H. 410, filed today, will mitigate financial services deserts, modernize credit union laws
Carolinas Credit Union League supports push by Reps. Julia Howard and John Bell to improve financial services offerings in rural and underserved communities More than 600 bank branches have closed in NC in past 10 years, many of them in rural or underserved areas Not-for-profit credit unions wish to serve residents of modest means in those areas
COLUMBIA, SC (March 16, 2023) — Rep. Julia Howard (R-Davie) and Rep. John Bell (R-Wayne) today introduced H. 410, “Credit Union Update.”
The measure would modernize state credit union laws for the first time since the 1970s. It would also permit credit unions to serve residents of modest means in areas of the state that have seen widespread bank branch closures.
Dan Schline, CEO of the Carolinas Credit Union League, said, “Not-for-profit credit unions have served North Carolinians humbly and faithfully for more than 100 years. We wish to continue that history by offering financial services to rural and underserved communities that have seen people and capital shift to wealthier population centers. Thank you to Reps. Howard and Bell for taking action to help deliver financial services to all residents.”
The Problems
There are three problems that H. 410 seeks to solve:
- Limited Financial Services Options in Rural or Underserved Communities: When employers left rural areas, traditional banking services often followed them to wealthier, more populated cities and suburbs, leaving many rural and lower-income residents in financial services deserts. More than 600 bank branches have closed in just the past 10 years, many of them in underserved areas (see a map here). As not-for-profit cooperatives, credit unions have the right model to offer financial services to rural and underserved communities, but antiquated laws do not allow credit unions to do so.
- Antiquated Laws: State laws governing state-chartered credit unions haven’t been updated since 1975, before computers and the internet. Outdated laws create administrative hurdles for credit unions, and some of them are costly. A modernization of North Carolina’s laws would allow credit unions to serve their members more efficiently.
- A Growing Gulf Between Federally- & State-Chartered Credit Unions: There is a growing gulf between activities that are permissible for federally-chartered credit unions and activities that are permissible for state-chartered credit unions. That gulf exists because state-chartered credit unions must follow a lengthy and complex regulatory process before the state regulator can permit them to act in ways already allowable for federally-chartered credit unions.
The Solutions
- 410 solves these problems by:
- Allowing credit unions to accept consumers of modest means as members: State law dictates who credit unions may accept as members. It’s called “field of membership.” H. 410 expands field of membership by allowing the following groups of people to join credit unions:
- Individuals/families that earn income below the federal poverty threshold;
- Women- and minority-owned businesses; and
- Residents of underserved areas as defined by the Federal Credit Union Act.
- Modernizing North Carolina’s 50-year-old credit union statutes: The bill streamlines the approval process for state-chartered credit unions to engage in activities already allowable for federally-chartered credit unions. It also allows credit unions to invest (up to 1%) in “fintech” – technology firms offering financial services – to meet the modern service demands of members. Finally, H. 410 updates some basic operational provisions governing credit unions (the world has changed quite a bit since the 1970s!).
Lastly, the measure strengthens the powers of North Carolina’s credit union regulator. Outdated laws don’t just impact credit union operations, they also impact the ability of the North Carolina Credit Union Administrator to oversee the industry. Updated authorities include:
- Cease-and-desist authority to order a credit union to immediately suspend certain practices;
- Waiver of compliance requirements and fees during a natural disaster to allow credit unions to shift capital to areas of need; and
- Authority to investigate credit union directors or employees to protect the safety and soundness of the institution.
The next step for H. 410 is a committee hearing.
More information is available at https://www.mynccreditunion.org.
What Are Credit Unions?
- Like banks, credit unions accept deposits, offer loans, and provide other financial services. Unlike banks, credit unions are not-for-profit cooperatives, which means every depositor is an equal part-owner of the credit union.
- As not-for-profit cooperatives, credit unions exist solely to serve their member-owners.
- Credit unions return excess revenues to their members through higher savings rates, lower loan rates, and fewer fees.
- Credit unions must receive either a state or federal charter to operate. They have offered professional, sound services since the early 1900s.
- Who credit unions may accept as members, called “field of membership,” is limited by law.
- Like other financial institutions, credit unions are subject to strict safety and soundness regulations.
About Carolinas Credit Union League
The Carolinas Credit Union League is the not-for-profit association of credit unions throughout North and South Carolina. Established in 2014 with a commitment to the cooperative spirit, the Carolinas Credit Union League is credit unions’ primary advocate and much more, promoting their success through risk and compliance resources, professional development, product and service enhancements, and back-office support.
