What Selma Should Mean To Credit Unions
This weekend the nation marked the 50th anniversary of the march on Selma. The “bloody Sunday” riots jolted the nation into passing the Civil Rights Act in 1965 by making it impossible for the entire nation to ignore the fact that racial inequality and injustice were ultimately incompatible with American ideals. It also got me thinking about the role that financial institutions play in bringing about equality.
Regardless of your political persuasion, I would hope that all of us could agree that a secure place in which to place one’s money and get a loan at a fair price is fundamental to achieving equality. Last week marked the 150th anniversary of the chartering by Congress of the Freedman’s Savings and Trust Company. Within weeks of Congress’ passage of the 13th Amendment abolishing slavery, abolitionists realized that freed slaves needed a place to save and grow their money.
Unfortunately, the creation of the bank also symbolizes just what a complicated and winding road the march toward racial equality can be. Despite its noble ideals, the bank was closed down in 1874. The meager savings of tens of thousands of African-American depositers were lost – remember this was in the age before Share Insurance. According to Comptroller Thomas J. Curry, the bank failed as a result of expanded investment authority it was given in 1870 which allowed it to invest half of its deposits in riskier assets.
In some ways, credit unions are the descendants of this noble but failed effort. I like to point out to people that when Congress authorized federal credit unions during the depths of the Depression, or when states like New York authorized credit unions decades earlier, these institutions weren’t being created because policy makers assumed that people were being treated fairly irrespective of their race, color or creed. On the contrary, credit unions are an implicit recognition that there are distinct groups of individuals who are systematically being denied access to mainstream finances. By allowing these groups to legally pool their assets and not be taxed for doing so, the hope was, and in some respects still is, that individuals can gain the economic strength that helps bring about the political equality that the marchers in Selma were seeking 50 years ago.
How are credit unions doing in aiding minority groups? It depends what statistics you check. For example, according to a 2014 NCUA report, 11% of all federally insured credit unions were classified as minority depository institutions. Half of these were run by African-Americans and have about 871,000 members. Interestingly, Texas (96), California (68) and New York (56) had the highest concentration of aggregate minority depository institutions.
Look a little further though, and the numbers are not quite as encouraging. For example, 94 of these depository institutions have CAMEL ratings of 4 or 5. In addition, 239 of these institutions are, in the words of the NCUA report, “experiencing challenges in meeting operating costs.” A large part of the reason some of these institutions are struggling no doubt reflects the trends buffeting the industry as a whole. If you are not large, or growing quickly, chances are you are struggling. But I would suggest another reason these institutions face obstacles is because helping people of modest means is more expensive than cherry picking the middle class consumer, which brings me to the punch-line of today’s blog. Credit unions do have a unique statutory obligation to people of modest means. This is an obligation that credit unions shouldn’t and can’t run away from. This is why I cringe every time I hear credit unions point out that helping persons of modest means isn’t their only obligation or that it is simply too expensive to cost-effectively provide banking services to this population. Let’s make sure we have the statutory and regulatory flexibility we need to provide financial services and then make sure that every credit union strives to meet this obligation, otherwise, we are doing nothing but hiding behind our ideals.