As Poverty Becomes More Concentrated Can CUs Do More To Help?

March 31, 2016 at 10:13 am Leave a comment

A disturbing report released by the Brookings Institute yesterday demonstrates why we still need  credit unions.

While it should surprise no one that poverty has increased over the last decade, if the Brooking’s research is correct, it is rapidly concentrating in small metropolitan and suburban areas.

Notwithstanding the pathologies that this kind of concentration produces, it concomitantly makes it easier for financial institutions, including credit unions, to bypass these areas and for politicians to treat poverty as somebody else’s problem.

According to the Brookings Report “By 2010-14, almost 14 million people lived in neighborhoods with poverty rates of 40 percent or more—more than twice as many as in 2000. Of those residents, 6.3 million were poor. Put differently, 13.5 percent of the nation’s poor population faced the double burden of being poor in a very poor place—an increase of 3.0 percentage points over the late 2000s, and 4.4 percentage points higher than in 2000.”

This trend is manifesting itself right here in New York and not necessarily the places you would think of first. For example, the number of people classified as poor in the Albany-Schenectady-Troy area has grown from just under 72,000 people in poverty in 2000. 44% of this population lived in census tracts where at least 20% of the population was poor. By 2014 that number of poor had jumped to over 95,000 and 49% were living in census tracts where 20% of the population was poor.  Similar trends can be spotted in Syracuse, Rochester and the Buffalo-Niagara Falls area.

In other words, we are not only seeing a sharp increase in poverty, which you would expect given the Great Recession, but poverty is being walled off in small and medium size communities that lack the resources to effectively deal with its manifestations.  While we can argue about the reasons for this trend, it’s indisputable that this type of concentration harms upward mobility.  It’s going to be harder for the kid living in these areas to get educated or start a successful business. (I would love Brookings to follow-up this report by correlating poverty concentration with access to mainstream financial services).  This is where credit unions come in.

As not-for profits dedicated in part to helping people of modest means, credit unions are uniquely positioned to help these areas. The law already permits credit unions that can serve them to qualify as low-income credit unions.  In return for these investments, they are given greater flexibility such as the right to take in secondary capital. I have said it before and I will say it again: Every credit union that qualifies as a low-income credit union should take the designation.

NCUA has taken an important first step in its FOM proposal, but ultimately Congress needs to sanction the use of technology to help both credit unions and banks cost effectively serve poorer areas. The internet can serve poor neighborhoods more effectively than a brick-and-mortar branch, but existing legal constraints limit the concept of a credit union’s service area.

Furthermore, legislators on both the state and federal level need to be reminded that catering to the banking industry often comes at the price of limiting financial services in poor communities. The American Bankers Association has led the charge against charter expansions into underserved areas. On the state level New York continues to deny access to credit unions wishing to invest in Banking Development Districts, even though these localities would certainly welcome the option of working with credit unions.  In addition, a simple change to NY law would make it easier for state chartered credit unions to qualify as low income.

But even without these changes every credit union already has a legal and ethical responsibility to ask itself what it is doing to help people of modest means access banking services? If your credit union can’t answer that question then it isn’t living up to its end of the not-for-profit bargain.



Entry filed under: Advocacy, General, New York State. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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