<p>CU Times: Some argue that the very large community charter expansions that have occurred over the last two years give the perception that credit unions can serve the general public, rather than a defined FOM or people of a common bond. Do you agree with this? Is this damaging? CASEY: With the weakening of the common bond, the loosening of the common bond, the expansive definition of the common bond, there is a perception that CUs can serve everyone. Therein lies the rub from our perspective. If you're going to serve everyone, what justification is there in terms of a tax-exemption and not having CRA-lite? It seems we're creating a different class of institutions for no apparent reason. They are providing no niche specialized services to a small segment; they're competing head on with the bank and thrift down the street. LEGGETT: Clearly we think community charter expansions are going beyond what the scope of local and well-defined is meant to be. What NCUA has put in place is a test that basically is nothing more than a smorgasbord-you just pick and choose and see what constitutes local and well defined. If there's multiple municipalities within what you`ve drawn a line around, you can see if there's a common shopping area. If not a shopping common area, you look and see if there's a common interstate running through. It just seems to us as if they're just looking for any justification to approve those communities. When you had San Francisco FCU granted a charter for San Francisco county my hair cutter here in D.C. could have qualified under the family membership rule because her son lives in San Francisco or goes to school in San Francisco. What you're finding is it basically becomes open to serving anyone, and there is no narrow definition of what constitutes a common bond here. I think the issue is that if they're going to continue in this direction, their tax exemption should be re-evaluated. Credit unions want the choice of being able to go out and serve who they want to serve. If that's the case is there any public policy justification for the preservation of their tax exemption? These community charters are different animals from occupation and associational charters. If you start looking at the question of taxation, taxing only community charters might be a possibility. DOLLAR: We evaluate the local interaction standard on every community CU package. We have approved some larger ones because they met the interaction standard, and disapproved smaller ones because they did not. Size in and of itself is not an automatic qualifier or disqualifier for approving local community interaction. That is a standard that must be well-documented in a community charter package. There must be three criteria: that it is a well defined community, that it is a local community with interaction standards that verify that it is indeed a community, and that the CU has the ability to serve the area and has a financial and business plan that shows they are going to do so. If a CU falls short in any of those three, then they will not receive the community charter conversion. Community CUs have been authorized through the law since the FCU Act was passed in 1934. They are nothing new. There has been a growing movement towards converting to community charters at both the federal and state level, but that is driven more by the desire to serve a broader FOM than it is to be more bank-like. There are those who believe CUs should never extend beyond their 1960s' version with a small office in the basement of a plant serving just the employees of that business. That may have been what the marketplace required of CUs in 1964, but it is not what is required by CU members today. One of the great ironies of the groups who criticize CUs' performance in the HMDA data is that they say CUs do not have as high percentage of minority apps for mortgage loans as do banks and thrifts. The reason is that CUs are limited to an occupational FOM, they are not serving those census tracks from which the HMDA data is largely drawn to determining those minority approval rates. The only way CUs will be able to extend their service into those areas is if they convert to community charters or adopt underserved areas. When more CUs are serving a broader number of census tracks then we may be able to get apples vs. apples comparison with HMDA data MICA: Is Manhattan a local area? Manhattan is what 10 million people, but it really is a local community. That's as much a community as any area in the U.S. right now after last year's events. We still have a defined FOM. The original CU movement was all community based. It wasn't until for their convenience they decided to go case by case to employee-based organizations. It's only when they tried to switch back, banks said `no we want you to stay where you are.' We got blasted by the banks for saying we'd like to have a little more latitude in letting our directors make (FOM) decisions. I believe strongly it could help us better serve the underserved if our directors in local communities, where they know the needs, could say can we reach out to this area of underserved? Can we reach out to this underdeveloped economic area in need and serve this group? The bankers said no. If you see a problem, not only do you have to go to the regulator, but if we had our way, you'd be locked into it. All consumers have a right to their financial well-being and to utilize credit unions. Credit unions absolutely should have greater flexibility in determining the needs and how they serve the underserved and economically challenged. We are going to look for opportunities in