Credit Unions vs. Banks: Whose Numbers are Right?

That rumble in the street you’re feeling is the West Side Story tap-off commencing to get underway between credit unions (aka “Jets”) and banks (aka “Sharks”).

Banks made the opening finger-snap foray into the fray, using numbers to claim that credit unions did a poorer job serving middle- and low-income people. Credit unions responded with the Jazz Hands of “Nuh-uh” – and came armed with numbers of their own that said pretty much just the opposite.

And then there was a bunch of singing, some guy named Tony gets shot, and then Maria cries.

The GAO was called in to weigh in on the debate – specifically to decide whether credit unions deserve their tax-exempt status. From where banks are standing, credit unions shouldn’t have tax exempt status, since they no longer serve people of “modest means.”

Its findings, released this month, highlighted marked growth among so-called "community" chartered federal credit unions, which, unlike those designated to serve a particular group, serve a "well-defined local community, neighborhood or rural district." (Bank advocates say credit unions use this charter to vastly expand their operating areas.) At the same time, the report suggested, credit unions lagged behind similarly-size banks in their efforts to serve the poor.

One of the issues that’s causing some lag time in the successful resolution of the debate: there isn’t firm or accepted definition of “modest means.” Nor is there a standard way to measure this variable. So, for its study, the GAO used the Federal Reserve’s 2004 Survey of Consumer Finances — what it called "the most recent available information on the income of credit union members" — and found that "credit unions continued to lag behind banks in the percentage of their customers or members that were of low- and moderate-income households."

<!–PAGEBREAK–>

Using that information, the GAO stated, "Our analysis of the 2004 SCF indicated that 31 percent of households that only and primarily used credit unions were of modest means versus 41 percent for households that only and primarily used banks."

Of course, the National Credit Union Association took offense and issue with not just the data, but the methodology used in obtaining said data. In response, they pulled out their own study, abacus, and graph paper. Also, some apple pie rhetoric: "Credit unions were built by and for working Americans, and they continue to be by and for working Americans," said Scott Simpson, president of the Utah League of Credit Unions. "We have an obligation, that’s true, and I think it’s proven if you look at our pilot study, it shows the income distributions of credit union members. I think we have much to be proud of.

"With regard to providing service to people of modest means, I think the GAO would like to see the term ‘modest means’ used to describe the poor. But I think the NCUA disagrees, I think we disagree, and I think that credit unions in general disagree. ‘Modest’ doesn’t only mean poor. And in reality, you cannot have a credit union — or a bank — with just ‘have nots.’ You have to have deposits in order to make loans."

For now, the GAO recommended that the NCUA track the income levels of credit union members, and perhaps expand and refine its pilot program to better track who its members are and which services they’re using.

NCUA chairwoman JoAnn Johnson released a statement the day the GAO report came out, looking ahead to "additional discussions" to come.

"GAO’s acknowledgement of the restrictions federal credit unions face regarding who they are legally able to serve is a critical aspect that merits additional discussion by Congress," Johnson wrote. "It is also encouraging that the GAO report notes that federal credit unions are taking advantage of the available avenues, such as low-income designation and addition of underserved areas, to serve members in all income strata. We welcome this discussion, as well as the process by which Congress has learned more about federal credit union member service."