overseas). This, in effect, is a subsidy to the U.S.
government. If we did not provide these services, the
government, through the military banking facility
contract, would have to do it.

In o\ir credit card programs, we have issued 153,000
cards (38.8% of the total) to enlisted personnel, of which
84,113 were issued to grades E-5 and below. In
addition, our "Credit Renewer" and "Credit Builder"

141

VISA programs have allowed 28,000 of our members to
qualiiy for regular VISA accounts. Currently, we have
loaned more than $4 million through these programs.
Our Utility Deposit Guarantee Program helps young
enlisted personnel to guarantee utility deposits in some
Navy towns. They can get their utilities turned on upon
arrival at their new duty station without having to pay
large deposits up front. Essentially, we pay these
deposits. 67.8% of the participants in this program are
E-5 and below.

We have a debt management program (530 members at
the end of March 1994 which made 3,199 payments for
$228,997 in March 1994, and only $54,847 of that went
to NFCU). Under this program, we handle members*
pay and negotiate repayment to creditors.
Of 27,500 mortgage loans made in 1993, 40% were to
members who had less than median U.S. income, and
24% with less than 80% of medium U.S. income.

142

Finally, we offer three mortgage programs specifically

geared to low-income borrowers:

♦ Home Ownership Opportunity Program: Not
saleable in the secondary market

$5 million set aside;

Maximum Loan of $75,000;

Number counseled since inception a year ago:
83;

15 received $804,000 HOOP;

38 referred to other programs;

22 referred to budgetary counseling;

No delinquency or losses in almost a year.

Moderate Income Mortgage: Saleable to Fannie
Mae

• This program has been in effect for three
years;

• 5% down payment (consumer loan 2% plus
closing costs);

• 50 loans made ($3.65 million);

• Maximum $137,500;

• Maximum family income (Washington:
$69,700; California: $53,500; Other: $45,500;

143

No delinquency or losses.

• Zero down (about 45% of our first mortgage
business).

Mr. Chairman, as this record shows, credit unions go well
beyond the call of duty to meet the credit needs of all of their
members. CRA is inappropriate for credit unions, and would
impose a heavy regulatory burden without resulting in any
significant benefit to credit \inion members.

Before I shift to addressing problems with credit unions'
HMDA data, let me briefly touch on one other point. In your
August 30th invitation to testify, you raised a question regarding
"large geographic credit imions [that] operate essentially like large
banks or thrifts." You specifically referred to "One Illinois credit
union [which] has a nine-counly field of membership, and $1.2
billion in assets," and ask whether such credit unions should be
held to community investment standards similar to banks and
thrifts. I think it becomes clear, if you get into the heart of that
credit union, that there is absolutely no reason why it should be

144

subjected to such standards. In fact, as that credit union has
grown, expanding beyond its original field of membership -
employees of the Caterpillar Company ~ the median income of its
members has dropped substantially. The average armual salary of
non-Caterpillar employed members is 56% of the average salary for
Caterpillar employees!

Mr. Chairman, your invitation to testify raised a point
concerning recent HMDA data which seems to indicate that credit
unions slightly exceed banks in the ratio of tumdowns for minority
loan applicants relative to non-minorities.

In response to this data, in April 1994 the National Credit
Union Administration released an extensive study of credit union
lending practices [see Appendix C]. That review examined a
representative sample of 1,663 denied mortgage applications and
809 approved loans. According to NCUA's report:

"... there was no evidence of any overt
discrimination on the part of the credit
unions reviewed; . . . some mitigating factors
were found which contributed to the
disparate rate such as incorrect codes on
HMDA reports, secondary market standards,
declining real estate values in certain parts

145

of the coxintry, and careless record-keeping. "
The report went on to say:

"In reviewing their credit unions, the
regional examiners looked closely at the
following areas: lending policies; lending
procedures and approval practices; the
results of staflF interviews; and all supporting
documentation in the appUcants' files. The
objective was to determine if all mortgage-
related applications at federal credit unions
were provided fair and equitable treatment.

"The examiners reported that all
mortgage loans reviewed appeared to be
approved or denied based on
nondiscriminatory credit criteria. The
fmdings were very similar in each of the
reports. Denials and approvals were
supported by such documentation as credit
reports, debt-to-income ratios, appraisals,
loan-to-value ratios, monetary assistance
provided to each applicant, follow-up for
information requests, etc."

At Navy Federal Credit Union, we are also concerned about
the denial rate ratio that was shown in our HMD A data. However,
it should be recognized that, at NFCU, for example, the overall
mortgage denial rate is much smaller than the national average (as
is similar for other credit unions). We are approving a greater
percentage of mortgage loans than the national average. I do not

146

want to disparage banks, but our approval rate overall is over twice
that of the national average.

Navy Federal had one of the worst credit union statistics in
1991 for HMD A black to white ratio of denials for home purchase
mortgages. However, our ratio has gone from 4.33 in 1991 to 4.0
in 1992 to 1.0 in 1993.

We turned down 14% of black applicants in 1992 (versus the
36% national average) compared to a 4% white denial rate (versus
16% white nationally). We approved most of the applications
received, but the ratio of denial appeared excessive. NFCU
received 25,000 mortgage loans in 1993 and approved 24,600. That
is an approval rate of 99%. Of the 400 disapproved, 40 were loans
for minorities. Four of the 40 loans were subsequently approved as
a result of a subsequent review by our ad-hoc minority committee
review. Over 40% of the mortgages we made in 1993 were to
members with incomes below the national median income.

As indicated by the large proportion of credit unions
responding to the NAFCU survey that have special programs to
ensure the equitable treatment of minority loan applicants, we do

147

not take this issue lightly. However, as the NCUA study showed,
it would be a mistsike to assume that the HMDA data proves that
the differences between the denial rate ratios were caused by
discrimination.

Given the purpose and nature of credit unions, I firmly believe
that it is inappropriate to attempt to apply geographic support or
geographic reinvestment standards to credit unions. In fact, it is
virtually impossible to formulate any geographic standards against
which credit union performance could be measured. You would be
changing our nature from people helping people ~ the people
specified in our federal charter - to a geographic objective.

Insisting that credit unions comply with CRA lending support
requirements would ultimately cost credit union members through
higher service fees, higher interest rates and reduced dividends on
savings in order to benefit a localized geographic area of different
makeup. It would so change the ways that credit unions operate
that they would cease to be the unique consumer alternative to
other financial service providers.

148

In summary, Mr. Chairman, saying that credit unions should
be covered by CRA is to say that there is no difference between
credit unions and other financial institutions. This is a false
premise. Credit unions are different. Credit unions were formed
primarily to serve the needs of their members wherever they may
be located; not the unique needs of a geographic area.

CRA stands for Community Reinvestment Act. Most credit
unions are established to serve the needs of specific members or
member groups ~ and that alone defines their community, not the
needs of some geographic region. The entire focus of the CRA is on
geography. How can you apply the standards of the Community
Reinvestment Act to credit unions when they generally do not serve
specific geographic locations?

To the best of my knowledge there are no data that support
the proposition that credit unions are failing to meet the needs of
any segment of their membership community. Let me emphasize
that credit unions were established to serve the underserved. and
credit unions are still fulfilling that mission today. Please do not
cast us into the cauldron which will further contribute to melting

149

us into a monolithic financial pool where the American alternative
of cooperative personal financing will eventually be obliterated.

Mr. Chairman, this concludes my prepared statement. Again,
NAFCU appreciates this opportunity to share our views on these
issues.

150

Appendix A

1435

NATIONAL CREDIT UNION ADMINISTRATION
Washiagion, D. C 20456

August U, 1978

OAcc ot the AdffliiufincBft'- -

Hcnorable Peamand J. St Gexnain, Qinirnwn
Subocnnri ttee on Ftnancial Itastitutians
Sipervisian, Regulation and Insurance
Gcnndtteeon Banking, Finance and Qrban Affairs
n. S. House of Representatives
Hadiington, D.C. 20515

Dear Mr. Chalnnan:

Hiank you again for providing me the opportunity to a^ear be-
fore the sdxxmnittee on August 1 and present my views on H.R. 11310,
a bill to create the National Ctedit Onion Oentral Liquidity Facility.
As pronised at that tine, I an new siiiulLLing ny uuiiueiiLs conoeming
the Hone Mortgage Disclosure ]^:t CHMDA) , t±e OaBBuaity Reinvestoent
Act (OOV) , and the proposed regulations of the otlier svpervisory
agencies inplenenting the CRA.

Hone MuibjaLie Disclosure Act

In general, the OOV and Regulation C a^^ply to ccnmprrrinl ban)cs,
savings banks, savings and Loan associations and credit unions, and
require that those institutions nake pii>llc disclosure of the nmtyr
and Hniiar anDunt of various classifications of uuLtyage loans made
or purchased eadi fiscal year, catalogued by the census tract in viiicfa
the mortgaged property is located. The '^<«"''' ""■■''"» axe designed to
enable the pxislic to determine uhather tte institutians are fulfill-
ing "their obllgatixxis to serve the bousing needs of the oamunlties
and nei^ibozhoods in vhidti tjiey are obartered.* I^ expecLence has
shown that the HMDA does not provide for dlsdosure of sufficient
infosnation to achieve this euid other inpactaat purposes.

•So illustrate part of the pzoblan, consider Hia following three
situations.

First, the situation where the BOA disclosures tnfllrate that
an institution has had little or no nrr*-'j»7' lending activity in a
specific iimer-clty nel^hboxtood. Miila this fact m^ raise questions.

151

Appendix A (cont.)

1436

it is possible that tiie inactivity resulted £ran a lack of demand
£or mortgage loans fxon the institutian. The infannation currently
required to be disrlosed will not afaoif \Aetter there has been a lack
of denend and, if so, \trf. (Cne reason mi^tt be discxiadnatory nar-
keting practioes.)

Second, the case where the 9CA disclosures indicate that an
institutian has made a substantial miTtvr of imrtgnfje loans in a spe-
cific inner^^:ity npjtjhborhood. Rxm the current disclosures, it is
ispossible to detennine whether .such lending activity results f ton
m honest effort to provide fair housing ac{srtunities to existing
residents or fmn *«'«ing rebabilitatian and stile to *ffi ««»<«• indivi-
duals who <u% dimlacing existing residants fron their bones.

Third, the focus of esdsting WSA disclosures would hanper a
oonnemed citizen group in its 4^ff^>i la to detemdne the overall availa-
bility of nortgage funds in its ocnnunity. Rrl sting aOA discLssures
cnly reveal eeidi individued institution's activities.

Various measuies mi^t be taken to oorrect these probleras.
Where lending activity by a given institutdjon is ndniinal, it would
be helpful to knew of the institution's marlaeting practioes ani the
nuirter of applications rejected during the reporting period. Also,
oonsi rlpration of an institution's total outstanding loan portfolio
at a gi^^n tine, in addition tao oonsideration of loans naHn within
any disclos\ite period, nd^t give a nore accurate picture of the in-
stitutian's oosaititent to tiie aannuoity.

With resiect to the situation where the eari sting disclosures
reveal increased lending activity by an institution in a particular
inner^-city nei^iborhood, infomation ocnoeming characteristics of
the borztMers (in generzil teass) would greatly assist in detemdning
whether the institution has, in fact, made a strong oomtdtinent to pro-
viding mortgage funds to eadstdng residents of the ccnnmity.

The difficulty in detexndning the overall availability of mort-
gage funds in a particular ocnnualty oould be nininized by the estab-
lishment of oentralized rppmtlng pcooedures and fay tite inclusion
under HMDA of other nortgarge originatorB, sodi as inarbgiKje bankers,
that are not currently covered by the Act.

All of these problans suggest a need for more sophisticated data
oaqpilatinn and analysis, in order to make the BffiA both more neaning-
ful to the piialic and more useful as a regulatccy eand enfaroooent
tool. I am not umdndful of the siAstantial costs whidi this would
entail, and believe a trnprific reocDnendatiaa onmyniinj eaetension

152

Appendix A (cont.)

1437

of the HUA beyond its June, 1980, eagrijaticn date would be paHiHture
at this tine. In considering this qassticn, however, I note that
the si^aerviaory agencies are developing raonitoring p»Eji^iim under
their D^ual Credit <^jportunity Act and Eair Ho»ising Act aifarcaient
authorities viiich may resolve bbif/ of the above noted prciOHns. nnis,
rather than the llinitTed data which is presently mate p*M<.~ under
aiDA, perhaps the agencies Aould be cSaarged with analyzing and making
jMblic disclosure of relevant data, as part of tteir regular e^nnina-
tion emd si^iervisian process.

flfiminnity Reinvestaent Act

The CRA, whidi applies to federally chartered or insured financial
institutions other than credit unions, requires that the aEpropriate
si^jervisory agencies periodically aaoogn each instituticn ' s reoord
of meeting the credit needs of its entire oonaunity, and furtter re-
quires that this record be taken into accomt viien the agencies evaluate
specified t^es of ^plications (inditing branching applications) . •

In a sense, the CRA is not a new conoept. Ratter, it aff^T^^>q
the eaostiing nht igation of financial institutions to meet the credit
neeids of their ocnnunities as a part of their overall re^xaisibility
to serve the piislic need and convenience. Qie of ny concerns with
the CBk is that by aiiiressing only credit needs, it way serve to de-
aiphasize other financial needs of the ocmunity ; e.g. , the need fcr
convenient banking hours and the need for provision of a f»n range
of services such as deposits, check cashing and food stanp distribu-
tion. Hcpefully, the institutions and regulators will gain an enhanced
asoreness of these other types of oonminity needs in iaplaiHntinq
the Act.

A najor *ortocming of the CRA relates to the inclusion of state
chartered institutions that make federally related nurtgage loans
in its coverage. Mien a state regulator does an adequate job of
ensuring that ocnnunity credit needs iune being met by these institu-
tions it is unnecessarily dt^plicitous and lHn» rrwuawni-nj far a Pted-
eral regulator to evaluate an implication for the sane purpose. A
possible solution vnuld be to establi^ an exaiptian procedure for
quali^ring states, surfi as has been Ams iinc^«w the Fe^ral Cma-m,^
Credit Protection Act.

Conoeming the proposed CRA inplementdng regul£ttlans ^publirfad
collectively at 43 F.R. 29918) , I believe the agencies have aJdressed
a difficult subject with fairness. I feel, however, that certain
points could be clarified in keeping with Congress' intent.

The first and most inportant clarification that I would suggest
relates to the fact that the CRA is an affinrative, rather than a
proscriptive, statute. That is, vAiile it does not directly pndiibit

83-117 /<?3

153

Appendix A (cont.)

1438

gparnfin practices, it does imaose an affiniative obligation upon regulated
iiistitutions to meet the credit needs of ttipir local neighborhoods and
aomunities. "Dua, a mere passive attitixle of noD-discxdininatian tcMaxds
any paru^rular aegneiit of the aaammxty will not saffice. Z believe the
proposed regulatiom^iould make this point a^ihatically clear.

