The North Carolina House of Representatives passed a bill on April 27 that would allow state-chartered credit unions to accept people below the poverty line as members regardless of the credit union’s field of membership. Banks complain that the bill has weak vetting criteria and could be exploited to add more affluent 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 has the support of the Carolinas Credit Union League.
North Carolina’s credit union statutes hadn’t been modernized since the 1970s, according to the league’s president and CEO, Dan Schline. The trade group started a review of the statutes two years ago.
“We found a number of things that needed to be updated,” Schline said. “For example, [limited liability companies] weren’t recognized in North Carolina back then, and so the statutes don’t contemplate LLCs among the different business entities that can join credit unions.”
In addition to those cleanup provisions, the league also looked at how it might help solve a problem that’s been worsening in North Carolina — branch closings and the resulting banking deserts.
Banks have closed 603 more branches than they’ve opened in North Carolina since 2011, according to an analysis of data from the Federal Deposit Insurance Corp. The 31 state-chartered credit unions there could help fill that void, advocates for the legislation say.
“A lot of bank branches have closed, especially in rural areas as wealth and population have transferred to the 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 into the summer.
But the state’s bankers say the bill is not exactly what the credit unions are presenting it to be.
Peter Gwaltney, president and CEO of the North Carolina Bankers Association, said the bill would fundamentally change the North Carolina credit union charter and enable state-chartered credit unions to operate as tax-exempt banks, and therefore the association “strongly opposes” the bill.
Although the bill’s supporters claim that its primary focus is to help individuals with incomes below the federal poverty line in North Carolina, Gwaltney criticized the scant detail about verifying and demonstrating consumers’ income levels.
“In that section, you will find no detail on how credit unions are to document the incomes of the individuals who wish to join, no mention of how membership under the new law will be audited to guard against open membership, no requirements for credit unions to open branches within the so-called eight-mile banking deserts and no requirement to do anything beyond direct mail and digital marketing,” he said.
The banks have an unlikely ally in Jim Blaine, former CEO of State Employees Credit Union, the largest credit union in the state and second-largest in the country.
The bill “fundamentally changes” the focus of the affected credit unions and would give them open membership with expansive commercial lending authority, “and with a diminished focus on folks of modest means — and on all of North Carolina effectively,” Blaine wrote in a blog post.
“The Carolinas Credit Union League and the primary sponsors of H. 410 did not disclose those facts to the members of the House,” Blaine wrote.
Field-of-membership laws in other states run the gamut, with some being wide open to new members. Schline said that is not what the league intends in North Carolina.
“We think we have the right model to serve these consumers of modest means that have seen some changes in 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 chief executive of the $1.9 billion-asset credit union earlier this year, said the bill would have a big impact, particularly for those in rural communities.
“By extending opportunities and services to these individuals, we can empower them to make good financial choices so they and their families can thrive, and through that we can better serve and strengthen our communities,” White said.
But Dwayne Naylor, CEO of the $4 billion-asset Local Government Federal Credit Union in Raleigh, said bringing banking to underserved areas is not a completely new concept. Low-income credit unions can already serve those areas, Naylor said.
“If you study credit unions around the nation that are already expanded in underserved areas, I do not think you will find a surge in membership,” Naylor said. “It is not a panacea for growth. But it would be hard for me to understand why anyone would not support banking services in areas that are underserved — credit unions or banks.”