“Attention, congressional cleanup crew: We have a fair lending spill in the military aisle!”
Navy Federal’s racial discrimination
Had Navy Federal been subject to the Community Reinvestment Act, which it opposes more than anything except federal taxes, it may have avoided this reputational disaster.
This is because CRA, like the canary in the fair lending coal mine, identifies disparity and other lending problems before they get out of control.
CRA should cover credit unions, especially large ones and those acquiring banks. Until then, effective CRA self-regulation is better than no CRA regulation.
How bad is the Navy Federal problem?
Using the most recent 2022 Home Mortgage Disclosure Act data,
Navy Federal approved more than 75% of white borrowers but less than 50% of Black borrowers, including applicants with similar incomes and debt-to-income ratios. Navy Federal’s white/Black disparity was nearly three times the average for the three biggest CRA-covered
First, with $165 billion in assets it’s by far the nation’s
Second, whenever one institution dominates an industry, there are “too big to regulate” questions. It’s hard for a regulator to say no to its biggest “
Third, we expect more from the dominant industry player, especially in terms of fair lending. Every big bank, especially those over $10 billion in assets, should have an outstanding CRA rating. We should expect no less from the largest credit unions.
Fourth, Navy Federal’s 13 million members are mainly current and former military. Since roughly
Credit unions are subject to fair lending laws but not CRA. Examiners evaluate and publicly rate bank lending and community development performance. This hopefully ensures banks are serving their entire community, including low- and moderate-income areas and households.
CRA enhances fair lending compliance, but no CRA increases fair lending risk. Just ask Navy Federal.
Although CRA exams happen every three years, bank CRA officers, analysts, directors and outside consultants continuously monitor CRA performance, usually quarterly but often monthly. They adjust marketing, mortgage broker contacts, special loan programs and other activities to help ensure LMI households and small businesses are fairly served. About
Had Navy Federal been subject to CRA, it would have likely reversed its disastrous course into the fair lending iceberg by identifying and correcting its serious disparity gap before it was reported to HMDA or reported by CNN.
Congressional, administration and community group critics of the banking industry have piled on excessive and unfair
We don’t need
There are, however, some partial legislative and regulatory solutions.
First, is Senator Warren’s previously proposed “
Second, at a minimum, CRA should be imposed on the largest credit unions, starting with those with assets over $10 billion covered by the CFPB. This would impact just 22 credit unions, 1% by number, with 25% of
Third, CRA outstanding community development
Until there is a level playing field, all credit unions should follow three CRA self-regulating recommendations.
First, their boards should adopt a formal community reinvestment program. This would include appointing a CR officer and committee; providing director and officer CR education; delineating local assessment areas; assessing community credit needs; following the above community development guidelines; monitoring the final CRA rule and its
Second, credit unions should use published CRA
Third, they should promote their CR programs to show how they are helping their entire community, including LMI areas and people. Their website should include CR program accomplishments and the equivalent of a CRA public file.
Until we have a level playing field, such credit union CRA self-regulation will not only help ensure service to their entire community but hopefully avoid another Navy Federal problem.