legislation and regulations to try and bring that out, but we know the bankers are watching us. We know we live in a world that they to date defined. We know we have an awful lot to do to change the perception of the definitions and not to jeopardize the current tax status we have. ROSENTHAL: My guess is that it does spread the perception that credit unions can serve who they choose to. That essentially would not be damaging, as long as they provide good, fair equitable service to people. If indeed more people get access to credit union service that's a good thing. The point is though to live up to the expanded responsibility that comes with that greatly expanded freedom. FILSON: I think it's a false issue. The first credit unions chartered in this country were open FOMs up in New England and Boston. The other side of this issue is the inevitability that all Americans will sooner or later have access to the CU of their choice. I think you can see that evolution inevitably at the state level with the FOM migration they've been going through. It's also inevitable at the federal level. And I don't think that can be stopped. It's just a natural part of our consumer marketplace for the consumer to have choice. It doesn't mean individual credit unions will necessarily choose to pursue community charters or open marketplaces. They'll still have the same challenges of defining who it is they serve and how they serve them; regardless of what the legal situation evolves into. But I think community charters, large FOMs, are false issues. The trend is to have choice available for all consumers in all financial service areas not just credit unions. DUERR: Those are public policy questions that have been debated and answered by Congress or state legislature. The reality is the Congress stipulated what the condition would be for community FOMs for FCUs, and NCUA is meeting the obligation set forth in the Act. I say that in the respect that it's evidenced by the legal challenges that have been raised and the legal decisions that have been made State legislatures have a long history of deciding that CUs do need to meet the needs of residents in communities. There have recently been legal challenges, and the courts have found that those regulators have acted within the construct of the law, statues, and legislative intent. BECKER: A community charter does not serve the general public, the banks are wrong to insinuate they do. You can see that by the community applications that have been approved. They haven't been approved for the whole state of Florida, not even for Miami-Dade county. If you go back historically credit unions initially started out as community credit unions. The industry evolved to serve sponsors, and now it's evolving back. To go and say they were initially created to serve sponsors, and now they're going back to serving communities doesn't make any sense. They're defined by the service they provide and how they're organized. They're member-owned institutions. They're not defined by their size period. If you go back and look historically even Norm D'Amours approved San Francisco as a local community charter. How in the heck can San Francisco be considered a community? But when I stepped back and looked at in and thought about the definition of local community defined under the regs it fits perfectly. CU Times: With the flood of deposits in 2001, some CUs are worried about capital declining because their assets are growing so quickly. The threat of PCA looms. Do credit union capital limits need to be adjusted? Should alternative capital or secondary capital options be explored to relieve this pressure? MICA: Every once in a while I hear the phrase `why did we give up on PCA, why did we allow the banks to have that?' CUNA and NAFCU fought valiantly to oppose PCA, we simply did not have the votes. To this day I'm not sure we have votes to change it. First thing is we start to lay the groundwork in Congress for any changes we want, by building a `receptability' of ideas. Phil Gramm was quite an advocate of PCA, he won't be there. You have to build a political base in order to get a change in Congress. The next area would be to see what regulators could do with regard to capital. It makes folks nervous that that standard is out there, but while the growth has lowered capital ratios, they're extremely high. I do not diminish the concern. It is an important priority for us to try and change. On a number of occasions I've had frantic calls by a CEO who thought they were going to have a major problem, only to put them in touch with Bill (Hampel) to see they don't really have a problem. Additional capital – we call it additional capital not alternative capital – was extremely high on the Renaissance Commission's list. It's one we will look for with what we call spot opportunities with the Congress. FILSON: The rapid growth highlights a structural problem that PCA imposed on credit unions. That is a wholly separate set of capital requirements from what had been the tradition in the industry for almost 90 years, which was to reserve out of current income. As long as those reserving requirements were met, then they were deemed to be in capital compliance. The dilemma is PCA imposed a second capital test but gave credit unions no option to meet that except the traditional option which was to reserve from current and net income. So when we get to that part of the consumer cycle and economic cycle where very rapid growth is possible, then credit unions are at a distinct disadvantage. I think the solution is to ensure there are capital options-not to do away with PCA – but