In late April, the N.C. House passed House Bill 410, legislation that would relax restrictions for credit unions in the state with regard to membership, geographic boundaries and even investments. The bill now goes to the Senate, where observers expect it to run into some opposition.
The bill, sponsored by Rep. Julie Howard (R-Davie) and House Majority Leader John Bell (R-Wayne), seeks to update the state’s credit union laws, which are about 50 years old. But proposed changes have generated considerable debate between the banking industry and the Carolinas Credit Union League, and even within the credit union community itself.
At the heart of the debate is the definition of what a North Carolina-chartered credit union is. Importantly, the bill now moving to the N.C. Senate for consideration applies only to state-chartered – not federally chartered – credit unions.
The state has 31 state-chartered credit unions, most of which are very small. The exception is Raleigh-based State Employees’ Credit Union (SECU), whose $50 billion in assets makes it the second-largest U.S. credit union. It maintains offices in all 100 North Carolina counties.
Just two state-chartered credit unions operate in the Wilmington market: SECU and Self-Help Credit Union.
These state-chartered, member-owned, tax-exempt financial institutions historically have had to restrict their membership to certain affinity groups within specified geographic areas. They could not extend membership to anyone living below the federal poverty line. All that could change if the bill were to be enacted into law.
HB 410 “would enable credit unions to broaden their ‘field of membership’ and serve more people, not just state employees and their families,” states a summary of the proposed legislation published by the National Law Review in late April. “The bill would expand the categories of people who are eligible to join, including those who fall below the federal poverty line, women and minority-owned businesses, and residents of the state’s poorer regions, regardless of whether they have a customary connection to a credit union.”
Carolinas Credit Union League officials argue that HB 410 gives state-chartered credit unions a greater opportunity to serve communities with limited access to financial services.
“Credit unions have the right model to serve these communities, and HB 410 will help them do so by bringing related laws out of the 70s,” the league states on its website.
Peter Gwaltney said the bill as currently written could relax membership eligibility to the point where “it would be really difficult to find a person or a company that could not be a member.”
Gwaltney, president and CEO of the N.C. Bankers Association, explained that a state-chartered credit union in North Carolina currently must choose its membership category: persons of a similar occupation, persons who live in an identifiable community or persons who have a common employer.
“What the bill does is go from credit unions having to choose among those categories to layering them,” he said. “They can combine all those [categories] plus family members and it doesn’t define family members or where they live. Then it adds corporations or other business entities controlled by people eligible for membership.”
The Carolinas Credit Union League says that assessment is not true, that the bill relaxes membership restrictions only to those living below the poverty line or in so-called banking deserts: defined as areas without a bank branch within roughly 200 square miles. It points out that more than 600 traditional bank branches have closed in rural areas around the state.
Gwaltney argues that many banks are still in those areas.
“Twenty percent of total bank branches in North Carolina are in Tier 1 [most-distressed] counties; 397 branches, operated by many banks, serve these 40 Tier 1 counties,” he said, citing the Lumbee Guaranty Bank as one example of an institution that is Lumbee-owned and serves a minority community. “Seventy-five percent of the financial institution branches in Tier 1 counties are operated by banks. All branches have been examined by the federal regulatory agency and all have been deemed excellent.
“We believe there are serious economic challenges in Tier 1 counties and they need solutions, but upending the long-held structure of credit unions and turning them into tax-exempt banks isn’t a solution,” Gwaltney continued, adding he believes that North Carolina-headquartered banks that have offices or headquarters in Tier 1 counties will be put at “significant competitive disadvantage” if credit unions are given the green light to expand geographically into economically distressed areas.
“Credit unions say they want to serve people in areas where banks have pulled out, but they don’t say how,” he said. “What we expect they will do is digital marketing and direct mail and gather accounts that way. Credit unions have said it’s not profitable to open branches there.”
N.C. Treasurer Dale Folwell, who chairs the State Banking Commission (and is a Republican candidate for N.C. governor), is a strong advocate for bricks-and-mortar financial institution branches to serve rural communities. He has urged bank and credit union leaders to work out a solution that will promote the continuation of in-person services.
“I have always been concerned about the unbanked [population] increasingly lacking access to banks,” he said. “It’s not just individuals who have to use a bank branch; it’s also local government units and small businesses that need physical access to banks. We have a lot of city and county government offices, DMVs, that take in a lot of cash.”
Folwell said his interest is in seeing financial institutions of either type making banking services accessible to more people at a lower cost.
“Tellers are also public servants. I hear story after story about what bank tellers do to prevent people being scammed and defrauded,” he added. “Every time I get a call [about a branch potentially closing] I try to get involved and encourage the bank to keep the branch open.”
Even though they operate by a different set of regulations, some federally chartered credit unions see benefits in updated legislation for their state-chartered brethren.
“Corning Credit Union’s field of membership already includes several underserved areas in North Carolina and South Carolina where we focus on serving community members of modest means,” Jason Bierman, CCU’s senior vice president and chief administrative officer, said in an email. “Since CCU is a Federally Chartered Credit Union and we are governed by the Federal Credit Union Act, we don’t expect this North Carolina bill would impact our credit union should it be passed in the Senate and signed by the governor. However, we are supportive of any steps taken to allow people of modest means better access to low-cost credit union financial services.”