The Shifting Landscape of Credit Union Lending and Regulatory Compliance
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A New Era of CRA Regulations
Just over a year ago, the OCC, FDIC, and Federal Reserve introduced a transformational new rule for the Community Reinvestment Act (CRA) that was set to redefine how financial institutions approach community banking. Initially slated to take effect April 1, 2024, the proposed revisions sought to modernize regulations last updated in 1995, addressing the realities of online, mobile, and hybrid banking models.
However, the implementation hit a critical snag. Days before the new rule could take effect - which would have imposed more stringent data collection and reporting requirements - a lawsuit in Texas resulted in a temporary injunction. As of now, that injunction remains in place, with the response due on April 12th, 2024, still outstanding [1,2,3].
United States v Citadel Federal Credit Union
The regulatory landscape took another significant turn in October when the Department of Justice delivered a landmark decision. A $6.5M settlement with Citadel Credit Union exposed systematic lending discrimination. The DOJ's investigation revealed that from at least 2017 through 2021, Citadel Federal Credit Union systematically avoided providing mortgage lending services to predominantly Black and Hispanic neighborhoods in and around Philadelphia, marking the first such resolution involving a credit union [4,5].
Assistant Attorney General Kristen Clarke's statement cut to the heart of the matter, "This redlining settlement marks the Justice Department's very first resolution involving a credit union, making clear our intent to hold all types of lenders accountable for their role in modern-day redlining." [6]
The Citadel settlement signals a new era of scrutiny for credit unions. Indicating that compliance with fair lending laws is non-negotiable. The National Credit Union Administration (NCUA) has emphasized that all credit unions must adhere to these laws, and the Citadel case underscores the importance of rigorous fair lending examinations and compliance [4,5,6].
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The Broader Context of Fair Lending
The Citadel settlement has reignited discussions about the CRA's applicability to credit unions. Currently, credit unions are not subject to the CRA, which mandates that banks meet the credit needs of all communities they serve, including low- and moderate-income neighborhoods. Advocates argue that extending CRA requirements to credit unions would enhance transparency and accountability, ensuring that all financial institutions contribute to the economic well-being of underserved communities.
By holding credit unions to the same standards as banks, regulators can ensure a more equitable distribution of financial services and foster greater investment in historically marginalized communities [4,5,6].
The settlement with Citadel FCU marks a pivotal moment in the fight against redlining and lending discrimination [4,5,6]. It serves as a warning to all credit unions about the importance of fair lending practices and may pave the way for broader regulatory reforms under the CRA.
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