Also, to illnp^l any oaifusion about the relatianahis beta wen tiie
affiniative obLigaticn oogfitainad in the CSV and tis prohibiticns containol
in the Qqual Credit Ocpmtunity Pet. and the Fair Bousing Act, the OA
regulations ni^t snecify that regulations under these three laws are
intoxied-to be oenplanaiLary.

Amther respect in' %ihich the proppsad regulstlnns fiollotr the
^sproadi of the Act is that they do not specify wtieLher ronedial
Drocesses will be used when an aqency's assesanent reveals t3iat"a

processes will be used wnen an agency's assesanent reveals tnat: an • • «
institution is not meeting its obligation to the ujiiiimity. This may
leave die icnressicn that tiie agencies will taloe no action, other
than to note the failure, for future oaisidaratigi, in the event the
institution mates an application of tte type specifiwl in the Act. I
do rot believe the ageiicies intended this. Rather, in cases where an
institution has clearly failed to meet its obligaticn, tts agencies
^ould use methods to encourage r^rmnM^rv^ and, if necessary, u^
their administrative powexs to roned^ the situatdm. I feel this
intention should be stated in the regulalHm.

Finally, I wi^i to ocjuiua>L on the eoccluslan of federally diarLaLeJ
euvi insured <jedit unions from the coverage of the Act. Z agree that
ttK exclusion is warxantad, since a oredit union's "ocRnunity" , defined
by the field of manbership provision in its diarter, in most cases
is based cxi an omipntimnl oar associational "cxiiimii bond" rather
than a geograohic one. Further, it is inherent in the aanmon bond
concost that credit unions nust provide equal services to all eligible
wertiers.

1 believe that the ecisting body of law applicnhip to Federal
credit unions, in ccndadnatian with IdA's regulatccy and enforcaaent
authority, will effectively ensure that Federal ^»dlt unlona oaicly
with the intent of the CRA. Jn fact, as FCO'a new enter the field
of long tenn mortgage Isidinq, ny staff is reviewing NCDA's non-dis-
ariroination regulations (12 CFR 701.31) with a via* to onendniBnts
furthering the purposes of the BOCIA and the Fair Bansing Act. Ih
keeling with the ^lirit of the CRA, we will conduct this reviof with
the intent of ensuring that FGD's '^-" <""» ts serve the ^»U.t needs
of all nartoers, including those residing in low iitrmei neigtiaorhaods
and coRTunxtxes.

Zn closing, Z tfaaidc you for the opputLunity to i.iiiiihiiL on these
subjects, and hope ny aomstts will be helpful. Zf you have any
questujois or if Z can be of further assistance; plwmw let me )aiow.

^^ninistxator

154

Appendix B

National Credit Union Administration

Jultl rS, 1994

Penny Bates

Federal Housing Finance Board
1777 F Street, N.W.
Washington. D.C. 20006

Re: Proposed Rule on Community Support Requirements
Dear Mt. Bates:

m a telephone convenation with Martin Conrey of this ofRce. you asked for NCUA
comment on community support requlTBments for credit union members of ttie Federal
Home Loan Bank (FHLS) system. As you know, ttie Community Reinvestment Act of
1S77 (CRA) does not apply to Federal credit unions (FCUs). Parallel CRA
requirements would in our view place inappropriate requirements on FCUs. We
believe if such requirements are adopted it would result in discouraging FCUs from
joining ttie FHLB system and woukJ Hkely (brce ttie withdrawal of many current FCU
members.

ANALYSIS

Section 704 of ttie Financial Instttufions Refonn, Recovery and Enforcement Act of
1989 Axtonded memisership to credit unions that wanted to join the FHLB system
12 use §i424(a)(2). Sectton 710 mandated that the Federal Housing Finance doara
(FHFB) issue community support reguiattons for memt)ers to 'maintain continued
access to long-term advances. " 12 U.S.C. §i430(gKt) The statute states that
regulations must take into account "tecton such as a member's performance under the
[CRA] and the members record of lending to first-time honrMbuyan." 12 U.S.C.
§l430<g)(2]. The FHFB issued a proposed ruie to (Jeflrte community support
requirements for members not covered by the CRA. 58 Fad. Rag. 46569
(Septemtier 2. 1993).

The FHFB recognizes that CRA requiremer«s do not apply to FCUs. FHFB has
proposed that credit unton FHLB members eittwr comply with CRA crttaria or adopt
paiallel CRA requiremems edapted to institutional differences. Wa t>eiieve these
requirements are unnecessary and would be unduly burdensome for credit unions.

Membership m an FCU Is llmltBd by Its chatter to its common bond vi^nh may be
occupatk>nal. associational or community. Services at an FCU tn available only to ita
members, not to the general pubUe. Because of fMd of membership raquiraments,
there is no standard measure to demonstrate how much FCUs contribute to their

155

Appendix B (cont.)

Ms. Penny Bates

July rs, 1994
Page 2

commumtiM. As an axample. there are many credit unions which serve only
employees of the sponsor organization Many of those employee/credit union members
do not live near the credit union and. as in many instances, live in other states or
countries end yet maintan accounts at their employer's credit union. Defense
department employee credit unions, wrih e world-wide memtiership of many thousands,
are good examples. Defining a 'communlt/' for a credit union with a large, diveree end
dispersed field of membenhip would be a difllcuittasic Only a smaU number of credH
unions hold true community based charters. Those credit uniors receive shares and
make loans only within their community boundariae.

Any CRA^ke specHic staridard issued by FHFB for FCUs would be hnpoesMe to fbitow
due to chartering and field of membefsh^ requirements ss well as statutory and
regulatory limits on investments and business lending. See 12 C.F.R. §701 21(h).
CRA-like requirementB which expand services beyond an FClTs field of membership
and into a geographicaHy defined communiy would be in contravention of the FCU Act
Instead, we believe lt)e purposee beliind community si4>port requimmenta aia already
Oemg met by the daily operations of FCUs within their respective fields of membemhip
regardless of the credit union or members' location.

We are available to discuss these issues with you at your convenience.

U^^KJi

d\^*SL^

Robert t4. Fenner
General Counsel

OC/MM:bhs
SSIC 3501
94-0341

156

Appendix C

National Credit Union Administration

■■!:m- .

REPORT ON

SPECIAL EXAMINATIONS FOR

DISCRIAONATORY PRACTICES BY CREDTT UNIONS

April II, 1994

This report summarizes the findings of Regional Office special examinations into field of
membership e^qnnsions, community chaitered credit union practices, and Fair Lending
by selected credit unions in the nspecavt r^ions. Tlie q)ecial examinations were to
look into field of membeishq> cqnnsions and community chaiter activity for possible
discriminatory practices and to offer further insight into the significant racial and ethnic
differences in loan denial rates at credit unions as evidenced by recent Home Mortgage
Disclosure Act data.

FIFT,P OF MEMPFRSHIP EXPANSIONS

In general, the Regional Offices worked through their Supervisory Examiners(SEs) to
review all recent e;q>ansions by credit unions under their supervision. The SEs were also
diieaed to look at new charters for credit unions in their areas. The SEs were asked to
look at each credit union from the following perspective:

1 . Has the credit union intentionally excluded from its field of membership geogr^hic
or business areas for low income or minority/ethnic groups in its field of membership
requests?

2. Is there any indication that low income, minority, or ethnic considerations are part of
the credit union's expansion policies or practices?

3. Are there indications of any other problems related to discrimination in lending or in
other areas?

None of the regions found any evidence whatsoever of any overt discrimination by die
credit unions reviewed. The bylaws were examined to ensure that minorities have the
potential to be included in each credit union. Regions rq>orted that many recem charters
were by minority groups. The observation was made, however, diat some credit unions
do seek groups that are eligible for payroll deduction when they decide to escpand. The
observation was also made that discrirnination in select group oqnnsion woidd be very
difficult to detect. A number of conversions to community charter were reviewed and,
again, areas containing minorities were found to be inclndwl in. the charter.

1775 Duke Street - Alexandria, VA 22314-3428 - 703-518-6300

157

Appendix C (cont.)

COMMUNITY CHARTER ACTrvmES

With respect to community chaiteis, several areas were reviewed. Fust, the regional
oiTices, mostly through their SEs, looked at existing community chartered credit unions
in the region for any discriminatory practices against low-income, minority, or ethnic
groups within the service area; second, community charter conversions and expansions
were examined to see if there was a pattern of discrimination in excluding communities
or areas from the e}q)ansion or conversion request; and third, one community chartered
credit union from each region was selected for a close review of its dedication to its
community from the perspective of both the Home Mortgage Disclosure Act and the
Community Reinvestment Act.

No indication of discrimination was found in the general review of the practices of
community chartered credit unions. Cooununity boundaries were generally found to be
comprised of specific political jurisdicdons, sudi as villages, towns, townshqn, or
counties which are all-inclusive of the population, r^ardless of income or
minority/ethnic status, within the geographic area. No patterns of discrimination were
found in lending practices nor in charter conversions or esqiansions in any of the regions.
No examples were foimd whereby minority areas were excluded from the field of
membership of the community charter. Bylaws of commimity charters did not preclude
the inclusion of any area in the membershq> of the credit union.

The six community chartered credit unions (one ftom each region) selected for close
review of their overall activities demonstrated admirable records. Their HMDA lending
records were outstanding. In fact, two of the credit unions qiproved aC qiplications
from miniority group applicants, and two odiers only denied 1 minority applicant. There
was also no evidence of redlining. The credit unions were very active in making small
loans in the community to their members for business purposes. They were making loans
that other instimtions would not make. They were involved in efforts to educate their
members and to participate in the affairs of the local community. One opened a branch
in a neighborhood that had been abandoned by other institutions as being not profitable.
This branch is very successfiil today. The credit unions try very hard to serve their
marginal members. For example, one credit union markets real estate loans to its lower
income members who have been turned down elsewhere and they make variable rate
loans which are not necessarily written to standards for sale on the secondary market.

In an attempt to obtain further insight into the disparate rate of denial to minority credit
union members for mortgage related loans, each region conducted q)ecial in-dqnh Fair
Lending reviews of the particular credit unions identified by the HMDA data as having
disparate rates. A total of 44 credit unions in 20 states were reviewed. Within these
credit unions, a total of 1,663 denied loans and 809 apptaved loans were reviewed for
consistent application of credit-worthiness standards.

158

Appendix C (cont.)

A study of the completed reviews reveals the fbliowing: that there was no evidence of
any oveit disciifflination on the pan of the credit unions reviewed; that some mitigating
factors were found which contributed to the disparate rate such as incorrea codes on
HMDA rqwrts, secondary market standards, HwHning real estate vahies in ceitain parts
of the country, and careless record-keeping. While the results of these reviews do not
fiilly explain the dispaaic rate, NCUA is more confident of the performance of credit
uuioas' fair lending record. In addition, die reviews have assisted in pointing out areas
where NCUA and credit unions can seek improvement

poNnTTrr of the reviews

In leviewing their credit unions, the regional examiners looked closely at the following
areas: lending policies; leading procedures and ^ipioval practices; the results of staff
interviews; and all suppoiiiug documeotatioa in the qipliaots' files. Tlie objective was
to determine if all mortgage-related loan applicants at federal credit unions were provided
fair and equal treatment.

The examiners rqxnted that aQ mortgage loans reviewed appeared to be spptoved or
denied based on nondiscriminatory credit criteria The findings were very similar in each
of the tepoTts. Deniak and approvals were supponed by such documentation as credit
iqwrts, debt-to-income ratios, qiptaisals, loan-to-vahie ratios, monetary asristanrr.
provided to each applicant, fbllow-«p for information requests, etc.

The reasons for denial in most cases were very similar. Hie most common reasons for
rfwiial were: adverse credit rqxnts; high debt to inoome ratio; and insnffidem equity in
the collateral. A conq>lete breakdown of the denials is as follows:

llAacnn

# Loans Denied

Rnijtnn #Loans Denied

Credit Rq>ort

515

Debt Ratio

368

Equity in Property

205

Wididiawii by Member

163

Incomplete/No Reqwnse

CoDatenl/^ipnisal
Vthie(LTV)

Income/Stability of Enq)loymea 36

Cash for Closing or Down Payment 14 Odwr Reasons* 224

TOTAL: 1.663

•Other Reasons inrJndad; insafifideat income; unable to verify ieif-«aqiioymeat or
income; unable to verify other income (rental); VA wookl not gnanmee knn; denial
requested by applicants; otfaer lien hokien would not snlKadinate; wouki not pay for

159

Appendix C (cont.)

appraisal; unfavorable share or loan history at credit union; failure to provide additional
information; counter-offers not accepted; delinquent taxes; etc.

MmGATTNG FACTORS

A major problem disclosed in the reviews was that some credit unions did not code
information correctly on their HMDA report. Making errors on HMDA submissions has
been an historic problem for credit unions and one that has required costly editing by the
Federal Reserve HMDA processing unit Errors noted in the reviews were mostly racial
and gender code errors. However, there was no indication of any intent to falsify any
^jpiicant's information.

Many cTcdit unlons had mortgage lending policies that required adherence to secondary
market standards. A majority of the rfM»i«^H loan applicants for purchases and refinances
^ed to meet the requirements of the 'secondary market standards*. These standards are
quite specific regarding debt ratio maximums, credit report evaluations, employment
stability, equity limits and condition, income consideration etc. Although many credit
unions had no plans to sell part or all of their mortgage loans, they felt it prudent to
adhere to secondary market standards in case they had to sell mortgage loans in the
fiimre.

Two credit unions had addressed the problems caused by the secondary market standards.
One of them had started a qiecial program for mortgage loans that did not meet
secondary market standards. As a result. tMs mat union later was able to approve 6 of
the 70 applications that it had previously denied. Another credit union holds all
mongage-related loans in its portfolio and does not adhere to die secondary market
standards. All mongage loans at these credit unions are performing adequately.

NCUA has traditionally encouraged credit unions to write mortgage loans to secondary
market standards. This itself could have been a contributing factor in credit union
practices. One result could be the exclusion of many low and moderate income
individuals from qualifying for a mortgage loan. Presently, however, we arc sending a
letter to all credit unions encouraging them to "«""«"'' die benefits of making a certain
percentage of their loans on a non-conforming basis.

Finally, it was noted that in the northeast and the west a number of refinance and equity
loan requests were denied due to high loan-to-value ratios resulting from rirrlinffs in real
estate values. Further, in some credit unions errors of omission and careless
record-keeping distorted the denial rates significantly.

SUMMARY

While the results of the reviews do not disclose any overt discrimination on the part of
individual credit unions, NCUA will contimie to improve our analysis of diis area to
ensure that there is no discrimination in credit unions. Obviously, the HMDA data alerts

160

-Appendix C (cont.)