to give credit unions the tools that would complement the capital requirements that PCA imposes. Capital options have been something that have been legal on the state level for many, many years. I think it's time for NCUA to be open as well. BECKER: Capital has gone up from 7.7% (in 1990) to 12.4% as of the last data we have which is last June, so overall FCUs are very healthy. This is an issue not just for federal credit unions, but for federally-insured credit unions. I think that's important for everybody to recognize. I recognize there is an issue with regard to community charters, and also an issue to the fact that we had an unprecedented savings growth over the past year. At some point the flight of liquidity will stop and go the other way. Credit unions are held to a higher standard than other institutions, but their risk exposure is less. They're held to a higher standard in that their capital is real and it's earned. It's not like Enron. There's no games there. I think that we need to look at the issue of secondary capital. The credit union community has to come together and solve this issue as they have many times in the past. In my view the secondary capital issue is inextricably tied to PCA, and you have to remember PCA is the law. LEGGETT: The Inspector General of the FDIC has actually suggested raising capital levels for banks. He thinks PCA should be set at higher levels. Rather than lowering capital they want to look at raising capital. Whether you're a credit union or a bank, you have an incentive to economize on capital because it imposes a real cost. As you hold more and more capital, basically it destroys value for the shareholder, whether the shareholder is a CU member or a stockholder in a bank. One of the things that needs to be looked at in the CU industry is not dropping the levels of PCA, but is the 11% level of capital the ideal level for CUs? Should the industry have lower levels? They may not be adding as much value or benefit to their members by holding as much capital. CASEY: You're talking about CUs that have expanded their lending into nontraditional CU lending, meaning commercial loans, small business loans, which have a much higher risk, which means you need more capital. The time to reduce capital is not when you expanded your lending horizons, that's the time to increase capital. The banking industry would adamantly oppose any weakening of the PCA. If anything we think it should be strengthened. ROSENTHAL: I think we are seeing the result now in terms of increased supervision and examination pressure on credit unions. We see a chilling effect on growth of credit unions. We think there was no systemwide risk in the industry that merited this kind of approach, and we were very dismayed to see it come about. It is having some adverse effects on low-income credit unions that were granted by Congress in 1970 the unique ability to take deposits from nonmembers, generally philanthropic institutions, religious organizations, and individuals outside of their FOM. This was done by Congress in the recognition that poor communities can't readily accumulate enough capital to serve their needs. What we've seen with PCA is now examiners are looking very hard at that and pressing some of our credit unions – even those that are reasonably capitalized at the level of 6% or so – to return these low-cost philanthropic and other deposits to improve capital. We think that's a disaster. These are relationships we built up over the course of 10-15 years. The level of trust with the investor is being shattered by the PCA system It (PCA) is most acute among small CUs where there is not a lot of money that is at risk of being lost to the insurance fund. I would like to see it removed for the greater majority of these institutions. Many who have not been perceived as risky for 10, 20 or 30 years all of a sudden have been put on the bad list as institutions that are bearing risk, and I don't think the risk has grown. I think it's just the perception or categorization of risk that has grown. I don't think PCA has made the credit union industry safer or more inclined to reach out to low-income people, as long as the perception of risk is attached to service of low-income people. You can expect, not withstanding policies at the NCUA Board level, that examiners are going to be pressing quite hard to reduce risk in a credit union's portfolio. PCA has exacerbated tendencies that already existed, and I think run counter to the expressed (NCUA) policy of expanded credit union service to low-income people. DOLLAR: Capital levels under PCA are established under the law. We as regulators do not have the authority to change the law through regulation. We do however have both the authority and the responsibility to look at each CU's capital position in view of the individual risk associated with that CU. That is how we are approaching PCA. We realize there have been an influx of deposits in 2001 as a result of a flight to safety. We recognize that some of these deposits will remain with credit unions, while others will move on once the market turns around. We do not intend to overreact to a temporary up or down. We plan to look at each CU's individual circumstances as we evaluate what if any PCA ramifications there may be. Capital will always be an important part of determining our regulatory oversight of any CU, but it is not the only factor that we consider. Certainly if you fall below 7%, PCA requires that we look at the CU closely. Does that mean we shut down that CU? Does that mean we are going to impose some unreasonable reg requirement based on a