Inclusiv: Proposed CRA Rule Doesn’t Help Credit Unions Enough

Credit union advocacy group says new rule won’t provide sufficient support for low-income and CDFI credit unions.

The proposed rule updating the Community Reinvestment Act (CRA) does not go far enough in assisting low-income and MDI credit unions, Inclusiv, a trade group representing CDFI credit unions, says.

“The proposed rule includes many needed updates to modernize the CRA and encourages banks to provide grants and loans to and investments in CDFIs regardless of geography—a critical change that will increase investment in historically disinvested areas,” Inclusiv said, in a draft letter circulated to its members. “The proposed rule, however, falls far short in other key areas, including in its approach to racial equity and its lack of support for MDI credit unions.”

Background

Credit unions are not subject to the CRA, however banks that are can get credit for assisting low-income and CDFI credit unions.

Congress passed the reinvestment act in 1977. It was designed to push banks to meet the needs of their communities, including low- and moderate-income communities. Federal banking regulators enforce the law by conducting examinations. In 1995, the law was tailored in an effort to account for different sizes and business models.

The FDIC, the OCC and the Federal Reserve issued proposed updated rules for the CRA in May, after abandoning an OCC proposal that was issued by the Trump Administration. Comments on the proposed rules were due on August 5.

Inclusiv Template Letter

Before the deadline, Inclusiv circulated a template letter that its members could customize and submit to the agencies seeking comment.

In that template, the group said that given the CRA’s failure to meaningfully address discrimination, it is appropriate that activities supporting such institutions as CDFI credit unions and Low-Income Credit Unions would be counted in a bank’s evaluation.

It suggested also that the agencies broaden the definition to include state-chartered credit unions, as well as Puerto Rico’s cooperativas—credit unions chartered by the island’s government—saying, “These institutions are insured, held to a rigorous standard of supervision and should be eligible for CRA-motivated loans and investments on an equal footing to MDI banks."

Inclusiv stated further that if banks are not willing to make mortgage loans without reliance on credit scores, the CRA should encourage banks to work with credit unions willing to make those loans.

In one specific comment letter—patterned after the Inclusiv template—Aissatou Barry-Fall, CEO of the Lower East Side People’s Federal Credit Union in New York, said that throughout its history, the credit union has worked with banks that received CRA credit for those efforts.

He added that when the credit union was forming in 1985, it was able, through the CRA, to get a former bank branch rent-free for three years and a deposit to provide the institution with seed capital. In addition, the credit union has consistently received non-member deposits from several banks.