US to the fi^ that citdft unions can do betto- in wrviiig aU segmetts of their membenh^
The '<ata also suggests that impnyvemeots are needed in NCUA's examination procedures
and training in this area;

Some stq)s have already been taken to try and improve this area of lending. They
include: tr]'"''^ Fair Lending reviews by the Qnnpliance Officer from NCUA's Office
of Fin""^™*'"" *^ Tnairannr.; adnpritwi of interim Pkir Lending Procedures which
inHiiH<i<< a Fair Lending Checldist; indusion of credit unions in the Federal Hnancial
InstiQite Examination Council's (FFIEQ I^ir Lending study. TUs study will produce
uniform Fair Lending examination procedures that win be adopted by all financial
regulatois, mchiding NCUA; initiaiion of a 'Consumer Conqilianoe' seminar with
emphasis on Fair t i»nHing and HMDA; distribution of the publication 'Compliance, A
Self-Assessmem Guide* which gives credit unions guidelines on what a good Fair
TfTK<i"g progiam should ««'^nip"w: and appointment by eadi region of a staff person
for the compliance area.

In addition, plans are underway to:

" Conduct a conference with the regional conq)liance persons to m^ out a strategy for
unifoim compliance tracking and strategies;

* Provide expaaded training in I^ir Lending, HMDA, and other compliance areas to the
regional compliance persons; and

* Use the further training of thffiw? individuals to expand the review of Fair Lending in
credit unions where examiners deem it is wamnted.

RECOMMENDATtONS

1. That NCUA encourage credit unions to make a proportion of their real estate loans
non-conforming to the secondary market standards. Establish tmuBgemeat policies for
such loans.

2. That NCUA conduct additional training to improve its ainlity to detect discriminatory
practices by credit unions.

3. That NCUA examiners ensure that credit unions use proper codes on HMDA rqmrts.

4. That NCUA examinen look dosdy at credit unkns for eCforts to readi out to
minorities in lending prngiam* «iirf tp »*hinitft mrmb*** "" fitwnrial BMaeiK in generri-

161

Selected Case Studies

Credit Union Involvement

162

• NAFCU CRA Response (Xerox FCU - 9/8/94)

• Xerox Community Involvement Program

Working with our sponsor, Xerox Corporation, employees uf Xerox
FCU volunteer theii time in a variety of outreach progi^ms. In Los
Angeles, Dallas, and RocKester, N.Y., our employees Wave painted
communicy centets, repaired old gyms, arui fixed up run down parks.
We believe that woildng side by side with our member-owners is the
best way to re-infnrce our commitment Co the communities in which
we work and live.

• South Central LA People's CU

Ir was working with the XCIP program that led to our involvement
with the South Central I-A People's FCU. Ir was through the efforts
of our employees that we were able to assist South Central LA
People's PCU in obtaining lowcost (and free) data processing systems
with which they now serve residents of their community. Wc arc the
^onsor for this CU., providing them with technical expertise and
support in areas such as accounting and strategic planning. One of
oui staff is a member of their Supervisor/ Committee. Volunteers
firom our staff work at the CU to allow their employees to attend
training meetings.

• Episcopal Community FCU

After our success with South Central LA People's FCU, the NCUA
asked us to assist another CDCXJ - the newly chartered Episcopal
Clommunity FCU, also located in South Central LA. We met with
their volunteers, assisted them with a variety of startup questions and
lined up another CXJ sponsor - LA Water & Power CU. Credit
unions are a tight community and we help our own • without the
need for additional regulations.

163
CredH Union Housing Alliance

Xerox Federal Credit Union is presently playing a leading role in tiie
formation of a formal alliance of California Credit Unions • The Credit
Union IHousing Alliance". It 16 the intent of this Alliance to develop
a low cost 'total home buying support network* to credit union members
with a special emphasis on the first time home buyers among our low and
moderate income and younger members.

A second feature of the Alliance will be providing cooperative marketing,
educational, training and support, through its more experienced members,
to less experienced Credit Unions (such as South central Peoples FCU and
Episcopal community FCU), allowing them the opportunity to bring such
services to their members.

Several dozen Southern California Credit Unions have already expressed
their support of the Alliance concept and it is expected that the Alliance
will be formally organized and operating by the first quarter of 1995.

164

lniip9(W Counljf Wont TniinQ Cmw fMMlMl
ti«Annual ~

COCACOLA
OFiMPERiAL
VALLEY

ALFORD
OISTRSUTMG
BUOWESER

The Board. Staff And Qonsumers Of Work Training

Center Wish To Express Their Deepest Thanks To AiL

Who'Contributed To The Ovenwheiming Success Of

MARIACHI FESTIVAL SIN FRONTERAS-ig94

vfiMMTM Mid ConipMMs

RUDY LOPEZ mORE PETER NAVARRA ORACeBeSMA'

FRANK ROOROUEZ EDWARD TMARPE iCHCT BENAVKMS

SiSTER VALDEZ NICK BENAVDE8 JOBttE OBESO

RUSlYaAROA HHULOO SOCIETY CHARROeCAMTORES

OfflOMiOf; a CENTHOPOICE DEPARTMENT

IMPERtAL COUNTY PROBATION OEPARHyl&IT
IMPERIAL COUNTY 8HERIFPV DEPARTMerr

■eudrMfl'-OSCAR QARCIA, Wf NAVA, DON QORHAM

EXOTIC WE8T

QGORQEWOO

oeiERALDYNAMICa

DAVE WEST

OUNICABDESALUD

LSROOKSANDERHar

QAPCU

ONE HOUR mOTO

WUDPLOWER NORTH

HIDALQO SOCIETY

JUANULLOA

AMOOPHCNES

aRAMATE

MILLIESSUPERS

THE OaOORONAOO CROWN
RUnERCOMMUMCATIQNS
HELPiNQ HANDS PRO

PIPPRINTtNQ VMiEYlMmNDBfTBANK CAUBERlCREBflMnNB

SOUTH VtaEYENQINECnNQ IMPERIAL IMIQATIONOSTKICr THEQASOOMn^Y

OSTCNIUUflnYOUAUTYCAAE SANTA FE PACIFIC QOLO UNIONBANK

VALLEY SHOPPER KXO RADIO SMCLAMDWYER

SUPERIOR NATIONAL

Specitl Thania To ImpariBl Oouriy Arts Council for Artistie Oiradion
and Impsriat Wky Prssi Fot TM Qrttt Covsrage

TRADEMARK
AAC CASSETTES
a CENTRO MOTORS
mWliErslPERDRFURMIURE
OMNI DEVELDPMOfT
THEEQUUABIE

CCAC BEEPER KMS

SCRIPP9 HEALTH CHARTER SAN DIEQO

B94AVI0RALME0ICME MERVYN'S

I SHINfS
1 llfK

lAI-TS. Cil S I'USlf.HS ('tj t. <.'.lj
r.f^AMIlS AfU '..111 1 AVAIl AHI 1 '

Arji)

CAl I .

]'yj r.uit 10 (MU.iiH vnims fjow

165

166

>$i"

CwitiMla prison

My lUn and I would like to
take thU opporUnity to Uwak
many of the buiiotiaefl tbroHgte-
Ml ImiMrlal Valley for their
lamroN* contrlbuUcim aod eon-
tliHtad aupport. Tbroaghmtt Utia
eatandar yaar. maay

ahowed their aupport by donating
itama such aa candy that tUfl
memban recaived cstd dla-
trifaatad aa Hallowaen goody bag*
for tha dUMren and icnlor
dtlnaa in the area

Maay thanks to the following
hiiilneaaaa for making Cen-
tiaela'B Pirat Annual Ouiatmaa
Ball a huge aaooaaa: Tte Oiw
Atrord Dlatribvting: Owl
Cafe; Mo Bairf RV Park: Cop-
pala: Amelia'a Hair Daalgnen:
Uttla Caaaar'i Ptna; Wind *
Saad RaaUurant, La MexieaBa
Reataaranl: Travel Centre;
Siorm'a Croaalng; Starllta
Crvlaaa. Coatee, Wal-Mart;
Broken Spoke; Book Nook. Yel-
low Mart; Del Norte Chevrolet.
B.J.'a Boeuque; Rlek'a PU It;
Sabway Sandwich. B Mariachi
Raataarant; Saelay Gomet Ma^
ket; Lewis Homaa; Ironwood
Acre Baiatei: Arrowhead Con-
atna-tinn and Cewment Aeen-
ria|ged«faiyp}d" f'»toti

The donaUona piiwWed by
thaae agcaciea have aaaiatad In
the morale aod oonradery of all
staff at Centinela. Buff arc more
aware of tbe aervicei offered la
the Imperial Valley and this
eneeuragee them to purchaae
ttems locally. We hope for yoor
contimed support In the New
Veer IM. CentlneU atall wiah
you all a happy and praaparout

New Year.

ROSIE B GARQA.
Cantinab SUte Prison

167

'Principal for ■ Diy'

On April 30. 10 meinbcn at the
commttitlty lerrad u a "Princi-
pal for the Day" In tht El Centro
School DUtHet. ThU event wa*
Sponsored through the Educa-
tlontl Commltiec of the B) Cen-
tro Chamber of Commerce.

The El Centro School District
Is very appreciative of the
chamber's efforts In providing
this marvelous opportunity for
both our district's princlpaja and
lh« community metnbera In-
volved In Uie program. The
chamber provided ao orlenution
breakfast for school district staff
and community members. Ad-
dltlonally, a wonderfnl dinner
was hosted by the chamber at the
completion of the day's event In
which the community members
were recognised for their perttci-
psllon in the program

Community members who ser-
ved as principals (or the day were
involved in such activities as
monitoring student arrival, mak-
ing classroom visitatlgns, partici-
pating In stodonts discipline con-
ferences, making home vislU-
ttons, supervising st recesses and
lunch, and many other activities
that are part of a principal s daily
routine Both our district sUff
and community perticipanti felt
thii eiperience was very
t>ene(iclal.' and was a great way
for lomoone in the private sector
to find nut exactly what eoes on

in an elementary school. It was a
lun event that wes enjoyed by our
principals and their community
counterparta as they spent the
day together.

The Bl Centre School Dlatrict
wishes to thank Kevin Kelley.
Pauletta Vaugho. and Joanne
Watson ot the El Cantro Ownber
c4 Commerce, the chamber's
Educational Committee chaired
by Ron Hull, the chamber's
membership, and particniarly.
the following community mem-
bers who so willingly gave of
their valuable tinte to serve as
Principal lor the Day: Pat Miller
Gordon, DeAnu Scbool; Mary
Edney. Hedrick Scbool; Letlcia
Corfman, Desert Garden School;
Ken Gonzaiex. Harding School;
Mary Edney. Hedrick School;
Larry Eacalera. King School;
Richard Velasquec. Lincoln
School, Gary Glnd. McKlnley
School; Mike Roblnaon, Washing-
ton School; Rtr rt." ^ Ken-
nedy Middle School; and Angel
Rosamond. Wilson Junior High
School

EVERETT "BUTCH" TAYLOR,
Associate Superintendent,
Bl Centro School District

168

A. 6 - ATTACHMBIT

Pentagoo Federal luppoiti two low income credit unioni in the general geographic area of iti
main office. Both wrvc low income populations. The first credit union, located in Alexandria,
Virginia, is church-based and a '**«'fl«tf^ low income credit union. Suppon has been in the form
of training of vohmteen and donation of fiimiture and equipment.

Sessioni were held for the credit union's board and supervisory committee members. Presented
were geocral credit union board responsibiUties and operating procedures. Our Manger. Loan
Officer Review and Training and Senior Vice Presideat. Credit and Collection provide one-on-one
review of loan applications and training for loan officers Pentagon Federal Direaor, Delinquency
Control, has asdsted with the review and coDection of past due loans. He also perfonned the
delinquent review portion of the Supervisory Committee's annual audit

Our Director, Financial Accounting, has provided an on-going review of and training on income
statement and balance sheet items. Members of our Financial Accounting staff performed the
credit union's annual Supeiviioty Committee audit and made reconuneodations thereoa

The Piesidem of Pentagon Federal has provided on-gdng advice to the presidem of the
Alexandria-based credit union on a fiill range of credit union managemem issues. TUs crafit
union's Vice President, Phuining and Coiporate Relations provided sdvlce on field of membership
issues and recommendations for investment options for Uquid foods.

Pentagon Federal also donated and ddlvered, at no cost, a copier machine, with staiid, typewriter,
desk/table, chairs, adding machines, and a safe. Our insurance CUSO donated a computer, with
stand. We have also provided mailhig services for die credit unlotL Pentagon Federal has potted
and paid for maiEng on quarteriy statemems.

The second credit union is located in Mai^and's Delmarva Penmsular. It serves a low income,
rural population. We have just taken on this credit union in our mentor program. As such, we
have not provided actual services. However, a senior official met with their President and
Chairman of the Board to assess their needs It it anticipated we will provide computer training.
Truth-in-Savings training, marketing support, product devdopmem support and ftmnture and
equipment, as weD u supplies to rehabilitate their fitdlity.

169

Amerdcan

FEDERAL CREDIT UNION

718 E. Mi^igap Annu* • jKfcson. Ml 4S201 • (SI7)7»7«510 • Lean 0»parttT»nt (6- ^ 788!ee7 • l-a00-S?J-9i5J

American 1 Federal Credit Union has two formal partnerships within our conununity.

One partnership is with an Elementary School in a low income area (Within two blocks of
our Main OfiBce.) These children are considered "at risk" for becoming illiterate, or for
dropping out of school. We provide funding for tutoring programs and incentive programs
for the children and their parents This is a preventative program to stop the problem of
illiteracy before it starts. Our staff also volunteers on occasion to be special guest readers
in the classrooms to encourage the children to read and learn to love to read.

We also have a partnership, and arc the largest contributor to the Jackson County
Literacy Council We assist with volunteers and fiinding to provide adult one to one
tutoring, tutoring for 'at risk' childrea and workplace tutoring We are in the process of
planning and sponsoring a major fiind raising event for literacy in Jackson Our Marketing
Director serves on the Board of Directors of the Jackson County Literacy Council.

1993 • Major contributor to the Great American Read Aloud, a conununity event to draw
attention to the importance of reading, and teaming to read at any age.

Annual supporter of 4-H Clubs in Jackson. We normally contribirte SI ,000 per year to
this Jackson area youth organization.

Our staff participates in the March of Dimes annual walk in Jackson.

We are also a regular contributor to Special Olympics

S10W*i«y«.JaoKMn.M«!(a SJavm.HmOnm.ynmi «ION.AMM8l..MIO«.Mi4KM site CMknM (1MB). HM*. 114

(Si7)7»4.7i»t (eie)9e»4i07 (Si7)«a»««)4 pi7)<s7.asw

170

"CDCU

National Federation of Community Development Credit Unions

Testimony to die

Subcommittee on Consumer Credit and Insurance

U.S. House of Representatives

Carol Aranjo

Chairperson

National Federation of Community Development Credit Unions

September 22, 1994

1 20 Wall street. lOth Floor • New York. NY. I0005-3902 • (2 12) 809-1850 • FAX: (2 1 2) 809 3274

171

Chainnan Kennedy, thank you for the invitation to address the Subcommittee
today.