temporary situation? No. We will use reasonableness in applying the PCA standards. However it is important to realize that PCA is the law. We are required by law to take that closer look. If things continue to deteriorate we are required to take more stringent regulatory action, but we have not built our reputation as over reactors, and I don't think we will start now. Alternative capital is an issue that credit unions are beginning to debate amongst themselves. I hear from credit unions who think it is a splendid idea, others who think It will destroy member ownership of CUs. We will certainly consider any proposal that would provide an additional buffer against a CU's capital or the share insurance fund, but I do not believe CUs want their regulator to address the philosophical issue involved with alternative capital. Under the current law alternative capital can not be included as net worth for PCA. DUERR: It's unfortunate in that CUs by statute are obligated to have a net worth ratio to their assets which is not similar to the capital ratios that are required for other kinds of financial institutions. Credit unions are generally extremely well-capitalized, in fact there are many who would say that those capital levels are reaching the point that they're too high. And yet CUs, because they're obligated to have a ratio of undivided earnings which equals 7% of their assets, have been artificially backed into a situation that is hampering their ability to provide service to members, hampering ability to take deposits, hampering ability to meet the needs of the people they're supposed to be serving. State chartered CUs in many states have tools available to them which have the effect of increasing the CU's capital. We're seeing a number of states where CUs are petitioning regulators to use those tools, and their regulators are finding those tools are consistent with their statutory authority. Jim Blaine in North Carolina just recently developed an investment certificate-that investment certificate has been written in a manner which meets the conditions for creating capital. In Missouri boards can create classes of shares and create terms and conditions for those classes of shares. In that respect, CUs could decide to offer an uninsured share, meaning that it is at risk and has a long-term obligation, both the conditions of having capital. CU Times: Do credit unions have an obligation to the public, to be held accountable for how well or poorly they serve low-income people in their fields of membership? ROSENTHAL: Yes I do think that there is a public trust that derives from the tax exemption on the one hand, and on the other hand the fact that deposit insurance is ultimately backed by the full faith and credit of the U.S. government. Beyond that I think philosophically CUs have an obligation to serve people of low and moderate income that goes beyond that of even the banking system. BECKER: I worked very, very hard to get CAP removed. I think Mr. Leggett is confused (in his recent census survey data on income levels in NCUA's underserved areas). There's a thing called low income areas, and then there's underserved areas. When you start to talk about the underserved area-I prefer to call them investment areas-the investment criteria do not each deal with median salaries. One of them says for example a loss in population of at least 10% in a certain time period. You had a large number of credit unions over the past year, 165 as I understand it, adopting 282 underserved areas, serving 16.1 million Americans they weren't eligible to serve before. When you go into these areas and spend the time and the money to number one go through the reg process to get it, and number two you have to be positioned to serve it and have to have a business plan to serve the area, why would you do that if you don't intend to serve it? Also do you think you're going to increase your savings, probably not-what you are able to do is make loans to these people. FILSON: The whole governance process in credit unions is set up so credit unions will be responsive to the communities, the membership they serve. That process has worked extraordinarily well in comparison to other financials. When you look at issues of safety and soundness and product management. When you look at issues of responsibility to the community, by any objective measure, credit unions score highest on member satisfaction, and I think to try to change the way in which the credit unions do that would be harmful. Credit unions have a process in place that has been demonstrated to be successful in both terms of serving those chosen communities, as well as having a check and balance for organizations that don't serve their membership well. LEGGETT: Credit unions still have a mandate to serve people of modest means. Therefore they have an obligation to show or demonstrate that they are doing this. Does that rise from their tax exemption? No, it rises from deposit insurance. The reason banks have CRA is due to the convenience test that is associated with The Federal Deposit Insurance Act. Federal credit unions have the exact same language and our comment letter dealing with CAP made that point – that there is no difference in the deposit insurance language. Credit unions should be subject to CRA just like all other insured deposit institutions. It's even more of an onus for community chartered credit unions to actually meet this obligation. What we find is interesting is that the credit unions say `trust us.' Our viewpoint on this is that you need to verify. There is no documentation. As our analysis on low-income shows, clearly