A recent rule change proposed by the National Credit Union Administration could hurt minority-owned credit unions and their members.
At its September board meeting, the NCUA issued a proposal to
Credit unions applauded the overall proposal because it would give them another potential source of secondary capital. But one provision in it is causing some credit unions grief.
The Treasury established terms of either 15 or 30 years for the ECIP, but the proposal would allow such funds to be used to meet risk-based capital requirements for up to 20 years from the date of issuance. The 20-year cutoff effectively means that credit unions could only employ the 15-year option with the Treasury funds.
Limiting credit union participation in the ECIP to 15 years runs contrary to the “clear and unambiguous” intention of Congress when it created ECIP with the Consolidated Appropriations Act of 2021, said Bill Bynum, CEO of the $411 million-asset Hope Federal Credit Union in Jackson, Mississippi.
Bynum said Congress wanted to revitalize, and provide long-term investments in, low- and moderate-income communities.
Bynum estimates eliminating the 30-year option would exclude nearly 200,000 residents of Southern states from being assisted by Hope FCU through the ECIP, and more than 150,000 of them would be people of color. As many as 6 million people would be excluded nationwide, including up to 2 million people of color, Bynum said.
“We are simply asking the NCUA to update its rules to align with congressional intent" and make the ECIP available to community development financial institution credit unions and minority depository institution credit unions for 30 years, as the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have done for banks, Bynum said.
Bank recipients of ECIP funds do not face those constraints, and certain banks have the option to utilize these funds in perpetuity, Bynum said.
MDI credit unions, most of which are smaller and much more likely to serve members of color than other financial institutions, would lose out on the opportunity to leverage the low-cost capital to grow over time, he said.
NCUA Chairman Todd Harper said in an email that providing MDI and CDFI credit unions with access to emergency capital is imperative for helping communities across the country to successfully emerge from the pandemic.
He stopped short of saying the NCUA is still looking at the loan-term limits, but indicated the regulator is “actively working on guidance for credit unions to be able to take full advantage of the Department of the Treasury’s Emergency Capital Investment Program and the suite of terms they offer.”
But organizations that represent Black- and Hispanic-owned credit unions say the issue must be addressed.
The African American Credit Union Coalition, the National Association of Latino Credit Unions and Professionals, and Hope Credit Union said in an Oct. 1 comment letter to the NCUA that a primary objective of ECIP was to close financial service gaps in communities of color and others hit hardest by COVID-19 by providing vital capital infusions in the nation’s most vulnerable communities.
“Unfortunately, by limiting ECIP investments in credit unions to 15 years, NCUA’s action has the unintended consequence of undermining the intent of Congress that the appropriated funds promote financial inclusion and reduce longstanding racial and economic disparities,” the groups wrote.
The groups said the rule could limit the impact of the ECIP program to being just one-third of what could be achieved with a 30-year investment.
They cited an analysis of 2019 mortgage lending in Mississippi, where 36% of the population is Black but only 11% of Home Mortgage Disclosure Act-reported loans made by the state’s CDFI banks went to Black borrowers. By comparison, 83% of mortgages originated in Mississippi by Hope Credit Union were made to Black homebuyers.
“Limiting credit unions’ ability to maximize the benefit of ECIP will have dire consequences, perpetuating disparate access to capital for businesses and homeowners of color, and widening a racial opportunity gap that undermines America’s economy and overall stability,” they wrote in the letter.
Both of the largest national credit union trade groups concurred.
Greg Mesack, senior vice president of government affairs for the National Association of Federally-Insured Credit Unions, said the group is concerned about the impact the rule would have on low- and moderate-income communities.
“Ultimately, failure to accommodate 30-year ECIP investments authorized by Treasury will compromise low-income credit unions’ ability to leverage ECIP funding over a longer period to benefit disadvantaged communities,” he said. “We will continue our outreach to NCUA to urge them to make revisions to the proposed rule.”
Likewise, Luke Martone, senior director of advocacy and counsel for the Credit Union National Association, said the NCUA is hampering credit unions’ ability to serve members and has put credit unions at a competitive disadvantage to banks participating in ECIP because banks have no similar term limitation.
“We will be sharing our concerns in a comment letter in response to the subordinated debt proposal that addresses this [ECIP] issue. Further, since this issue is of such importance we are hopeful the NCUA will consider addressing the issue soon, potentially even before the comment deadline,” Martone said.
The ECIP was created to encourage low- and moderate-income community financial institutions to augment their efforts to support consumers and small businesses in their communities.
Treasury said that as of Oct. 18, 203 credit unions, banks and savings and loan holding companies requested total investments of more than $12.88 billion under the program.
The NCUA’s subordinated debt rule was finalized in December 2020 and will take effect Jan. 1, 2022.