My name is Carol Aranjo, and I am the manager of the D. Edward Wells
Federal Credit Union, a 37-year old institution serving a predominantly African-
American community in Springfield, Massachusetts. I am speaking today as
Chairperson of the National Federation of Community Development Credit Unions,
a nonprofit association of credit unions which specialize in serving low-income
communities across the United States. The National Federation has more than 120
member institutions in more than 30 states. Our credit unions are urban and rural,
serving communities from Harlem, to Appalachia, to the Mississippi Delta, to the
Navajo Reservation, to South-Central Los Angeles.

I would like to present today the National Federation's response to the
questions which the Subcommittee's Chairman has posed to us.

1. First of all, it is the National Federation's position that Commimity Reinvestment
Act (CRA) requirements should NOT be extended to credit unions. Credit unions
ARE different fiom banks, and that difference should be maintained. Credit union
uniqueness would be eroded by the appUcation of bank regulations such as CRA to
the credit union movement.

On the regulatory front, we beheve that under the leadership of Chairman
Norman D' Amours, the National Credit Union Administration (NCUA) has made
considerable progress in addressing issues related to mortgage lending
discrimination and related matters. It is important to note that not all credit unions
originate mortgages. This in itself could account for some of the statistical
differences in loan approval rates between credit unions and banks. We hope and
expect that mortgage lending by credit unions will increase. We are confident that
under the leadership of Chairman D' Amours, NCUA will develop proper guidelines
to assure that credit union lending is carried out in a strictly non-discriminatory
manner.

We are pleased, too, that NCUA has recently issued new Field-of-
Membership (FOM) guidelines, which will make it possible for credit unions to
expand into low-income areas more readily. NCUA reached out to the National

National Federation of Community Development Credit Unions page 1

172

Federation in drafting its regulations. We are pleased that the agency adopted our
suggestions to build safeguards into the credit union expansion process, with the
express purpose of assuring that lending discrimination— intentional or unintentional
—does not result. The National Federation intends to monitor developments in this
area, and we have every expectation that NCUA, under Chairman D'Amours'
leadership, will also aggressively and effectively monitor expansion situations, to
assure that no problems result.

(2) With regard to the matter of the burden of CRA regulations, we do not believe
that the Massachusetts CRA regulation is comparable to federal CRA law.
Therefore, we do not believe it is proper to draw any conclusions regarding the
extension of federal CRA standards.

(3) We do NOT think it is appropriate to develop different standards for credit
unions based on their size or type. All federal credit unions have the same basic
legal structure, so we beUeve it is appropriate to treat all types of credit unions the
same. Furthermore, as the Subcommittee is well aware, discrimination may take
place in institutions of all asset levels; accordingly, we do not think it is appropriate
to make a distinction based on size.

(4) Finally, with regard to the matter of placing ftmds in "risky, foreign-controlled
investments," we do not hold ourselves out as experts as to the level of risk that may
or may not be involved. We know that NCUA is looking into the matter of
corporate credit unions, and we would like to see them pursue their study to its
conclusion, and engage in a full dialogue with the credit union industry on any
proposed regulatory changes, before any legislative action is pursued.

Needless to say, we are intensely interested in increasing investment in low-
income communities. We do believe that there is much that the federal government
can do in this area.

First of all, we would Uke the federal government to do whatever it can to
expand the scope of existing secondary markets. Simply put, existing secondary
markets have not done nearly enou^ to facihtate lending to low-income people.
They could do a great deal more, especially by working through institutions like
community development credit unions. I am sure that as the federal government and

National Federation of Community Development Credit Unions page 2

173

the major secondary markets do more, you will find more credit unions putting more
of their assets to work in loans to low-income people.

Second, the federal government can help strengthen those institutions which
have a special mission of serving the poor, like community development credit
unions. Tomorrow, September 23, 1994, President Clinton will sign into law the
Community Development Financial Institutions Act. Congress should assure that
over the next four years, the new Community Development Financial Institutions
Fund receives full appropriations.

Mr. Chairman, thank you for the opportunity to address the Subcommittee.

National Federation of Conununity Development Credit Unions page 3

174

TESTIMONY OF C. KENDRIC FERGESON

on behalf of
THE AMERICAN BANKERS ASSOCIATION
presented to the
SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

of the

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

UNITED STATES HOUSE OF REPRESENTATIVES

September 22, 1994

175

Statement of C. Kendric Fergeson

on Behalf of the American Bankers Association

Before the

Subconuninee on Consumer Credit and Insurance

Comminee on Banking, Finance and Urban Affairs
United States House of Representatives

September 22, 1994

Mr. Chairman, I am Ken Fergeson, Chairman of the Board of the National Bank of
Commerce in Altus, Oklahoma. I am Chairman of the American Bankers Association's
Community Bankers Council, and former chairman of the Oklahoma Bankers Association.
The ABA is the only national trade and professional association scn'ing the entire banking
community, from small banks to large bank holding companies. ABA members represent
about 90 percent of the industry's total assets. Approximately 94 percent of our members
are community banks with assets of less than $500 million.

We commend you, Mr. Chairman, for holding these hearings to explore the issue of
extending the responsibilities codified in the Community Reinvestment Aa (CRA) to credit
unions. We believe that all financial service providers have an obligation to help promote
the economic well-being of the local communities from which they draw savings and
investment fiinds. We beheve that credit unions -- which take federally insured local deposits
" should be included under CRA. Credit unions offer the same services my bank offers, and
they compete for the same customers. There is no reason why they should not be held to
the same high standards of community responsibility as my bank.

Credit unions are clearly alarmed by proposals to include them under the CRA
nuntel, in part because they arc aware of the huge volume of paperwork that accompanies
the current administration of CRA. Mr. Chairman, there is Uttle question that CRA, as
currently structured, is more burdensome and less effective than it should be.

As you know, the regulatory agencies are currendy working to redraft the regulations
implementing CRA. As the agencies rethink how the administration of CRA can be made

176

more efficient for those currently covered under the statute, it is also appropriate for
Congress to rethink who should be covered under that statute.

I would like to make three points to the Subcommittee in my statement here this
morning.

(1) First, credit unions should be included under CRA. These institutions look and act
like banks, and they compete directly with banks in local markets across the country.
Not holding them to the same standards of community reinvestment responsibility
as banks simply cannot be justified.

(2) Second, given the dramatic changes in financial markets since CRA was enaaed, we
believe it is appropriate for Congress to review the role of all financial service
providers in meeting community credit needs. As more funds flow to banks'
competitors, certainly their role in reinvesting those funds back into local communities
deserves consideration. This Subcommittee started that type of review earlier this year
in its action with respect to insurance availability.

(3) Third, we must reduce the cost and complexity of CRA compliance, and make the
system more flexible and efficient for all institutions.

Credit Unions Should Be Included Under CRA

The Federal Credit Union Att says that credit unions are to "...make more available
to people of small means credit for provident purposes." The credit union industry will
argue that this is what they do - and that there is, therefore, no need to include them under
CRA.

But let's look at who credit unions actually do serve. According to a recent
demographic survey conduaed by the Credit Union National Association (CUNA), credit
union members have an average household income of $39,730 - 27 percent higher than
non-members. Credit union members also have more years of education, they are more
likely to have full-time employment, and they are more likely to own their own home than
non-members. Studies comparing banks and credit unions have shown that the average

177

credit union member has a higher income than the average bank customer. So despite their
'blue-collar" image, the fact is that credit unions serve a relatively affluent and well-educated
segment of the American population.

Certainly, part of the reason for this is that credit unions arc able to define and extend
their constituency as they please, allowing them to "cherry pick" those areas and individuals
they want to serve. A good example of this is the recently proposed mega-merger of three
large west coast credit unions (Paielco in California, First Technology in Oregon, and Seattle
Telco in Washington). This merger will create, in the words of the Patcico CEO, a credit
union "holding company" with $1.3 billion in assets, more than 180,000 members, and
nearly 40 branches in three staUs. This credit union will have selcaed the members it wants
to serve, yet will have no obligation to serve any of the low and moderate income
neighborhoods in the areas in which their 40 branches are located.

Mr. Chairman, if a bank were to undertake a merger hke this, the law requires its
CRA performance to be scrutinized. If the bank did not have a good record of serving its
entire community, such a merger would be impossible. But similar scrutiny does not apply
to credit unions. Why should credit unions be permitted to merge without any consideration
of how effectively they are serving their current members, let alone the low and moderate
income communities in which they arc located?

In faa, the ability to string together a number of groups, each with its own common
bond is, in effea, a license to redline. Many credit unions have linked together literally
dozens of groups - groups which often have above average income. What would the
Subcommittee members think if they were told that another type of federally insured
depository institution was expanding geographically by cherry-picking such groups and not
serving low and moderate income areas adjacent to and between the cherry-picked markets.^
I would bet the Subcommittee would want to know why the regulator was allowing that to
happen. And yet this is exactly what many credit unions are doing -- just imagine what a
map of these credit unions' markets would look like.

In some ways it is even more disturbing that community-based credit unions -- credit
unions whose field of membership is based on a town, a county or even an entire state -- are
under no obligation to serve low and moderate income neighborhoods in their service areas.
These credit unions are virtually identical to a community bank. And in some cases - like

178

the Illinois credit union with a nine-county field of membership and $1.2 billion in assets
you mentioned in your invitation lener - they look and act like large banks. But they have
no CRA responsibility.

It will come as no surprise that this situation is more than a little irritating to bankers
on the front lines trying to make credit available to their entire community. But there is
something more important than just our irritation, and that is that our communities arc
being short-changed by not having all financial institutions involved in meeting the local
credit needs. Without shared and equal responsibilities, our communities are less wcU served
than they should be.

Credit Unions Are Fast-Growing, Full-Service Financial Institutions

Credit unions have cleady become ftill-service financial institutions - they offer
virtually all the products any community bank can offer, and more. For example, credit
unions offer savings and transaction accounts, CDs, auto loans, personal loans, mortgage
loans, business loans, credit and debit cards, ATMs, telephone banking services, financial
planning, IRAs and Keoghs, investment products including mur\ial ftinds, and insurance
products provided by CUNA Mutual Insurance Co., a CUNA affiliate. In fact, through
CUNA and its affiliates, even small credit unions have the ability to offer a full line of
products and services. And, in the latest affront to the common bond, some credit unions
are developing shared branch networks.

Credit unions also have federal deposit insurance and a tax exemption to boot. In
fart, given their tax exemption, it would seem that credit unions should be first in line for
application of CRA responsibilities. But despite the fact that credit unions are virtually
identical to banks, they continue to say that proposals to bring credit unions under the same
type of regulatory standards as banks and thrifts - including CRA, accounting treatment of
deposit insurance contributions, and federal taxation -- are "misguided" and lack an
"understanding" of the purpose of credit unions. Let me assure you, Mr. Chairman, that
bankers understand all too well that credit unions offer the same services that banks offer and
have lower regulatory costs. What we don't understand is why they are unwilling to assume
the same high commitment to their communities.

179

Simple economics tells us that firms with low regulatory costs will be able to grow
faster than firms with high regulatory costs. Further facilitated by the dissolution of any
meaningful common bond, this is exactly what has occurred. During the 17 years since the
passage of CRA, credit union assets grew at an average annual rate of 1 1 .6 percent, while
bank assets grew slightly less than 7 percent per year. Over the past ten years, the disparity
in growth rates between banks and credit unions grew even wider -- between 1983 and
1993, the average annual growth rate of credit union assets was 11.3 percent, more than
double the 4.7 percent average annual growth of bank assets.

This rapid growth means three things. First, the competitive advantages of credit
unions and the erosion of the common bond do indeed have a very real impact on their
ability to compete with banks. Second, credit unions clearly have the means with which to
help meet the credit needs of the communities in which they are located - including low and
moderate income neighborhoods. And third, differences in regulatory costs are driving
communities' fiinds fi-om banks to credit unions and othen without equal regulatory
requirements. This means that, slowly but surely, less funds are being reinvested in local
communities.

The credit union industry argues that it is so small in comparison with the banking
industry that the difl'erences in regulatory costs are unimportant and that there is little to be
gained by including them under CRA. That is simply not true. In local markets, individual
banks compete with individual credit unions -■ the relative size of the two industries is
certainly not the relevant faaor in this head-to-head competition. And in many local
markets, it is the credit union that is the biggest competitor. For example, my branch in
Enid, Oklahoma -- with about S21 million in assets - competes with the Tinker Credit
Union which has over $780 million in assets.

Examples like this are common. Ta.ke the IHinois credit union you mentioned in your
letter of invitation - at $1.2 billion in assets, it is larger than 98 percent of the banks in
the state. You would have a hard time convincing the 21 banks with assets less than $50
million serving the Peoria area that Citizens Equity Federal Credit Union's exemption fi-om
CRA does not have any competitive impaa. The lower regulatory costs of that credit union
enable it to attraa funds away from these local banks -- making these funds no longer
available for CRA-type lending. The bonom line is that Peoria -- and communities across
the country - would clearly benefit from the application of CRA to credit unions.

180

Applying CRA to Credit Unions is Feasible

Application of CRA to many credit unions would, in fact, be quite simple using the
same approach as is applied to banks. The bank regulators have recognized in their CRA
proposal that one-size does not fit all in applying CRA to banks of different types and sizes.
The same would be true if CRA were applied to credit unions. As you found in your state,
Mr. Chairman, there arc ways to apply CRA to credit unions.

For community based credit unions, application of CRA is simple -- it should be
exactly the same standard as applied to banks serving similar markets. The potential
customer base is identical; the services provided are identical; and the regulations applied
should be identical too.

For many non-geographically based credit unions, the approach could be one that
emphasizes services and investments, along the lines of the proposed CRA rules applicable
to wholesale banks. For example, they could make investments into community-development
credit unions or other non-profit entities sending the low and moderate income communities.
They could invest in securities issued under low and moderate income housing programs
being developed by Fannie Mae, Freddie Mac and others. And there are certainly hundreds
of other projects targeted to distressed areas that would benefit fi'om active participation or
investments by credit unions. For those larger credit unions that string together many
common bonds (a practice we believe goes beyond the intent of Congress), certainly there
could be a requirement to reach out and include some low income neighborhoods. For an
industry that prides itself on meeting the special needs of particular groups, creativity applied
to CRA investments should come naturally and, in the process, provide a real contribution
to our communities.

