SECTION: IN THE NEWS

LENGTH: 1367 words

HEADLINE: PREPARED TESTIMONY OF
CAROL ARANJO
CHAIRPERSON, BOARD OF DIRECTORS
NATIONAL FEDERATION OF COMMUNITY DEVELOPMENT CREDIT UNIONS
BEFORE THE HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

BODY:

Thank you for the opportunity to testify today. I represent the National Federation of Community Development Credit Unions, an association of 170 credit unions in 40 states that have a special mission of serving low-income American communities and consumers. The great majority of these credit unions could be categorized as "small" or "very small": the average CDCU has assets of less than $2 million. But often, these small credit unions are the only source of affordable financial services to low- and moderate-income people who would not be able to get loans, receive direct deposit of federal benefits, and save at any other financial institution.
We are very concerned about some of the measures that the National Credit Union Administration has taken to implement the Credit Union Membership Access Act (formerly, H.R. 1151 ). We fear that the agency's regulations, taken together with growing sentiment in some parts of the credit union industry, will put small credit unions on the endangered list, and create unfortunate and unnecessary hurdles for community groups trying to start and maintain new credit unions that serve predominantly low- and moderate-income communities.
Historically, the Federal agency that regulated credit union also worked to establish and charter new credit unions. After the credit union movement began to pay for federal share insurance, that assistance in forming new credit unions began to change. Emphasis on protecting the insurance fund became the priority. During the late 1980s and early 1990s chartering of new credit unions dwindled to a dozen or less each year in the entire United States. From the end of 1989 through late 1992, no new federal charters were issued for new credit unions to serve low-income communities. NCUA's policy seemed to have become, "larger is better" and in fact, NCUA's Regional Directors did not grant charters to small groups, especially small community groups during that period On the contrary: They involuntarily merged or liquidated many of the small and community development credit unions operating in their areas.
Starting in 1992 and 1993, NCUA, under the guidance of Board members D'Amours, Bowne and Swan, reversed that pattern and began chartering credit unions again. Instead of liquidating or merging small credit unions, NCUA developed a system of assisting them in solving the problems which plagued them The Office of Community Development Credit Unions was created, and it has been instrumental in helping subscriber groups to obtain new community charters and in helping small credit unions solve their problems. Its work is fundamental to the success of small credit unions, and we believe that it ought to be made permanent.
We understand the need to preserve the National Credit Union Share Insurance Fund But that ought not to get in the way of doing all we can to help small credit unions thrive In the past two years, it appears as though the NCUA Board has reversed directions again and is now selling off (through "purchases and assumptions") and merging small community credit unions to larger credit unions who covet their field of membership. NCUA no longer liquidates these credit unions, as it used to, because their field of membership has become quite attractive to larger credit unions, especially since the 3,000-member- limit for expansions instituted under the Credit Union Membership Access Act.
I attended the December 17, 1998 Board meeting of the National Credit Union Administration at which the agency's new field-of-membership and chartering manual were voted on, and I was distressed at what I witnessed. Board member Yolanda Wheat made the motion and the Board passed by a vote of 2-1 to limit new charters to groups of at least 3,000 members. stating that credit unions with less than 3,000 would create a safety-and-soundness issue I would urge Mrs. Wheat and the NCUA Board to research the thousands of small and viable credit unions already in existence. They would see that many of them have served memberships of less than 3,000 for thirty or more years. Many credit unions have started with 500 members and are doing a fantastic job of serving the poor and underserved in their communities. Under NCUA's rationale, these credit unions could not today get charters, and may be in danger of becoming victims of involuntary mergers.
We hope that Congress will provide some protection for these credit unions, preferably in the form of federal legislation. It is extremely difficult for many small community credit unions to operate in an atmosphere of uncertainty. At NCUA, will it always be "a new Board member, a new direction"? Will small be o.k. today, but passe tomorrow?
We do not believe the intent of Congress was to limit small groups or companies with less than 3,000 persons from the self-determination that comes with creating their own credit union. Credit unions have historically been tools of the working poor to better their economic condition NCUA has imposed an extra burden of proof on prospective credit unions with a potential of less than 3.000 members: these groups will have to do more than would larger groups to demonstrate their "economic viability. But the hurdles that NCUA required of groups less than 3,000 in order to have their own credit unions seem unfair. Those who have the smallest pool of resources would have to compete with those who have the greatest pool of resources for a charter Today. as some of the documentation attached to my written statement shows, it can take anywhere from two to five years for a community development credit union to get chartered.
Small credit unions and community development credit unions are not generally' considered as candidates for mergers with each other NCUA apparently prefers to attach them to larger credit unions who are interested in taking in new credit unions as a means of growing Communities of lesser wealth are generally allowed small, distinct geographic areas, which tend to make it harder for them to grow and be successful. They generally are not allowed to include more affluent geographic areas on their borders into their field of membership -- yet they manage to survive. On the other hand, credit unions from more affluent communities are encouraged to include lower wealth areas into their field of membership This is class bias in fact or appearance We believe the intent of Congress is to provide an equal opportunity for all citizens to have their own credit union or to seek the service of already established credit unions It is not the intent of Congress, as we see it, for NCUA to make it harder for some and easier for others, we, the credit unions that make up the National Federation of Community Development Credit Unions respectfully request that this Committee consider working with us to permanently protect the right of the working poor to have their own credit unions and to maintain those credit unions despite the attitude changes which seem to continuously appear within the NCUA Board.
I have enclosed with my written statement several documents that illustrate our concerns.
These include:
1 Correspondence from the organizing committee for the proposed lmani credit union in Memphis. Tennessee, which has worked for years to establish a faith-based CDCU. The letter contains important recommendations about making the chartering process more efficient and user-friendly for small credit unions.
2 Correspondence from Ms. Florence Mells, one of the organizers of the proposed CREMS credit union in Early County, Georgia, which has been working since December 1091 to obtain a federal credit union charter.
3 A copy of a letter sent to credit unions in the state of Massachusetts by Chip Filson, president of the widely known firm of Callahan & Associates, proclaiming "The Need for Mergers" of small credit unions into larger ones.
4 An editorial from Credit Union Times, entitled "Some small CUs do a disservice to members"
An article from Credit Union Journal, entitled "Divided Board Leaves Agency's Small CU Program in Limbo."
Thank you for this opportunity to address the Committee
(NOTE: Arcticle not transmittable) END


LOAD-DATE: February 4, 1999