not everyone in these communities are low-income. You need to make sure they are fulfilling what they're saying they're going to do. By being granted low-income status, they have additional expansion powers, so therefore because they have additional powers, there's even a greater onus to come through and document that they're fulfilling what they're saying. CASEY: I think credit unions as a result of their insured financial institution status have an obligation to serve all aspects of their community. Since CUs have taken the common bond to the absolute maximum, meaning you can include very large communities, they absolutely have an obligation to serve every aspect and to document that both to their regulator and the community. If you're doing such a great job, documentation isn't that difficult. We've learned that with 25 years of CRA. MICA: The banks were caught red-handed redlining and not serving their communities in the 1970s. There was clear, direct hard evidence they were guilty. They were convicted in the court of Congress, and sentenced to deal with CRA. Ever since that happened, they have said because we have done wrong, because we have been punished, we first want it repealed. We think it's too onerous, too burdensome. They spent a good 10 years saying it needs to be repealed. Finally the message was given to them by Congress, you did wrong you must pay the penalty, then they say OK then we want it imposed on everyone else. Congress has consistently said you are the guys who did wrong, we have no evidence that anyone else did wrong and therefore we specified in 1151 credit unions did not need CRA. We live in a world that has been defined by bankers and banker definitions and thoughts, so when you answer these questions, it's not because consumers are concerned, not because the statistics are there, not because anyone has been found of wrong doing, but because the bankers have been found guilty and want everyone else to share in their punishment. If you look at the data, credit unions do better in every single (low income) category than banks. Maybe it's time for Congress to strengthen the CRA standard on banks, maybe it's time for folks to consider suits against banks, maybe it's time for the action to take a little different view. We should define terms and conditions from the CU perspective and from the consumer perspective instead of a bank perspective that we've had to live with all these years. Can we do a better job? We always can do a better job. DOLLAR: With a reg in place I fear that fewer credit unions will adopt underserved areas. They will not want to face the paperwork and regulatory compliance requirements of a CAP or CRA-like reg. It is because we are making it easier for CUs to serve underserved areas that we are seeing this record-setting extension of service. If we added additional regulatory compliance requirements, I fear it might actually be counter productive. I maintain that credit unions are uniquely positioned to serve underserved areas, that is not all that CUs do, nor should it be. Without someone to make deposits there would be no funding for the loans that are needed by people of modest means. A credit union must be a good business. It must serve its depositor base and borrower base. However CUs do have a responsibility to reach out and serve Americans of all walks of life. I maintain they have the heartbeat to do so. It appears from my experience that the biggest deterrent to CUs' extension of service to the underserved has been regulatory impediments more so than the lack of a desire to serve. The underserved initiative we put into place was designed to remove unnecessary regulatory impediments to CUs adopting underserved areas. Now there are those who say that adopting these areas is noble, but there needs to be a regulation to force the CUs to extend a certain level of service once they get there. It's the old `you can lead a horse to water, but you need a way to make them drink' argument. I maintain that you will never get a horse to drink until you lead it to water. DUERR: It is clear that within the terms of the Federal Credit Union Act there seems to be some indication that FCUs have the obligation, but that is not the kind of language we usually find in state-charted acts. With regard to state-charters, their tax exempt status comes not because of the federal government, but comes rather that they are cooperative institutions that are mutually owned and mutually controlled by the members. That's the distinction between the state and federal systems. CU Times: If you were explaining to someone who knew that credit unions, like banks, offer loans, checking products, and similar financial services as banks, how would you most succinctly sum up the core difference between a credit union and a bank? LEGGETT: The basic difference between a credit union and a commercial bank deals with governance structure. Credit unions are member-owned, one member-one vote. Banks are stockholder-owned organizations. Therefore returns go to stockholders. There is no difference between mutual savings banks and credit unions. Just like credit unions, the depositor is the owner of the mutual savings bank. It (voting) can be based on your level of deposits, however OTS has put in place rules that say they can have a one member-one vote rule If you look at mutual organizations, while we say they are owned by members, one of the problems with this governance structure is that with one member-one vote, there isn't really an incentive for members to participate as the credit union gets progressively larger. Basically the CU becomes