Farm Credit System Lenders Should Be Included Under CRA

It would also seem quite simple and straight forward to apply CRA-type reinvestment
standards to Farm Credit System lenders. The Farm Credit System (FCS) is a government-
assisted, tax-favored. Government Sponsored Enterprise (GSE) that has retail outlets that
compete directly with banks for certain types of business. Over the years, FSC has sought
to both increase the volume of farm loans and to offer a wider array of financial services to

181

a broader clientele than just farmers and ranchers. And there is evidence that the Farm
Credit System is targeting above average income, high net worth customers and ignoring the
marginal customers it was intended to serve. Shouldn't they have responsibilities to their low
and moderate income communities?

CRA Should Change with Changing Financial Markets

As this Subcommittee is considering which institutions should share in the
responsibility for reinvesting in the communities from which they draw their funds, we
believe it is important to look at the significant changes financial markets have undergone
during the 17 years since CRA was enacted. Today, banks hold a much smaller portion of
the total assets held by financial institutions. In 1977, banks held about 35 percent of
financial assets; today, banks hold only about 23 percent - a reduction of more than one-
third.

70%
60%
50%
40%
30%
20%
10%
0%

Other Rnandd InstHution* ■

It simply makes no sense to
place the entire burden of
community reinvestment on an
industry that holds less than one-
quarter of the financial assets in this
country. Without a broader

approach, the natural result will be
to drive more and more funds from
banks to those with no responsibility
to reinvest in their communities.
That is why these hearings are so
important. Without a broader
approach, not only banks, but our communities will suffer.

Market Share of Assets,
Held by Financial Institutions

Thrift Institutions

1975 1980 1985 1990 1994J

Soura*: now or Ftftdt

■ IndudM: CUi. kn. Co^ P«vlm. r*mt»Cm, UFt, UHFt, KEIT*, ft
SaortyCoa.

We have already discussed the necessity for including other dirert community lenders
like credit unions and the Farm Credit System. But a quick look at the numbers shows that
investment companies, securities firms, insurance companies, and pension funds currently
control billions of savings and investment dollars drawn out of conununides across the

182

country. Yet they do not have any obligation to channel these funds back into these
communities.

I know that these nonbank financial service providers will complain that they are not
dirca retail lenders and do not have a specified community and, therefore, cannot feasibly
participate in community reinvestment. Yet these same firms, which are growing very rapidly,
offer saving and investment produas that compete directly with banks -- and they arc taking
bigger and bigger bites out of community savings without any thought of reinvestment.

Moreover, banks certainly do not have a monopoly on community lending. Just as
financial markets now offer greater options for saving and investment dollars, financial
innovations have also made nonbanks very active in traditional bank lending markets.
Consumers and businesses looking for loans today often turn to nonbank sources of credit.
For example:

► six of the ten fastest growing credit card lenders are nonbanks

>■ banks hold less than half of total consumer installment credit outstanding

► the two largest residential mortgage loan originators - with almost $1 billion
in originations in 1993 - are not banks

► two large securities firms -- Merrill Lynch and CS First Boston -- are gearing
up to enter the large corporate loan market

► finance companies have become increasingly important business lenders -- the
ratio of finance company business loans to bank commercial and industrial
(C&I) loans has jumped fi-om 25 percent in 1980 to 67 percent today

► commercial paper has given many business borrowers direa access to investors
funds - the ratio of commercial paper to bank C&I loans has grown fi-om 13
percent in 1980 to 33 percent today

My point, Mr. Chairman, is that these nonbank financial providers compete head to
head with banks for both funds and loans. They are successfully attracting significant

183

resources out of communities across the country - but they are under no obligation to
reinvest those funds back into the communities from which they are drawn.

It is important to note, as mentioned earlier, that there are many special purpose
banks -- such as credit card banks and wholesale banks -- that must currently comply with
CRA. These banks have very active programs even though they do not have delineated
communities and do not engage in retail lending. These institutions have found innovative
ways to make a difference in their communities, and so can nonbank financial institutions.
For example, some large wholesale banks invest in private non-profit mortgage companies
that make loans to low and moderate income borrowers. This type of targeted investment
could be an effective way for financial service firms without retail community- based offices
to participate in community reinvestment.

Conclusion

Few regulatory issues raise as much emotion as CRA. The hearings today will
certainly raise the level of the debate along with the blood pressure of credit unions and
other nonbank competitors. These institutions will no doubt be resistant to the idea of
being covered under CRA. But having siphoned billions of dollars out of communities,
shouldn't they have some responsibility to return something back to these savers and
investors?

Massachusetts has afready decided to include credit unions under CRA, and has
demonstrated that applying a similar set of regulations to banks and credit unions is, in faa,
quite feasible.

We believe it's time to take a fresh look at the CRA treatment of credit unions at the
national level. Since 1977, the so-called credit union movement has evolved into a fiiU-
scrvice competitive industry. We hope, Mr. Chairman, that you and members of this
Subcommittee will carefully examine what credit unions' responsibilities for community
reinvestment ought to be. We think that you will reach only one conclusion - credit unions
should be included under CRA.

184

HOUSE BANKING FINANCE
AND URBAN AFFAIRS COMMIHEE

SUBCOMMITTEE ON CONSUMER CREDIT AND INSURANCE

CHAIRMAN JOSEPH P. KENNEDY. II

Testimony of the
CONGRESS OF RELIGIOUS CREDIT UNIONS

Presented By
George T. Farrell
National Director

September 22, 1994

185

TESTIMONY

The cooperative credit union movement was born in Europe
during ttie mid 1800^. The first credit union was organized in
Beigium in 1848 during a period of severe economic depression. At
the same time, cooperative credit societies were being developed in
Germany to provide a self-help vehicle for the shopl(eepers, urban
workers and farmers who had been forced to pay usurious rates
charged by the area money lenders. These societies were
democratically controlled, all capital came from the savings of the
members, and they were open to voluntary membership. The credit
union system crossed nautical borders through religious institutions.

By 1900, the financial cooperative idea had traveled to Canada
and In 1909, the first credit union was organized in the United States
by Saint Mary^ Bank. This first religious based credit union proved
so successful that by 1935, thirty-eight (38) states and the District of
Columbia had laws permitting the establishment of credit unions and
over 3,000 were organized.

In 1934, Congress passed the Federal Credit Union Act "to
establish a Federal Credit Union System, to establish a further market
for securities of the United Sates and to make more available to
people of small means credit for provident purposes through a
national system of cooperative credit, thereby helping to stabilize the

186

House Banking, Finance and Urban Affairs Committee

Subcommittee on Consiuner Credit and Insurance

Chairman Joseph P. Kennedy, n

Pages

credit structure of the United States." The Act set the basic structure
which governs Federal credit unions today.

If we read this paragraph again, the terms "people of small
means" and "for provident purposes" hold the most meaning. Fifty
(50) years later in 1994, there is a structure for low income people
and minorities in America to establish a "national system of
cooperative credit."

Chairman Kennedy, according to the National Credit Unions
Administration, the definition of a small credit union is one with less
than $2,000,000 in assets. Approximately 580 of these are religious
based credit unions ("RBCUs"). Altogether, there are 2,000 small
credit unions. These credit unions operate with dedication and a
competent staff of volunteers. Of these 2,000, 1,400 are without
computers and are therefore not prepared to meet Truth in Savings
legislation, and face termination of their charters through excessive
regulations. Community Reinvestment Act ("CRA") regulations would
be a knockout punch for small low income and minority credit
unions.

Chairman Kennedy, my point is that applying current Community
Reinvestment Act legislation to Credit Unions would significantly
decrease the availability of financial services to low income and

187

' House Banking, Finance and Urban Affairs Committee

Subcommittee on Consumer Credit and Insurance
Chairman Joseph P. Kennedy, 11

Page 4

minority communities by eiiminating through excessive and
unnecessary regulation the very credit unions in iow income and
minority communities, this goes against the spirit of the NCUA Act to

"malce more available to people of small means credit for provident
purposes".

Chairman Kennedy, I, as the National Director of the Congress
of Religious Credit Unions, and my members across America
sincerely appreciate your interest for people of small means and we
know that your intentions are good. Therefore we wish to suggest a
less expensive and more effective way to provide credit by expanding
development of depository financial Institutions. A community^
problem can best be solved by that community.

Chairman Kennedy, the members of CRCU offer the following
solutions for expanding credit to low Income and minority
communities:

1. The NCUA must develop a training and certification
program which concentrates on developing successful
loan programs for the operation of full service safe and
sound credit unions in low Income and minority
communities.

188

House Banking, Finance and Urban Affairs Committee

Subcommittee on Consumer Credit and Insurance

Chainnan Joseph P. Kennedy, 11

Pages

The NCUA currently has no meaningful outreach program
for the chartering and improvement of minority and low
income credit unions, and the Community Development
Credit Union Office has a staff of three (3). CRCU deems
the NCUA staff inadequate in number to respond to the
technical needs, both education and training, of well over
805 religious based and low income community
development credit unions.

CRCU currently administers a program geared specifically
to provide continued education and training to religious
based and low income community credit unions.
Presently, this program is funded by the participating
credit union. Consequently, program participation is
limited by a credit union's ability or inability, as is often
the case to pay for contractor services. CRCU has
developed a program to expand its technical support, visa
vie education and training, to religious based and low
Income community development credit unions, which can
be funded from the NCUA operational surplus currently
projected at 50 million dollars. CRCU suggests that 10% of
the NCUA surplus be used to fund outreach and training
programs.

189

House Banking, Finance and Urban Affairs Committee

Subcommittee on Consumer Credit and Insurance

Chairman Joseph P. Kennedy, II

Page 6

3. The SBA must extend the small business loan Guarantee
Program to Credit Unions. CRCU is developing a program
that uses the current SBA loan document guarantee
program as a model. If this Program were expanded to
include credit unions, the SBA would have an additional
12,000 loan outlets available.

4. Through the Community Development Financial Institution
Act of 1994, the new Community Development Fund must
actively seek out existing low income and minority credit
unions for equity inspections and deposits.

Chairman Kennedy, the purpose for expanding CRA to Credit
Unions is to expand credit to low income and minority communities.
However, CRCU feels that this can best be achieved by allowing
minority and low income communities to develop their own safe and
sound depository financial institutions through the credit union
structure. The suggestions of CRCU involve expanding unused
resources with funding that is in place, and using existing oversight
powers of Congress to ensure that this mission of expanding
services to low income communities is completed.

190

Congress of Religious
Credit Unions

Dedicated to Religious Basal Credit Unions
and Community Based Credit Unions

191

HOUSE BANKING, FINANCE AND URBAN AFFAIRS

COMMITTEE

Subcommittee on General Oversight,

Investigations and the Resolution of

Failed Financial Institutions

CHAIRMAN FLOYD M. FLAKE

Testimony of the
CONGRESS OF RELIGIOUS CREDIT UNIONS, INC.

Presented By

GEORGE T. FARRELL
National Director

September 16, 1994

192

CONGRESS OF RELIGIOUS CREDIT UNIONS
Washington, D. C. Area

WELCOME!

Dear Colleagues:

WELCOME to the Eighteenth Annual
Congressional Black Caucus Legislative
Weekend, "Embracing Our Youth For A New
Tomorrow".

Our youth are our future and we owe our
children financial security so that they may
have life, liberty, and the pursuit of happiness
as guaranteed by the Bill of Rights of the
United States of America.

Please take the time to review our
testimony and case studies which present
workable solutions to establishing strong,
insured, depository financial institutions in
African American communities across America.

Sincerely,

CONGRESS OF RELIGIOUS
CREDIT UNIONS, INC.

George Farrell
National Director

193

MARCH, 1958

"Well it has been said ... that
Negroes too often buy what they
want and beg for what they need.
Negroes must learn to practice
systematic saving. They must also
pool their resources through
serious cooperative enterprises.
Such agencies as Credit Unions,
Savings and Loan Associations,
and finance companies are needed
in every Negro community. All of
these things that would serve to
lift the economic level of the Negro
which would in turn give him
greater purchasing power. This
increased purchasing power will
inevitably make for better housing,
better health standards, and for
better educational standards."

DR. MARTIN LUTHER KING, JR.

194

1994- 1995
Dade County, Rorida

CRCU'S APPEAL TO THE COMMUNITY

"Let us take the collective
wealth of the communities and
keep it in the communities to
provide financial services to
meet the needs and priorities
of the communities. Let us
form our own financial
institutions that will respect
the people and businesses of
the community, address their
economic health and provide
economic justice in the
dispensation of credit."

B. THOMPSON, REGIONAL DIRECTOR
CRCU, INC. • SOUTHEAST

195

The cooperative credit union movement was born in Europe during
the mid 1 800's. The first credit union was organized in Belgium in 1 848
during a period of severe economic depression. At the same time,
cooperative credit societies were being developed in Germany to provide
a self-help vehicle for the shopkeepers, urban workers and farmers who
had been forced to pay usurious rates charged by the area money lenders.
These societies were democratically controlled, all capital came from the
savings of members, and they were open to voluntary membership. The
credit union system crossed nautical borders through religious institutions.

By 1 900, the financial cooperative idea had traveled to Canada and
in 1 909, the first credit union was organized in the United States by Saint
Mary's Bank. This first Religious Based Credit Union proved so successful
that by 1935, thirty-eight (38) states and the District of Columbia had
laws permitting the establishment of credit unions and over 3,000 were
organized.

In 1 934, Congress passed the Federal Credit Union Act "to establish
a Federal Credit Union System, to establish a further market for securities
of the United States and to make more available to people of small means
credit for provident purposes through a national system of cooperative
credit, thereby helping to stabilize the credit structure of the United
States." That Act set the basic structure which governs Federal credit
unions today.

If we read this paragraph again, the terms "people of small means"
and "for provident purposes" hold the most meaning. Fifty (50) years
later in 1 994, there is a structure for low income people and minorities in
America to establish a "national system of cooperative credit."

196

The Congress of Religious Credit Unions, Inc., hereinafter referred
to as CRCU, is dedicated to providing technical services, training and
education, solely to religious and fraternal based credit unions. At
present, we are conducting our activities from Washington, D.C. and
Miami, Florida.

As the trade and professional organization for Religious Based Credit
Unions (RBCUs), we represent and protect the interests of the members
of the Congress of Religious Credit Unions before the National Credit
Union Administration.

Our mission is to develop stronger credit unions through training,
information and services; to provide aid in the formation and chartering
of new Federally insured credit unions; and to advise the religious
community of available economic and financial opportunities.

The teachings of the Christian faith are quite clear with regard to
those in need. Assisting others is a central part of the message. The
story of the Good Samaritan is one of the most familiar parables of the
New Testament. The legal summary "You shall love the Lord your God...
and your neighbor as yourself." Need we ask who is our neighbor?

