Noting “concerning” differences in credit unions’ lending to minority members, the board chairman of the federal credit union regulatory agency on Wednesday said credit unions can “and must” do better as an industry.
“The differences we see in lending to minority credit union members are concerning and need to be addressed,” Todd Harper, chairman of the National Credit Union Administration (NCUA) Board, said in opening remarks for the agency’s DEI and ACCESS Summit. “Credit unions can — and must — do better, as an industry, to live up to the system’s statutory mission of meeting the credit and savings needs of members, especially those of modest means, and especially when armed with information on the industry’s current performance shortcomings. In this instance, knowledge is definitely power.”
Harper pointed to a “research note” released by the agency’s Office of Examination and Insurance Wednesday that looked at credit union lending in 2020 and 2021.
The agency said that focusing on data for credit union 30-year, fixed-rate loans, the research concludes that after controlling for a number of credit risk and other factors, many minority credit union borrowers faced higher loan denial rates, and Black and Hispanic credit union borrowers paid higher interest rates than White borrowers.
The research note follows a working paper issued earlier this year by the Federal Deposit Insurance Corp. (FDIC), the NCUA said, and applied the FDIC statistical analysis to credit union loans using 2020 and 2021 Home Mortgage Disclosure Act (HMDA) data.
Additional findings through NCUA’s research included:
- When minority borrowers did obtain credit union loans, pricing for many was more expensive.
- Among credit union members able to obtain purchase-money mortgages from HMDA-filing credit unions and credit union service organizations in 2020, Hispanic and Black borrowers were estimated to have paid interest rates that were about 10 basis points higher than White borrowers.
- The analysis of the 2021 HMDA data produced similar findings, with an average excess interest rate for Hispanic and Black credit union members ranging between about 8 and 13 basis points, respectively.
- For credit union mortgage applications by Black, Hispanic, and Asian members, the estimated denial likelihood was up to two times greater than for non-minority applicants.
- HMDA data indicate that about 20% to 30% of credit union mortgage loans were extended to minority credit union members during 2020 and 2021, which is a somewhat lower proportion than for other loan originators.
Harper noted that the NCUA completed 68 fair lending examinations and reviews in 2021, representing just more than 2% of all federal credit unions, and identified identified 64,000 credit union members subjected to potentially discriminatory practices. “The NCUA has worked with the credit unions involved to provide restitution and remediation, where appropriate,” Harper said. He added that “because we need to do more,” the agency board increased the resources committed to fair lending this year. He said the NCUA is on track to complete 80 fair lending examinations and reviews this year.
The agency chairman also noted that as the NCUA considers its 2023 budget, it should “continue to build out fair lending efforts with more staff and risk-focused refinements,” to reach beyond mortgage lending.
“At present, for example, NCUA’s fair lending program largely focuses on mortgage lending data to identify candidates for examinations and reviews. Yet, we know there are many other types of credit union lending, including new and used auto loans, credit cards, and private student loans,” Harper said. “Going forward, NCUA’s fair lending program should consider more than HMDA data when identifying which credit unions to examine and review. With more resources dedicated to fair lending oversight and better methods for determining fair lending risks, we can better ensure that credit union members of all races and ethnicities are fairly treated.”
Release: Harper Urges Credit Unions to Embrace Fair Lending and Diversity, Equity and Inclusion