run by the insiders, management. When it's run by insiders, management is operating the CU to their benefit. While they can't get returns in the form of stock options, they can get returns in other ways through what we call perks. What you can do is provide yourself luxuries or benefits that are not pecuniary in nature BECKER: You own it. You own it. You don't have to buy stock to tell them how to run it. ROSENTHAL: Credit unions exist for the benefit of and service to their members. Their profit is limited to what they need to survive and strengthen themselves as institutions. They don't have outside directors and they don't have to meet the quarterly demands of the marketplace for ever increasing profits. They have a very high level of accountability to the people that they serve. By the way credit unions are designed they are inherently a more consumer-friendly type of institution. Philosophically many credit unions are willing to go the extra mile that banks aren't. Increasingly we see that the banking industry is controlled by a shrinking handful of very large institutions. It wouldn't be possible in the future for people to expect these mega institutions to bend their rules or standards in favor of consumers in any way, shape or form, and credit unions still have the ability to do that, to work with people to find creative solutions to their financial needs DOLLAR: The difference between a CU and a bank is the structure. It is not the services that they provide, nor who they provide those services. By law credit unions are limited in what services they can provide, but that is not what defines them. By law CUs are limited by the FOM they can serve, but that is not what defines the difference. What defines the difference between a CU and a bank is the structure. Banks are for-profit. Credit unions are not-for-profit financial cooperatives. It is the structure that makes the difference. DUERR: I'd encourage them to walk in the front door of the CU and savor the way they're greeted by CU employees. I'd encourage them to pick up the phone and try to dial the president of their local bank and then their local credit union. Those two examples make it immediately clear that the member is an owner of that CU. That ownership relationship is what's completely different than a bank. It's not the services. The goal of the CU is to provide the services members want or need, and they may be strikingly similar to those of other institutions. The real distinction is how those services are delivered and the commitment that's made by the credit union to the members when they deliver. FILSON: The most important difference is that you are the customer-owner of the organization. As a customer-owner you not only have legal rights-but you have advantages from a relationship standpoint, an economic value standpoint, vs. those institutions where those two groups are separated into a group of shareholders that have one set of interests, and a group of customers that have a different set of interests. That simultaneous interest I think is the primary difference that makes credit unions a significant force and a very real alternative in our marketplace today. MICA: Just imagine there were two people in a credit union. You give the credit union a dollar, you do your business and when they're done with that if there's 10 cents, you get your 10 cents back. You give the bank the dollar, if there's 10 cents left, the 10 cents goes to the shareholders – that's the third leg. You don't have those shareholders in credit unions. Everything goes back to the member either in better interest rates, lower fees, or direct rebates. CASEY: Banks pay their fair share of taxes and CUs do not. In our membership we represent the majority of mutual savings institutions who lost their tax exemption in 1952 and they survived. We also represent the former savings institution industry who lost their tax exemption before that and they too survived. When you have the sizes of credit unions you have today, which are literally 400% to 500% larger than the average mutual back in 1952, I think credit unions are writing their own epitaph on the tax exemption issue. Then what is going to happen is you're going to harm the truly small credit unions. We have never advocated taxing the truly small CUs. Our focus is that $500 million and $1 billion CU that is competing head on with our members. Once you're a $100 million in assets, I'm sorry but you're not small anymore. Especially when you consider the 1,800 or so banks under $25 million. CU Times: Predatory lending is thriving, and check cashers and pawn shops are on the rise. Do you think credit unions are doing enough to combat fringe banking? ROSENTHAL: I think credit unions could do a great deal more. I think that's the historic mission of credit unions, to find ways to reach out to people who otherwise are at the mercy of the predatory lenders, and the high-cost transaction processors like the check casher. I don't think they are obliged by law or regulations to do more, but it`s certainly our hope that they would be both creative and aggressive in finding ways to provide this kind of service. Certainly many of our credit unions are constantly looking for ways to expand and push the envelope to provide more services. MICA: They're on a massive growth curve in the U.S. Two years ago I received numbers that there are more pawn shops than credit unions in the U.S. But are we doing enough? I think the honest answer is no. We want to do more, we want to make sure we have the ability and authority to do it. We have been working on the state issues manual to