Churches have begun to responding to the needs that have become
so apparent in our times. At one time, churches were sending out
missionaries to other countries to answer calls for relief from famine,
flood or natural disaster in other parts of the world but now we are seeing
problems of hunger, homelessness and poverty on our doorsteps. We are
truly learning in these past three decades that "Charity begins at home."
Churches are doing more and are recognizing how much more still needs
to be done, both in terms of meeting the immediate needs of those close
to us and by supporting better public programs so government can
respond more effectively.

197

People of faith today are beginning to question sonne of the root
causes of the problems we face. Why so many homeless? Why so many
hungry? Why aren't there enough jobs? They are beginning to ask if
there is not more that can be done with the structure of our economy to
solve these problems - to cure the disease rather than just to alleviate the
symptoms.

Twentieth century good Samaritans must marshall a new kind of
power - power to build counter-structures that effectively challenge
unjust social structures.

The question is no longer limited to those of our 'neighbors' who are
in desperate straits -- actually homeless and hungry. It is now a question
for middle class Americans who seem to be losing their share of the land
of plenty, and for their children who can't seem to get a start on a decent
job and a home of their own.

Something is wrong with the structure. We cannot keep supplying
band-aids, like good Samaritans, without questioning the system that
generates these problems. Why doesn't our society give a fair and equal
opportunity to all? Why can't it extend enough help to those who have
not had as much of a chance to get started as others have had?

To talk about root causes of hunger and homelessness today, or the
lack of adequate employment, career and business opportunities,
affordable housing and health care, is to raise questions concerning the
basic structure of our economic institution. What can we do to create
social and economic structures that will restore the opportunities that
were once available in our society. How can we create a system that will
offer people who are now being left out a place, something to work for.

198

something to live for? How can we empower the economically powerless
so that they can become participants in the prosperity enjoyed by others?
How can we prevent more and more people from falling into the
expanding class of the economically disadvantaged?

We all know that the churches have actively supported civil rights
and other social justice programs. They have also developed programs
to meet the needs of their "neighbors" who are hungry, homeless and
unemployed through direct services. Beyond this, however, there is the
question of economic justice; the issue of equitable access to available
resources resulting in a reduction of inequalities based on income, wealth
and power.

Where Churches have provided free lunches (and will continue to do
so), we need jobs so that people can support themselves. Where
Churches have provided shelter (and will continue to do so), we need
affordable homes that people can own. Where we now have minimum
wage jobs (and will continue to help people get started), we need career
opportunities. It is in this area that the Church is seeking to chart a new
direction.

ECONOMIC JUSTICE INITIATIVES

"ECONOMIC JUSTICE" is defined as equitable access to available
resources resulting in a reduction of inequalities based on race, income,
wealth and power. When we talk about economic justice, however, we
are talking about the empowerment of people. "EMPOWERMENT" can
be defined as actions or bpportunities which allow, encourage and
develop the ability of those who are powerless, oppressed and/or left out
of the decision making structure to make decisions, to determine actions

199

and increase control of their own economic destinies. Economic
empowemnent is a matter of having control over your means of earning
a livelihood.

Inasmuch as the economic initiatives discussed here constitute a
challenge to the prevailing practices in our economy, it is all the more
important that they be undertaken by Church groups. Such groups
constitute established economic powers in communities and it takes
"Power" to bring about change.

To be successful, people from churches who are involved in the
search for economic justice must "make community" with people from
other religious groups and with like-minded people in society. We should
seek ways to work together, enhancing rather than replicating efforts. All
efforts should be geared toward the positive support of empowering
institutions which exist in our communities. This will require an
understanding of the connections within and between communities, and
the willingness to act in partnership with others.

Church people are themselves based in a community which can put
its energy and resources behind an economic justice project and this
means that they can be effective participants in the process of
community renewal.

If directed toward areas of great need, the financial resources of
religious communities could make a significant difference in economic
development. Many congregations are in areas in which economic
development is severely hampered by the lack of available capital for
business ventures. The religious community will make a tremendous
impact by placing their investment capital into their own Federally insured

200

financial Institution where a significant percentage of its funds could be
devoted to economic development in their region. Churches will actually
be creating jobs in high unemployment areas.

COMMUNITY DEVELOPMENT CREDIT UNIONS

THIS IS THE MOST DYNAMIC ECONOMIC JUSTICE STRATEGY
FOR MAKING CAPITAL AVAILABLE TO INDIVIDUALS AND GROUPS
WHO HAVE BEEN LEFT OUT OF THE ECONOMIC MAINSTREAM TO
FOCUS ON THE AVAILABILITY OF CREDIT.

The credit union is a financial cooperative. Members pool their
money in order to make it available on reasonable terms as loans to other
members. Savings and money management are encouraged. The modem
credit union provides all the services associated with other financial
institutions: certificates of deposit, IRA's, checking accounts (share
drafts) and credit cards.

Credit unions are organized on a cooperative model; one
member/one vote, regardless of the number of shares a member has. The
board of directors and the major committees are made up of volunteers
elected by the membership.

Recently the National Credit Union Administration recognized in its
chartering process a special type of credit union designed for lower
income communities: the community development credit union. Such a
credit union extends the opportunity of credit union membership and
services to low and moderate income members in a specific geographical
community. It provides specialized financial counseling and education
programs to its members.

201

The community development credit union also has a mandate to
assist in the economic development of the community around it. It
specializes in home improvement loans from its own assets as well as in
conjunction with other lending institutions. And, it offers loans to
members involved in the start-up or recapitalization of businesses. In
both ways it contributes to the economic strength of the community and
to the creation of new jobs. It can work together with community
development corporations, community land trusts, housing cooperatives
and worker owned businesses to help finance these enterprises.

Normally credit unions may accept share deposits only from those
in their field of membership. However, since credit unions with a majority
of low income members might not have sufficient assets to do much
community development lending, especially in their early years, the
National Credit Union Administration allows them to accept non-member
deposits. These deposits can be from corporations, foundations,
churches, low-income loan funds and private individuals. Often these
deposits are made at lower-than-market interest rates, which enables the
credit union not only to maintain reasonable interest rates for its members
but also to earn income to cover its own expenses. Non-member
deposits permit a credit union to capitalize more quickly and to assist
more effectively in community development projects. Deposits of up to
$100,000 are insured in Federally chartered credit unions.

Unifying, the religious communities can eliminate the "underground
economy" consisting of loan sharks, high interest check cashing shops,
neighborhood appliance dealers and furniture stores offering inflated
interest rates. Pawn shop collateral loans and bars that run a tab and
then cash checks for fees between 12% and 20% of the purchase price
would also be eliminated.

202

The church itself can assist community development credit unions
by making longer-tenr^ deposits (trust funds, building funds, etc.) and by
uniting and encouraging all members to join and make deposits.

Small to large congregations must seek to work with other churches
and community organizations to get things done. Not only can't you do
it alone, you don't have to.

203

STATEMENT

There can be no meaningful economic empowerment or development without
strong, safe and sound depository financial institutions to aggregate and re-
circulate a community's capital.

CONCLUSIONS and SOLUTIONS

1. Religious institutions across America, particularly African
American Churches, must unite and form both multi-group
assoclational credit unions and community development cred'rt
unions that provide full financial services in a safe and sound
manner. Assistance from the Congress of Religious Credit
Unions (CRCU) is available.

2. Religious Institutions with religious based credit unions can
and must increase their fields of membership by expanding
their charter to include other nearby churches and/or their
surrounding communities. CRCU assistance is available.

3. The Small Business Administration must extend the small
business loan low document guarantee program to credit
unions. CRCU is developing a program that uses the current
SBA loan guidelines. Expanding SBA programs to credit
unions would increase available SBA lenders by 1 2,000.

4. The National Credit Union Administration (NCUA) should
increase the limit for business loans from Fifty Thousand
($50,000.00) Dollars to One Hundred Thousand
($100,000.00) Dollars to spur business lending.

5. NCUA must implement programs for the development of
minority cred'rt unions. This program can be funded by using

204

ten (10%) percent of the operational surplus projected at Fifty
Million ($50,000,000) Dollars for fiscal year 1994. There are
currently no outreach programs targeting the minority
community for starting or improvement of minority credit
unions. CRCU has developed outreach programs for minority
credit unions.

6. African Americans must stop saving and banking where they
cannot borrow and support Community Development Financial
Institutions where they can.

7. African Americans must stop doing business with the financial
rapists in our communities. This includes borrowing from
pawn shops and cashing checks at liquor stores and check
cashing outlets; dealing with furniture and jewelry stores and
even credit cards with high rates of interest. These businesses
remove cash from our communities and fail to re-circulate our
dollars.

8. African Americans must be willing to endure sacrifice in
developing Community Development Financial Institutions. We
are not discriminated against because we are Baptist,
Methodist, Catholic, Episcopalian, Muslim, CME or AME. We
are discriminated against because of the colors of our skin.
We must be willing to unite across religious beliefs to solve
our common economic problem.

9. Affluent African Americans must realize that when it comes to
financial services, they are still likely to face discrimination; rt is
therefore in their interest to assist in the development of safe and
sound minority depository financial institution. A Gold card is not a
business loan.

KEEP GOD RRSTI

205

CASE STUDY
CREDIT UNION FORMATION

Prince Georges County, Maryland, a suburb of Washington,
D.C., has the highest median income for African Americans in
the United States. The county is also 51 % African-American.

Even though African Americans are relatively affluent in this
area, there are only half as many depository financial
institutions when compared with a neighboring, predominantly
white county. According to the Washington Post of August
20, 1 994, the neighboring Montgomery County, Maryland has
318 bank branches while Prince Georges County residents
have access to only 165 branches. This lack of financial
institutions translates to lack of funds for investment in the
county. <

To resolve this problem, the residents and churches in Prince
Georges County are forming their own Community
Development financial institution known as the First Combined
Community Federal Credit Union.

Led by First Baptist Church of Highland Park and under the
direction of the Congress of Religious Credit Unions, the
formation and Chartering process has begun and a Charter is
expected by January, 1 995.

206

CASE STUDY
CREDIT UNION FORMATION

Dade County, Florida has the fourth largest international banking
community in the world, yet has the fourth highest poverty level in
America. Obviously, money is not circulating through to African-
American communities. <

CRCU • Southeast Regional office, along with the Metro-Miami Action
Plan (MMAP) and Southem Bell began unifying entities in the Northern
area of Dade County with an Economic Empowerment Conference in
December, 1 993, at the Hyatt Regency - Miami. The regional director of
the National Credit Union Administration (NCUA), representatives of the
NCUA Board of Directors, regulators and lawmakers attended this
conference. The credit union message was heard by representatives of
the communities of Dade County, including the extensive religious
community. As a result, we have succeeded in uniting ten (10) churches
of different denominations, eleven (11) corporations inclusive of Southern
Bell, volunteers from the Greater Miami Chamber of Commerce, three (3)
employee based credit unions, and most important, commitments to
support and participate havd been confirmed in writing by two (2) major
banks.

Since August 24th, there has been a tremendous amount of discussion
within the community about the "Overtown" project and the withdrawal
of two (2) major banks from the "shared bank" planned for that area.
Hope for equitable economic access is at an all time low. In Overtown,
the promise of a bank has caused community and religious groups to be
hesitant about participating in the Community Development Credit Union
in the belief that adequate banking services to their communities would
follow. This promise has delayed their participation in the implementation
of this self-help, economic initiative. Community leaders are now calling
for inclusion of their community in the field of membership of the CDCU.

207

We are well into the chartering process. Surveys required by NCUA to
determine the specific needs, community participation and support for a
credit union began in January, 1 994, and are continuing as our field of
membership increases to encompass groups that were slow to hear of our
efforts. Committees are writing the policies and procedures based on
community priorities and needs; the Directors, credit and supervisory
committees have been defined and our target date is January, 1995.

Metro-Miami Action Plan (MMAP) has pledged Two Hundred Fifty
Thousand ($250,000.00) Dollars for 1995, and Two Hundred Fifty
Thousand ($250,000.00) Dollars in 1996, to support the payroll cost of
a professional staff. Legion Park Medical Center has contributed Five
Thousand ($5,000.00) Dollars for technical assistance and has committed
a second Five Thousand ($5,000.00) Dollars to assist with the translation
of print media and distribution of information to the Haitian, Hispanic, and
other foreign bom residents.

Ken Robinson, President of the National Association of Federal Credit
Unions, has arranged a mentor/partner relationship with the Dade County
School Employees Credit Union who will be donating desks and
equipment in addition to a pledge of One Hundred Thousand
($100,000.00) in Twenty-Fiye Thousand ($25,000) Dollar increments to
be loaned in the community. Mr. Robinson has indicated that at least two
other employee based credit unions serving the Miami area will be
pledging long-term deposits. Chartering is expected in January, 1995.

In the very immediate future, CRCU will assist in the training and
indoctrination of community members who will be working with the
professional staff of the credit union. Southem Bell is partially funding
this educational module. Training will also be provided for loan officers,
tellers, customer service representatives and new accounts personnel in
conformance with credit union policies.

208

CASE STUDY
CREDIT UNION REVITALIZATION

In 1 992, the newly appointed manager of Bethel AME FCU called
the Congress of Religious Credit Unions, Inc., for assistance.

The NCUA Region II Head Examiner was preparing the results of an
annual examination, a job usually not performed by the Head
Examiner. Since this was the new manager's first examination, he
asked if CRCU personnel would attend. We agreed.

During the examination, the NCUA Examiner placed the Credit Union
under a "Letter of Understanding and Agreement" (LUA) with
unreasonable performance criteria. CRCU protested the
unreasonable positions and had the LUA restructured. CRCU then
began the work to remove the LUA.

Under the capable guidance of James Tibbs, $22,000.00 in
delinquent loans were written off as uncollectible, and the rebuilding
began. The loan portfolio was analyzed and successful loan
products expanded. A mentorship with Aberdeen Proving Ground
FCU was started through the CRCU "Union to Union" Program. All
Supervisory and Credit Committee policies were reviewed and
updated. Capital has increased from two (2%) percent to eleven
(11%) percent.

In less than two years, loan productivity has increased by Two
Hundred Thousand ($200,000) Dollars and non-member deposits
are expected to reach Three Hundred Thousand ($300,000) Dollars.
Church members are rediscovering their credit union.

During the next two years, the LUA is expected to be removed and
the credit union will go from a part-time to full-time service.

209

SPECIAL THANKS

Honorable Congressman Royd M. Rake
Honorable Congressman Kweisi MFume
National Association of Federal Credit Unions

For Membership Information:

Congress of Religious Credit Unions, Inc.

