Contrary to media reports, credit unions are subject to fair lending laws
July 29, 1998

INDIANAPOLIS—Following yesterday’s 92 – 6 landslide Senate vote passing H.R. 1151, the Credit Union Membership Access Act, news outlets nationwide have been reporting that the bill lacks a House provision that would require credit unions to abide by the fair-lending rules that banks already must follow. In fact, all financial institutions, including credit unions, are subject to the same fair lending regulations, which are promulgated by the Federal Reserve Board in compliance with numerous acts of Congress. The term "fair lending" refers to issues such as loan rate disclosure and non-discrimination. Fair lending was not an issue during H.R. 1151’s progression to a full Senate vote.

Compliance with the Community Reinvestment Act, however, was at issue. CRA was passed because Congress believed that banks were taking deposits from local neighborhoods and failing to reinvest those deposits adequately in the community, often lending them in other states and foreign countries. CRA forces banks to make an effort to provide lending services in the communities in which they are based.

Two CRA-related amendments were proposed for attachment to H.R. 1151. The first, written by Sen. Phil Gramm, R-Texas, eliminated from the bill provisions requiring federally insured credit unions to report on service to people of modest means within their fields of membership. This amendment was adopted by voice vote.

Because credit unions are member-owned cooperatives, they are limited by law to serving only their members. And because credit unions can take deposits from and make loans to only their members, they are by their nature community oriented. Credit unions cannot lend to foreign governments or to businesses that are not owned by members. As the amendment was written, it would have required credit unions to provide services to everyone eligible for membership, including non-members, which would have violated the restrictions of their charters.

A second amendment, proposed by Sen. Richard Shelby, R-Ala., was defeated. It would have exempted small banks from CRA requirements. The White House, which favors CRA for banks, had made clear the President would veto H.R. 1151 if it passed with the Shelby amendment.

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