find state by state rules and regs that interfere with our ability to provide this service and that allow loopholes for predatory lenders and the others like the check cashers to get around interest ceilings and limits. We need to work harder on that. There's no easy answer to this. When I first made the speech two years ago on this, folks in Florida moved in the legislature to prohibit check cashing, and leaders of various ethnic communities came to the Florida legislature and said we appreciate your concern but we will oppose the legislation until you give someone else the powers to provide the same service at a lower cost, because if you take it away we have no way to get our checks cashed. Although we are squarely opposed to predatory lending, there is a difference between predatory lending and subprime lending. Where subprime lending done properly actually provides an opportunity for the underserved, predatory lending is an outright fraud and outright rip-off of folks who can least afford it. CASEY: I think predatory lenders are problematic for all regulated lenders. We have predators that are preying on our customers. Are credit unions doing enough? I guess the answer to that is none of us are doing enough in terms of educating our consumers. I think CUs should join with the banks and not point the finger and say who's doing what. We need a commitment to financial literacy. That is a commitment the credit unions should share with the banks, because educated consumers will be less likely to be subject to predatory loans. BECKER: I think credit unions are doing a lot to combat predatory lending by going into these investment areas, these underserved areas to get loans. They're not going in to get shares, they're not there. If you look at the amount of concern there was in lowering the usury ceiling, we found there were about 700 CUs doing risk-based lending that would have been affected by lowering of the usury ceiling from 18 to 15%. I heard from a number of credit unions concerned about the lowering of the rate and what that would do to them and their ability to combat predatory lending and check cashers. We worked hard to provide NCUA data to help keep the ceiling at 18%. DOLLAR: I believe CUs are part of the solution to the predatory lending problem in this country. I do not necessarily think that new laws or regulation is needed, but I believe our existing laws and regs should be enforced strictly. I also believe CUs should step forward whenever their business plan will allow it to adopt additional areas for service that may be lacking low-cost financial alternatives today. The vast majority of underserved areas adopted by CUs in 2001 did not have a single, traditional financial institution located in those areas. They did have countless pawn shops, check cashing outlets and title loan companies. By CUs adding these areas and moving in, they provide a viable alternative to the residents of those areas. It is an alternative to allow those residents to not only join the CU but show up at an annual meeting and express their views as to how that community should be served by the CU. There is no greater economic empowerment than access to low-cost financial services and a voice in how those services are delivered. That's what CUs can offer to these communities. Credit unions are part of the solution to the predatory lending issue. It is our responsibility as a regulator to make that as easy as possible for CUs. LEGGETT: I do believe that CUs mean well. Their intention is to serve those segments, whether or not they do is a different question. One of the things we have to ask is why is fringe banking thriving. Some people are more comfortable with fringe bankers. Instead of trying to outlaw it, we should find out why people want to use it. There's a large percentage of households that don't have a banking account. When asked, they say they don't write enough checks, or they're not comfortable with banking institutions. We should not prescribe legislation that will harm the individuals we're trying to benefit. I think from an economist standpoint the usury cap of 18% should be lifted for credit unions. It does not make sense. You're artificially rationing credit through a nonmarket mechanism. You may find if CUs or banks could charge 24 or 25%, you would have them serving these individuals. There's nothing wrong with that. It's better than the alternative of people charging 300% or more. There's nothing wrong with risk-based pricing. When we put in caps, we force these people into the fringe banking community, into the unregulated markets, where they don't have the same protection they have with regulated financials. FILSON: I think as credit unions are able both financially and by matter of business direction to move beyond the traditional marketplaces they serve defined by sponsors and employee groups, you will see credit unions tackling these opportunities in the marketplace head on. There are some experiments going on right now with credit unions in different parts of the country to find viable ways to do this. I think it's inevitable that credit unions will step up and be playing roles as they are able to financially expand into these parts of the community. DUERR: In my mind those are business decisions that CUs need to make. It would seem to me that from a business perspective, there's a significant market that could be tapped. Credit unions could benefit that market. But again I think these are business decisions that CUs have to make. Their decisions have to be driven by the needs of their membership, and what they see as their core purpose.</p>