10306 Eaton Place, Suite 200

Fairfax, Virginia 22030

(703) 691-0233

17210 N.W. 64th Avenue, Suite 1 10

Miami, Florida 3301 5

(305) 557-6656

210

LIST OF ORGANIZATIONS AND/OR INDIVIDUALS ELIGIBLE TO JOIN
TINKER CREDIT UNION

400ara Army Quraon

0&r RaMTvt Qroup

A&JInduOTM

AAROMtfioriM, Inc

AccoF«M« 2100 S Robinson

V R«An«r (aflilati of Ctana Ccrponiion)

Men Bradtoy Company (now Mian BndeynOK MaTtatcs)

Aicha and Om*9 Salon

Amarion EiMrgtr 8»Mn (l<mMriy Amalean Sun A'otKiian (nc )

AnMneanLagil3<ryc«t tic (••ef^t-PudLe^ServicM. he

Am«tcanLtM«l Mg. Co. (ateoread by MacMenbtrg Duncan)

AnMncan MiMMrtt ComfMny tK.

Affl«i«an Rad Croat. OMUMmaCoumyCnapMr OMa. City

Ammean Sun n'otadon. Inc (now Amarle«i Erwrgy Savwi)

Anaeomp (nn U.S. Dak Corponton)

Arlngten MMnory Gardww

Ancfaflftlntari

ArtitrHntaFad

Arww ^M and Supply Company

ZtetiatDaBSanAc*

AcaoaiaM Aro S«nnc«

Batur URSyatMiM (was K0eE)(n9w TncoduUnwBtla dyaiMTK)

Batar'tfttnlno

eafrall1MI«t.lne.

Ban MMnolal Hospital Employaa*

Bala Ma PUnbing, Haamg and Af ComtttonnQ Company

Benhm Orof). The (OKC & Tula)

Batwiy KtaHam CoRagt (now Soulh«m Nazsana Unvarwty)

Bitcn NkoOMi n«die1l (now Tvia Intvnatcnal 1-88)

Bkreroadouung «(CKH-tvz5)

Boardnfian Company. TIM (noM TBC Fabncaion mc)

Bry«n, Mka. ORca Supply

BuToui^ C«mp«iy Raanrt

Butiv Pvv Coniiany

Caffi'a Cc0aa Company

Cam Cocra Byawnt. he . (now Cam pbaii Bmenige 4 - 1 068)

CampbHIBaMraga

C«n(fd Cdcr ayiwni

CaptM CapcrMw (Saa >Vn«ncai Fnt CorporabonXXOSED

CbpM Paptr Company (Now ZaUar/eKft)

C«ra« PeM Buanaai School IDchaon d Tiita. he.)

Carpanlv Pipar Company

CafWorFMtyLoNa Okarcna.OK

Canir<ri Tooing LSB Indutvias)

CanuyMlfttl J(^ Supply, he

Cankry mnMng Company

Channal4.KFowTV

Channal9.KMnv

CtMrokaa Color lYaas

CtMyanna Parolawn Companv

CH afciaan Oamond Roduete (now Nonpn OrsBfiMn inc i

Ctromalioy Am«ican Coporaaon

Cnircn oltna Savtcr Oay Cv* Caiur

cay o( Ada

Citf (< M cny ( EmpMytM)

CKyolEanend

CnyofEntd

CkyciMoora

MdNBst Cllv

4/gOTN^EH

OKC

TNO)

MO<T«

10-16-64 TM®

OKC

MOTtKSI

OKC

10-15-86 Tf«CS<

TNCEH

Snawwfc

OK.

iWiJWm

OKC

6/78TN<EP

OKC

Aimtvm

OKC

2-17-67 TNCBl

OKC

6/7BT*KB(

OKC

3/7STN<a

OKC

2-18-86 TN(a

OKC

4«0TN(B)

OKC

TN<a

OKC

e/nTiKB)

OKC

TNXBi

OKC

1-17-64 TIKB)

Nomar

10-16-86 Tff«(BR

OKC

7-2i-en»KER

VWMadand

12/79 TNO)

OKC

TNOn

OKC

TTKBt

OKC

12/76 TMCBt

ElM

10-15-65 TfKB)

OKC

\m'n¥B\

OKC

8-16-63 TfKB)

OKC

juxm

WoodMTd

ytDmoBi

OKC

IflOTtKB)

OKC

10/76 TNCB)

OKC

TH^m

OKC

wtiHfm

OKC

n¥m

OKC

1-00-76 TWKB

Tdaa

&-00-«OTtJ<Bl

Ttiaa

4/66 TKKB)

OKC

TtKBf

OKC

1IM3)

GKC

vn<m

OKC

2-1»-«T»«B»

OKC

iMcm

Olorche

2-18-66 TfKHi

OKC

3-24-81 TWO

MdnettOty

5-15-64 TWB*

OKC

TN(B)

OKC

yUfBi

OKC

IHVB^

OKC

Tt#0

OKC

^mvnfB>.

OKC

THCW

OKC

TN(0^

OKC

S/TBTN^e^

Ada

4-19-66 TN(9t

DalC«y

TN(Bt

Ednond

7-16-86 T»KW

End

VMXBi

VtoiT*

2-17-87 T»KH^

211

:itv ot NOTnan CmoovMki

vJiHC Fnart (now rwry Filer:

CiMn S«vtc«. mc

CWm«Tt» Fooo* Company

CMvWtnd Coiny EmcK^Mi

Ci<v«iandC«untyPnv«t* nousry Cotocu

C(»y«Mna Coumv *'ou»i & Familv O^nw inewv Cte« Co Riwaw Ind Coi«icii!

OVI Can>oriilon

Cddroncumtxr Inc

CammarKta Arcrtft

C«n(i/n«rs KM. mc («'t I itTu 7)

Coon Ctnm (««« Fcrd Otrtouina)

Ccr»-3aB StucftfM d OWahoma Oty

C<»ff<w»-8mllhR«aupqr««(on. »ie (nowSnwhFrt SuoorMtion)

Coswcranindutrws. mc

CoKConsmjcBon.E.V

Cr«(tt Bmui (OKC RmiIw;)

Cronnwiri.hc

Cuiunnt CoMueton Company, he

Cutloni ntittnfl

C. H. ^Mmmf Company

OmaCovcnbon

OMOOMfiMdM. mc

Dm*. Mi«n E.. and Sons

M PunMvMlMtrng

CMk DwMlPhn of OMahoma

DimcoftmtInQ

0«m«a^^owCoap«r ntutttti. mc

□ickmtcnarTt*a.lnc d/lACarMrPcMBuMnauGchooi

0M« Motor Company

OiwMad enployM tiamno

OonEckdTypatMktg

OonJamMCemiany

OougiNrly^aM fm Haymakw Rett)

OulMWVi. me

Dun A Bradttvat Pian 3«rMea«- OKC •mpioyM* only

Eartnan OfMRiaan tanxrty Na«i)i Ctftsanaan)

Elton Corpvribn - siaMriaa Ham

rasCO (tapNca ttm Maro-IVN*. mc.)

a Oomto Chamiari iS8 Muttwt)

Qactonc OleMon SyatMtu. m«.(OKC ft Tutaa)

ELSLanMga Canlv (USAUngwga Setioot)

EM8C0 Baeme Supply Company, mc

EiMaFimttfa

Ew9^ian Mla« mc.

Ewiraaa Samoaa (OK Tamporary SwvKatAtM Exraas Sarvcat)

E . V C«R Ccnwueton Company

Rarm BuaaM mnnnea (OMUwra)

FmaMHEnoMmo

Fim Bap«« Chirch. mumm cny

RritUta Aaarawa (9«a Aminean FntConeraton)

n«cKBaarmoCo..inc,'ma

namng Cempny. mc. (OKC OMaicn OM.Y)

FordAutfoA^daodyaiHnt. mc.

F«M DiaMtwIng Company ( now Cocrc Ccnrtf)

roiiutm Tmm^ ftMTIIa^i

Fox Atayv Chig C«.#CS. CO. W MO. «id LA)

RraymaMr DvtMna me

ftcnur Food S«>«ca»te<ao>manigum«»Ra»<r Food Saraca)

^cnocr f^miva, mc

OMrtaM Cogny OMea EmptoMtc

Qina ONan Compwiy »w«y Qraan Oraplai e-«»)

Qannl Mofen and SMriHa Companaa

QHMon » ProdUM Compviy 01 OKC. and M City ft N. MacArnr . OKO

Ooba Color f¥aai (Mntaia) MOWwfti CommuMcatan C.UJ

GoMw Waal ttoadCMm - KAUT Chamal43 (KM RoMmg Taiaeartng)

OoMmar Corponton

Oaoa PaMawn Conpwiy

«aai SouVwnat OinM Lat>(lcniMfiy H«liig» of Okfenema Danial Lab )
a«anQrapM(

Cmin TalaMMen - KWTV Ctaraiai 6

Quamtay.C H. Company (Ma CH Quvrway)

Ck« Staam Awoapaea (toraiartv nocttaaii mwTMMnMi

Ouico mcbamaa. mc (ptrchaaaa mgram mc Emp aoSBD)

GuyH JamatlnduatMs

M&R Block (Ooaad)

Mammon Engnaanng unimiwd mc mai Enwonmanai &g Q.OSH)!

HirrnFard.A(««r

Han noiatial 3i«iply (LS8 mduwias)
Haymaaw (*a»a (nowOouawty fta«)
Hanaga CoKT Praaa (noM Htrmga MMa Oaonb

Nonnan

01;

tH&

OKC

Of-

to/76 TN(B4

End

1 < -20-M TiKBt

OKC

6-17-86 TNW

Nonnan

6-1 7-66 TfKER

■fH&

Ncmaf\

«/78TN<ER

OKC

yrmwsR

OKC

*80rN(B?

Bamanv

^2-14-«TNOT

OKC

tO-2»-aiTN®

OKC

♦WTNCB

OKC

TNOT

OKC

SffJTflOT

Pauls Vall<>y

3-22-»4 TN(B»

OKC

TfKSl

OKC

TN(B«

OKC -

TiKBI

End

ie-i»-«4 niKB\

OKC

TN(S)

OKC

AfntHcm

OKC

3-00-76 TNO

OKC

4/7BTN(B1

OKC

IMCB^

OKC

1-17-841110

OKC

9-16-aOTIi(e»

OKC

T»K5(

OKC

S/nTVKB)

1-1»-99Tl«a

OKC

3/78TN(ER

Nomun

7-20-93 TNCa

OKC

3/7eTN(B4

Norman

11 -15-83 TNCW

OKC

T»KB?

OKC

6/76 TNSR

OKC

n-i6-»TN(B<

OKC

TVKBI

Shawna*

11 -16-80 TM(BR

OKC

Tf«B<

OKC

3-24-81 TM<W

OKC

7-00-77 TNCK

OKC

12/77 TNOER

OKC

amnt(m

OKC

4/76 TIKB)

t1 -17-87 TNflBH

Batamy

4/76 TMER

OKC

mB\

OKC

enoTH»

OKC

TNOn

OKC

XHm

MdMmtOiy

10-21 -80 THKBI

OKC

TNO

OKC

6-l«-««TN(Bt

OKC

S-1S-S4TNW

OKC

*m-n¥m

OKC

4/70 TN«R

NonTMn

7-1 7-84 TH®

OKC

lO-lS-aTN0

Batartaid

2-22-04 TtKBt

OKC

vnm

OKC

n¥m

QvfaidCo

0-17-86 TN(ER

OKC

TN«

OKC

12/77 TN(m

OKC

10-15-66 TllO

OKC

■nt&

OKC

3-20-64 TIKER

OKC

4/78 TKKB^

OKC

TNCB<

OKC

4AUTfKER

OKC

««TN(B1

OKC

5/77 THKB^

OKC

4/nTtK5)

OKC

vnVNCBi

OKC

4/76 THOT

OKC

T»«H1

OKC

12-17-86 IH(B)

OKC

7/»TiHB'

OKC

1 -17-64 TMra

OKC

8-16-80 TiKW

OKC

nMCB)

OKC

Tlt^CEP

212

nviBpe V OMuyxna D«nlai L«>«r«icry(Now Kjmx Muiwrasi Ovm lW)

H«iBo»P«rkMMiulC«ner mc

Hibocn Tr* C«nNr he.

htRon trn NcrtivwHt MOT A hEMBB))

Ho»yt«K C«n>M Mm (AfiMwiio « natonaa «mDK))f»«!i

H(MM«<iAs»oca»(«MH(NWil Witjw irtd SfUfpi

ho«M(l. \Mb« (no StMTp (now How*« « Aetocaiasi

Hudstig Oi*vrcl«|. Inc

Hugo Sal Contrvvion S«fvic« (cm Sai Consarvation S«rvic«i

HyAil Con^wiy

H E L»onh«rmLumbr Compsny

IUPr«u(Qottcn

InduatTtI AtVerjsing AsjocaHon (.SB indusres)

intvratonti crym MKviacutng Qc

mwrnatcoil Enviroonwntai ISB Irxhrtr*; >

inttrnalonaJ Umon o« Oiwraing Engneers Loeal #1 760

jaekMiOMTty

JactCt Sotmk* Commny o( Ow U.S.. Inc

JtcKsonPrMs mc

Jam** Company. Don

Jama*. Guy H . inaunia*

JaKO FVoducts. Inc

Jfn Cox Company

JonnL$M(.O.O.S

JonaH Aacord PutiUihing Compmy

KAi;! ChuvM 43. RcOhs Tdaeastng («aa Go<dsn We«l eroadcastng)

KBCO.hc

Karr MbGm Corpcratton - Ounvtght and 8«mnaM Plwre

K»T MeOae Corporaton - W/nrwwood PW«

Krrray, ki«

Kng DitTtMing Company

KOeE (now Batnr Uft 8yxt«n)

KOCO-IVCAbivwIS

KOKH CtMnMl 25. Bhr BraedcMtngfnot on K net)

KTWOw«Ml4

KiAw EriMpriaaa he (Hous* of TobaccoXQoaad)

KWIV OMnM S. Qran Tala^Mion

Laar Slaglar, he.

LMWky (CaniTMreW Lov«lae»~man)«d to oanaral membtrAip)

Lao Oppanhatn & Company. hc.(aM Anuricana Fnt Corporaton)

LSS CompuHr Ccrponlon tSB Incustta*)

L88 Extwion and FormfiQ Company 4^ hdustiat)

LSBhduahat

Uanbannan't hvaamantCaperaton

LiOSpaealty Company, he

LMBwifvCo

MMManbvo-Owean Company

Maffma Club BMng OtTM*

MMMCatar.tK.

«M-Wri Eiwalopai lonnarly OMMwitm EnvMopa MkntAetmng)

Mwtoy one* SKVty (nargad MtlMMIca »yan Offica Supply)

Maaaay OnpNc* and MMtathg («ai Th« nint Shop)

Mrtiarly Maehanoa Mftvty. JMk)

Mtt(M»WR<edueh.he

McAiamr Haami Efflployaat (McAlaalv R«9onal Ho«Mtl)

MaadMvehaM (nowZiAwAaehs-iseB)

MwcwyfVaai.hc.

