The North Carolina House of Representatives passed a bill on April 27 that would allow state-chartered credit unions to accept as members people below the poverty line, regardless of the field of membership of the Association of savings and credits. Banks complain that the bill has weak vetting criteria and could be exploited to add wealthier members.
At issue is a provision that would also allow residents of banking deserts, defined as areas without a bank branch within 200 square miles, to join a credit union of their choice.
House Bill 410 was introduced by Rep. Julia Howard and House Majority Leader John Bell, both Republicans, in March and is supported by the Carolinas Credit Union League.
North Carolina’s credit union bylaws had not been modernized since the 1970s, according to league president and CEO Dan Schline. The trade group began a charter review two years ago.
“We found a number of things that needed to be updated,” Schline said. “For example, [limited liability companies] They were not recognized in North Carolina at the time, so the statutes do not provide for LLCs among the many different business entities that can join credit unions.”
In addition to those cleanup provisions, the league also discussed how it could help solve a problem that has worsened in North Carolina: branch closures and resulting bank desertions.
Banks have closed 603 more branches than opened in North Carolina since 2011, according to an analysis of data from the Federal Deposit Insurance Corp. The 31 state-chartered credit unions could help fill that void, say legal advocates.
“Many bank branches have closed, especially in rural areas, as wealth and population have been transferred to urban centers,” Schline said. “We think it’s reasonable to allow credit unions to serve those communities.”
The bill has moved to the state Senate for consideration. The legislature is scheduled to be in session through the summer.
But state bankers say the bill isn’t exactly what credit unions present.
Peter Gwaltney, president and CEO of the North Carolina Bankers Association, said the bill would fundamentally change North Carolina’s credit union statutes and allow state-chartered credit unions to state will operate as tax-exempt banks and therefore the association “strongly opposes” the bill. .
Although supporters of the bill say its main focus is to help people with incomes below the federal poverty line in North Carolina, Gwaltney criticized the sparse details on verifying and demonstrating consumers’ income levels. .
“In that section, you won’t find details about how credit unions must document the income of people who want to join, there is no mention of how membership will be audited under the new law to guard against open membership, there are no requirements for credit unions to open branches within the so-called eight-mile banking deserts and with no requirements to do anything other than direct mail and digital marketing,” he said.
Banks have an unlikely ally in jim blaineformer CEO of the State Employees Credit Union, the largest credit union in the state and the second largest in the country.
The bill “fundamentally changes” the approach to affected credit unions and would give them open membership with an expansive commercial lending authority, “and with a reduced focus on people of modest means, and throughout North Carolina.” effectively,” Blaine wrote in a blog post.
“The Carolinas Credit Union League and the principal sponsors of H. 410 did not disclose those facts to members of the House,” Blaine wrote.
Membership field laws in other states run the gamut, with some being open to new members. Schline said that’s not what the league wants in North Carolina.
“We believe we have the right model to serve these consumers of modest means who have seen some changes in the availability of financial services over the years,” Schline said.
Sharonview Federal Credit Union in Indian Land, South Carolina, has seven branches in North Carolina. Its president and CEO, Herb White, who took over as CEO of the credit union with assets of $1.9 billion earlier this year, said the bill would have a big impact, particularly for those in rural communities.
“By providing opportunities and services to these individuals, we can empower them to make good financial decisions so they and their families can prosper, so we can better serve and strengthen our communities,” White said.
But Dwayne Naylor, chief executive of the local government federal credit union with $4 billion assets in Raleigh, said bringing banking to underserved areas isn’t an entirely new concept. Low-income credit unions can already serve those areas, Naylor said.
“If you look at credit unions across the country that are already expanding into underserved areas, I don’t think you’ll find an increase in membership,” Naylor said. “It’s not a panacea for growth. But it would be hard for me to understand why anyone wouldn’t support banking services in areas that are underserved: credit unions or banks.”