Data Lacking on Income Characteristics of Credit Union Members and Users

It has been generally accepted, particularly by NCUA and credit union  trade groups, that credit unions have a historical emphasis of serving  people with modest means. Federal Reserve Board Data Suggest That Credit Unions Serve a Slightly Lower Proportion of Low- and Moderate-income Households

Our analysis of the Federal Reserve Board’s 2001 SCF suggested that credit  unions overall served a lower percentage of households of modest means  (low- and moderate-income households combined) than banks. We also found that states had chartered a higher percentage of their credit  unions to serve geographic areas (communities) than NCUA. While this  consultative approach helped NCUA, it still faces a number of challenges  that create additional opportunities for NCUA to leverage off the  experience of the other depository institution regulators. Moreover, unlike  other depository institution regulators, NCUA currently lacks authority to  inspect third-party vendors, which credit unions increasingly rely on to  provide services such as electronic banking. Further, credit unions are not  subject to the internal control reporting requirements that banks and thrifts  are subject to under FDICIA. ASI has not had large losses since 1975. These larger credit unions control a larger  percent of industry assets than they did in 1991. This concentration of  industry assets creates the need for greater risk management on the part of  credit union management and NCUA with respect to monitoring and  controlling risks to the federal share insurance fund. In addition, NCUSIF’s pricing  for federal share insurance coverage does not reflect the risk that an  individual credit union poses to the fund. Recommendations for 	 To promote NCUA’s ability to meet its goal of assisting credit unions in  Executive Action  safely providing financial services to all segments of society, to enable more consistent federal oversight of financial institutions, and to enhance  share insurance management (for example, improving allocation costs,  providing insurance according to risk, and improving the loss estimation  process), we recommend that the Chairman of the National Credit Union  Administration use tangible indicators, other than “potential membership,” to determine  whether credit unions have provided greater access to credit union  services in underserved areas; consult with other regulators through FFIEC more consistently about  risk-focused programs to learn how these regulators have dealt with  past challenges (for example, training of information technology  specialists); continuously improve the process for and documentation of the  overhead transfer rate by consistently calculating and applying those  rates, updating the rates annually, and completing the survey with full  representation; evaluate options for implementing risk-based insurance pricing. Objectives, Scope, and Methodology

Our report objectives were evaluate (1) the financial condition of the credit  union industry; (2) the extent to which credit unions “make more available  to people of small means credit for provident purposes;” (3) the impact, if  any, of the Credit Union Membership Access Act of 1998 (CUMAA) on the  credit union industry with respect to membership provisions; (4) how the  National Credit Union Administration’s (NCUA) examination and  supervision processes have changed in response to changes in the industry;  (5) the financial condition of the National Credit Union Share Insurance  Fund (NCUSIF); and (6) issues concerning the use of private share  (deposit) insurance.
Why GAO Did This Study

Recent legislative and regulatory changes have blurred some distinctions between credit unions and other depository institutions such as banks. The 1998 Credit Union Membership Access Act (CUMAA) allowed for an expansion of membership and mandated safety and soundness controls similar to those of other depository institutions. In light of these changes and the evolution of the credit union industry, GAO evaluated (1) the financial condition of the industry and the deposit (share) insurance fund, (2) the impact of CUMAA on the industry, and (3) how the National Credit Union Administration (NCUA) had changed its safety and soundness processes.

What GAO Found

The financial condition of the credit union industry has improved since GAO's last report in 1991, and the federal share insurance fund appears financially stable. However, a growing concentration of industry assets in large credit unions creates the need for greater risk management on the part of NCUA. The question of who benefits from credit unions' services has also been widely debated. While it has been generally accepted that credit unions have a historical emphasis on serving people of modest means, our analysis of limited available data suggested that credit unions served a slightly lower proportion of low- and moderate-income households than banks. CUMAA and subsequent NCUA regulations enabled federally chartered credit unions to expand their membership, serve larger geographic areas, and add underserved areas. According to NCUA officials, these changes were necessary to maintain the competitiveness of the federal charter with respect to state-chartered credit unions. While NCUA has stated its commitment to ensuring that credit unions provide financial services to all segments of society, NCUA has not developed indicators to determine if credit union services have reached the underserved. In response to the growing concentration of industry assets and increased services offered by credit unions, NCUA recently adopted a risk-focused examination and supervision program but still faces a number of challenges, including lack of access to third-party vendors that are providing more services to credit unions. Further, credit unions are not subject to internal control and attestation reporting requirements applicable to banks and thrifts. GAO also found that the insurance fund's rate structure does not reflect risks that individual credit unions pose to the fund, and NCUA's estimation of fund losses is based on broad historical analysis rather than a current risk profile of insured institutions.