Ma*-o-fy»aa. he »>o»tasCO)

MdMM OV h<i«*«l Cerpormon (Mtf^ad to G<n«ral Mwnb«rMpl

kMNMtOalyM

Moo* Yoirtt and Fanlly Sarvice

Moimon ^ntno Company

Minad SMrna, he

Nrtenal f^a-PaU Lagal 9«vleM el MaHtalppi (»•• Pre-Pak) Lagtl Ovvicat. he

NalonalF^a-FUdLagalSarvKM. he (saaR-o-RildLagalServicas mc

Natcnal Wabb («ms RbrIxmi Cotor Pr*»)

Nln«y-Vr Haa«v» O'cup

Norman CRy Employvn

Nernian Radonal Hoapllil EmployMS

NoirtefceraiMn.hc

Ncnir\« WeridiMa 8«r<ac« he

NorthMMlDalaun. he. howNonhwMNisan me)

Ner«iNaatl««an.hc

Norton OnatHiaan he (NowEaatnarCtristHiMnio/e/as)

l«B hduatiat (Qoaad)

Nimay (OWahoma Un«n Sarwca)

OWtfKMia Aarotwaca. he

OtMioma Bar Aaaoewaon enpioyaat

OManomaaoodinaltuia

OWahema Chrtaaan AcMMny

OtMioma OvMan Cdlagi

OKC

4«>TN<B^

MwwattOr

4/78TN<EP

OKC

ta7STN(EP

OKC

TM(B)

Anaoamo

3-ffi-«4 TfKER

CKC

•n¥S\

OKC

3.76 TTKS!

MoMenOty

4/76 TN<Bi

Hugo

TN<B5

OKC

8,78T»|<EP

OKC

Amn¥S{

OKC

TN<B^

OKC

3-24-81 TNCB1

OKC

0-16-80 TMtffl

OKC

J-J'-eiTfiKm

Aretnore

12ff9TN(B»

OKC

Vt¥S{

OKC

12-20-63 TN<K

OKC

TKKER

OKC

TM(B1

OKC

TNCER

OKC

e/7ST»KB^

OKC

lO-lb-«6TN<ffl

OKC

THKBK

OKC

12ff8TN<Bl

OKC

TN^a

OKC

^myt¥S\

SamhAOrumn

AWTfKm

\Wym«wtiod

12/79 TNtBI

OKC

11,76 Tf«5i

OKC

•n¥m

OKC

TiM<e)

OKC

iownn(&

OKC

rt¥B>i

OKC

1/78 TtKB

OKC

8/77TIM<B1

OKC

TTKB^

OKC

4/7eTN(B1

OKC

TfKB

OKC

TN(9I

OKC

3-24-81 TNtffl

OKC

3-24-ei TNltB\

OKC

3-24-81 TH<S\

OKC

2-00-79 TN®

OKC

11 -20-84 TVfOn

OKC

3-03-78 TFiOB

OKC

3<7BTN(B)

OKC

10-1 5-86 T»*<a

OKC

TH(S\

OKC

TfKa

OKC

10-21 -80 TN<»

OKC

TNOT

OKC

TTKER

OKC

l/781»Kei

OKC

rt¥B\

OKC

■n¥B<

OKC

JH&.

OKC

yto-n¥S\

OKC

THm

OKC

TN(B4

OKC

7-l5-80TM<»

Mooe

e/78TN<51

OKC

TNtei

OKC

7-Z0-9aMHfm

2-17-87 T»Ka

OKC

2-<?-8rTN(H?

OKC

T»Kff

OKC

TN<B1

OKC

T»K&

OKC

TtKB?

OKC

TNOSI

OKC

TfKBI

OKC

3/78 TfK&

OKC

TtKBH

OKC

TfHEP

OKC

8-00-78 TNCEB

OKC

^77TN<EB

6-17-86 TNCEB

OKC

12-15-61 TNtBl

OKC

11/77 TtKR

OKC

' -JO-W VNfB^

OKC

TMCff

213

OMtnomi otji houung Aunon^

OM«iom« City f)«tiiMrt Aun (Cr*dRB<rMui

OMKxxnt Cny UiMraty (OCU)

OManoma Qv liban Laagu*

OManonu County C^Ur al Amenun Red O 0$;,

OManonu Qterul Supc<y (OESCCi

Okunonu &w«iop* Mnuteuvtg (Ncm Mail- yv«d EnvaicoK*

OWtfxma F»n) Bir aui Mukjii ins Cg bnp (not on 92 le'u

OMahoma Hautng Aulxnly

OWahoma Homing Fianc* AgwK>

OManoma Un«n iiwvKt (NuW«v;

OlWwma Mcr^jiQt C«npa«y

OMaftoma N*o9»o Comcany mow I«t» rmrmionfti 10-16-89)

OMahoma rKnet AMOcaton

OManoma PhwrnaeauBtai Assoaalion OKC

OManoma Rmi Oppvumat DovvKxnem Copornon (OfiO)

OMahonia SocW Sacuity R«crprarts inmo olhv C.U. svvicm avalibtoi

OMahoma Tanpovy Swviea me (<lbtt Excrass S«rvKasi

CMaeh Fnanoal ConMratcr

ORO fOMahoma Rual Oppcrunnas Oawiopmant C<Tc<nton)

0«car Roaa j Cotaga (Now Rote 3W*i

Paddock Pod* 9>aKtil P. Paddock)

PBtn-WaKUmiM (Fantaa«< Sam •) (Ctoiad)

Patfciavnn Ofltea Pvfc ParMnnp (ao««<(

PEBGCO 7\jUjc EmptoyMa Banato S«vic« ConwaDon) (Qoaad)

Parry Fim fcrnwly daaac FUirtiiaa Ar RtftNT

P«rol«um Mvkaara & Paroiawn Eqmmam

PH Slop U« A («M UMd Comspft^

nafMtSOMl.tnc.

Polar Amvican (now Amancan Italtarc)

Pt*-PM\jt9lMlmlritnias.lK rMePr«-MdLagalS«n«c«s.lnc

(^•-^idLagalCnjaRy.ltK (Maft«-PaldUgMS«rvicas kvc

rv»-PaWL»gal 3«>«:«L he o» Honda (••• f¥»-BBWLaoal Scnieae. Mc

'^•-PKMljagriSarvieaa.tK.flBsadinAda.OK w/7 atiMittoiM & 22 SM»s)

mnttr'i Bindary Swic*

^dacacnal one* Mvwgwnam. Ine

F^Me Supply Company

OunnandAMOCwtaa

Ridnbo Baking Conpuiy

Ranbo Color ftaaa <nowNaUnB< WWli)

Ralaton Pima (pat lood plant «fflptoy««c. Edmond)

narar Foods (WW Pronttr Food S«rvK«)

Rockwal mamftoral (nowQUr 8»aam AaraapKa)

Roina TOaeaMno C OMatem

noa* SMa Colaga f om«1y Ok* Rom Jma Cckag*)

Relax Company (.88 httisrao

R.K. Black, he.

SONMb Miat Company

S«nco Colv nats

SknplaxDimRaecrdcr

Siratt Fra 6^t)r«t«on (f»% Conrfn- ^nm

anrt) JndMtMS, he

dmtti Robrk and AasodaM

Snydv and Oompiny

Social SaeiltV Rac^MMi (OK vi>>no otfier C.U aarvieaa avaltaMa)

Sol ConaMvMonSwiea - Hugo

3au«Nm Nbmm IMvarMy (MM eatwiy NnrsM Colaga)

SouVwMiGMMaMnKaeimg he

$0UtMMtF«d,he

SoUhMiMi Tcviara & Eqipmant LLC

3pun BaWdga Company (Harang and A« Condtlonngi

Sart(.&.JChn.O.D.S..hc

Saiatcal Compuftig Carar (now Farni e<raau MitMl haynoi on 82 M)

Steal Stwiy Company

SiMto BroDan Miohh* and MWOng

9l*MntFcrd(fl£.hc)

Otmmn. W h Ccmoany

3«k/9kip

SMpftinw, he.

Sunmtl »*e(m» Tod M»nulae»«>g Carp USB lniJu»»»si

Taylor Oil Tool*, he

TBC P«nsatcn. he MM Boaronan Co '

Taamskn Local Uion M8e (S«e atbcnao tor axcluaoRSi

Tamp-Saia he (racovai

T«ra Ctiamieala hn . he eitonNirogani

Taiea nmaaonal Company

Tna« itiMmilionai Peroi<im CorrKratior

tha Prrt Shop howMatiay grepmes & Mvkatng)

Thomw Conerrta Products (»•« Ccr»- Slab Srucijras d OKC

imaa Jctrnal PiMtfang Convuny

Tinker Autsmatad Scxeae Core

OKC

7-77 TNtER

OKC

TN(EP

OKC

TN(£R

OKC

T**<jm

OKC

TN<ER

OKC

7.78 TNCER

OKC

7,79 TNiSi

OKC

' -21 -h\ THKEP

TtKEB

OKC

10ff6TNCei

OKC

277TN<EFi

OKC

6-\«-6«TtKEP.

OKC

10-00-79 TNCEB

OKC

TWB<

OKC

S -29-66 TTKB!

OKC .

2fnJt(B\

OKC

TWB?

OKC

TN(^

OKC

9-18-64 TN<5)

OKC

rm&

OKC

OK *

TNCK

OKC

7/77 TNCW

OKC

9-16-64 TN(B<

OKC

3/76T»KBn

OKC

1/77 TNtB*

OKC

10/76 TN<B1

OKC

Of.

S/TBTNQBt

Nonnm

TTKBI

OKC

Tl«EP

OKC

1079 TNCH?

OKC

3/7BT»KER

OKC

2-17-67 TWCB?

OKC

2-17-67 TNCB

n<noa

2-17-67 TN<B<

Adi

2-17-87 T1KB1

OKC

TfKBI

OKC

10-15-8BTIKB)

OKC

l/TBTNfflR

MMwttOty

3/76 TN(S

OKC

4/78 TN(B)

OKC

TN(ER

Ednond

7-17-64 TN®

OKC

rVKBt

OKC

3mTH(m

TtKBI

OKC

\H&

OKC

3-24-61 TNCat

OKC

11 -15-68 TM®

OKC

i/nntfm

OKC

TtKSt

OKC

10-15-66 TN(Ht

OKC

S/7BT»KB«

OKC

11/79 TN<a

OKC

10-16-84 TN(B4

OKC

BATNCBl

OKC

11/76 TN(BI

Migo

«aOTN(B^

CKC

TVKER

OKC

10-21-80 T»KB»

OKC

1 -17-84 TWKW

OKC

5-16-63 TI«(B)

OKC

ii/7»TN(Bn

M<taMla^

4-00-76 WKB?

OKC

4/76TN(ER

OKC

vn-n¥S\

OKC

iar7TN<ffi

Elid

8-17-WTI«ffl

OKC

TN(a

OKC

TMCB)

OKC

TtKBI

OKC

3-24-81 T»KB1

OKC

12-16-60 Tt«(B^

OKC

10/76 TN<eR

OKC

2-20-90 TNtei

OKC

7-00-77 TNte)

OKC

TVKBI

OKC

10-00-78 TN<BH

CKC

6/79TM(HI

OKC

TNO

OKC

5-15-64 TN<B

OKC

T1«BR

OKC

1' -16-90 T»KB^

214

'inKV Fnancial S«\KW
TirMr Ffwicial 8«vtc«s inc

Tirtm Invannara 4 Mng^;* cvp

rfnk« SirvicM Coti

Tray Oittcuing Company

lom HCKh Mvior D*a9ts. nc

ro6i P«rolMm tmt ^ck«n Pttottum)

Towv Printng ComDiny

ToMilty's Ctey Comoany Inc

7Mbon*ICt Compwiy tS8 lndus»Mt)

Tri-CnyWv*hauM me (CloMd)

Tn-oty Vout> a Fwnily C«ffle'

TrKO SiixntnM* Symrm Hcmarty BMur UH 9y<«ms)

Tim«r Ptvano Equpm«nt fCka«<<)

Unarco Conufiarciii froductt

Unon EoJiiy Ce-oparatv* Exenange

LMon Local #eee.Q«fMralOnwt OaultwrM & Hciwt mot on 03 IRQ

Union Paciflc flaaoircat Co (MasC^amdln)

Urii P»« Company

UrttadConeapti.kKfnt Stop USA)

Uniad Fouidwi Uk Iminnea Comoanytnow Prowetv* U)« Int.

Unrt*dPireatG«rvte*(Ure)

Univ«rtiV or CanM OtdtfKina

Urljan L«9Ja et (^MMr Otdahoma Cny, he

USAUnguao* Setiooi <MM S^ Languaga C«ntv)

U.S. ^nny Qvriwn #4003

US OMCcrptiowANACOMP)

U£. Diaecwit MbcNm Tool Excnanoa ISB Mus»ms)

VicMri Parotaum Ccxp (now ToW ParoJaum)

Voxftrtng

WNt Colmcnoy Corporaion

Wal-Tav Inc

W««Nnn 0«k« Madeal Camtr

Waawit Papar Coimany

\MMrdQ.Boena.CPA

WWameOavIa and Sent

WtnitowAaaocMtat. Ine

WH.SlwwtCoiKMfiy

Yeutfi 3«rvl«M ror OMhonia County, mc.

ZaIDr/Bach (aaa Caia^l Papar Conpany)

OKC

TlhKEP

OKC

11 -16-93 TN<e«

OKC

It -16-93 TN(&

OKC

11 -16-93 TMtSt

Snawnaa

6-19-80 TtKB^

Ednonc

6-17-86 T»KB(

OKC

12/79 TN(S^

OKC

TWBi,

OKC

4/7eTtKER

OKC

'tt«<^

OKC

3-24-81 TKKB?

OKC

U(T6T»K»

Choe»v/

•»-l5-eOTIM<EP

CKC

TtKEP

CKC

TTKER

OKC

jm-nvm

EnW

2-20-90 T^KER

OKC

2-20-90 TN(B1

OKC

VNKBi

OKC

n-OO-TBTNOI

OKC

11/76 TfKHI

OKC

1076 TN®

OKC

7-17-94 TfKER

TN<B^

OKC

8ff7TI«KBt

OKC

t2/77T»KW

OKC

TNCB4

OKC

1/78 TN<S?

OKC

3-24-81 Tt«ffl

Aramor*

12/79 Tt«B)

OKC

TtKffl

CKC

1/7eT»KB4

akCii»

e-l6-94TlN<»

OKC

11 -19-86 TWHI

OKC

TN(B)

Ctioetiw

9-ie-«>TN(B4

OKC

»nTN(Bt

CKC

2-17-87 T1*<B(

OKC

4/76 TIKB)

OKC

3/7BTN(BR

OKC

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BOSTON PUBLIC LIBRARY

3 9999 05705 6531

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ISBN 0-16-046797-7

9 780160

'467974

90000

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Full text of "Community investment practices of credit unions : hearing before the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, One Hundred Third Congress, second session, September 22, 1994"

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