Government agencies, private citizens, and deposits of other insured credit unions. 3. We hope this subcommittee will seriously consider authorizing the Treasury Department, upon request of credit union members, at least low-income credit union members, to forward pension checks to credit unions. Similarly, HEW social security checks and State/local welfare checks should be authorized to be deposited directly to these credit union accounts upon the request of the member. We appreciate, Mr. Chairman, the opportunity to testify this morning, and wish to offer the assistance of the National Consumer Law Center in these vital consumer areas. Senator BENNETT. I very much appreciate your testimony. There are one or two questions here that I would like to ask. Do you find any provision in S. 3822 which, if administered by a capable administrator, would be difficult for a small inner city credit union to live with? Mr. KASS. Small inner city credit unions have trouble living with any regulation, Mr. Chairman. I don't think so. Senator BENNETT. You don't think there is any unusual exception in this case? Mr. KASS. No, sir. I do not. Senator BENNETT. Do you know what the loss record of these lowincome credit unions in the District is? Mr. KASS. The loss record: no, sir, I do not. I do know the delinquency ratio, and I have that for the record. The average delinquency ratio as of April 30, 1970, was 9.4 percent. A total of 751 loans were delinquent, and $112,000 was involved. Senator BENNETT. Do you have any ideas as to the length of the delinquency? Mr. KASS. No, sir; but I would be glad to submit that for the record. I might add, though, that if you look around, the Anacostia Credit Union has a very high 16.9 percent compared to 1.8 percent in Friendship Credit Union. We are convinced that this to some extent is more management problems than people problems. Senator BENNETT. Can you get us a figure on the loss ratio? Mr. Kass. I will get the figure on the loss ratio, and I will get the figure on the length of delinquency. (The information requested follows:) Hon. WALLACE BENNETT, U.S. Senate, Washington, D.C. WASHINGTON, D.C., June 25, 1970. DEAR SENATOR BENNETT: At the hearing on S. 3822, you asked me to supply some information for the record about the operation of low-income credit unions in the District of Columbia. The information follows: 1. As of December 31, 1969, the credit unions in the American Federation of Community Credit Unions have sustained a total loss over a 5-year period of $40,999.26. This represents a loss percentage of 0.0947. 2. The Federation writes-off delinquent loans after 12 months; the average length of delinquency appears to be 6-9 months. Sincerely, BENNY L. KASS. Senator BENNETT. Can you give us an estimate as to the number or the higher volume of loans that you think could be made without running up the loss ratio if funds were available? Mr. KASS. I think it is very difficult to speculate at this point. The federation has just gotten off the ground last year. We looked at the growth-2,000 members in 2 years. And they come in often because they want to borrow money. They are necessitous. It is very difficult at this point to speculate. We think it will remain constant. Senator BENNETT. Have you attempted to make an estimate of the additional rate at which the deposits or share purchases would increase if these people knew they had the protection of share insurance? Mr. KASS. I don't think that that would be a factor as to the people themselves, because money in a credit union in inner city is still safer, even uninsured, than the money that they carry along with them on the streets or in their homes. It is a way of saving, a way of saving that they have never learned before, that they have never had before. What we are really concerned with, Mr. Chairman, is to give opportunity to local merchants, to the utility companies, to the newspapers, and others, who would be more than willing to put their money in credit unions on deposit, not as members but just as a kind of friend to assist these credit unions, if there was some form of deposit insurance as well as share insurance. I don't think we would increase membership because of share insurance, but I think we would increase sufficiently deposits because of deposit insurance. Senator BENNETT. Well, aren't we playing on words? I am a member of a credit union. Certainly I never intended to borrow from it. The money I put in is, in fact, a deposit, though it is recorded on the books as a share, just as in savings and loan associations the money that is put in there is, in fact, a deposit even though it is called a share. Mr. KASS. It is my understanding that such organizations as Woodward & Lothrop, and Sears who have both expressed an interest in depositing money in the credit unions, they would not be entitled to become members, because under the community credit concept they are not either in the area or of the economic level of the people who are eligible for membership. It is my understanding that today if you or I wanted to give as a friend some money into the low-income credit unions, we would not be eligible for membership. Senator BENNETT. Would it not be better to change the definition of eligibility to make it possible for "friends" from the outside? Mr. KASS. Yes, sir; providing there is some form of share insurance. Sears and other large stores and banks say that they would love to put money in to assist the development of the low-income credit unions. But they have a responsibility to their shareholders and to their directors to make sure that the money is insured. Senator BENNETT. All right. Now, assume the bill has passed- Senator BENNETT (continuing). And you have an insured opportunity. It would seem to me that amendments might be made to your definition of eligibility to make it possible for these people to come in without creating two types of situation, one "share" and one "deposit." And what you are really looking for from Sears and people of that type is not money that is going to be put in today and drawn out on a loan tomorrow. They don't need the borrowing opportunity of a credit union. They would not use it anyway, because they can borrow more cheaply in their regular sources of financing. Well, this is a detail. I appreciate your comments. I think you have given us something to think about. And I am happy to know that you approve of the concept of share insurance and that you believe S. 3822 is acceptable. Mr. Kass. Yes, sir; thank you very much. (The full prepared statement of Mr. Kass follows:) STATEMENT OF BENNY L. KASS, WASHINGTON CONSULTANT, NATIONAL Mr. Chairman and Members of this subcommittee: It is always a pleasure to appear before this subcommittee, for in my opinion it has perhaps the strongest record in Congress of legislative support for the consumer. Not only does this subcommittee and it's Chairman-actively work for consumer legislation, but it also originates new approaches to consumer protection and gives them an early public forum. For your efforts, Mr. Chairman, and Members of this subcommittee, we are indeed grateful. This morning, you're taking up yet another consumer cause: the right of individuals to deposit their money in credit unions with full assurance that it will be safe. In these two days of hearings, you will undoubtedly hear from many credit union experts, supporting and discussing the concept of S. 3822, and suggesting various substantive and technical amendments. Accordingly, we do not intend to go into any detailed analysis of the legislation. However, the National Consumer Law Center enthusiastically supports the concept of a Federal Share Insurance Fund to be established in the U.S. Treasury. Our concern is with the so-called community credit unions, and we believe that the establishment of such an insurance fund will contribute greatly toward their economic survival. Permit me a few moments to discuss these community credit unions. In 1964, Father Geno Baroni told CUNA's annual meeting: The new frontier of the Credit Union Movement challenges the spirit, the ideals and all the resources of the local Credit Union Leagues, CUNA, and the Federal Bureau of Credit Unions. It means that we must give priorityof our talents, time and resources to the poor without regard to race. We should give priority to the disadvantaged of any race or religion. Give it in trust, humility and love. We believe in the cooperative programs rather than private profit mechanisms for social improvement that truly provide benefits to the low income population. Following this challenge, CUNA and the Office of Economic Opportunity started working toward the creation of community, low-income credit unions. Rather than confine membership to employment (such as HEW or Senate Employees Credit Union), these community unions were organized around geographic and economic considerations. Although they really began operating in the 1960's, today there are 374 OEO-related credit unions, 107 of which are funded locally by Community Action agencies. The other 267 are operating in relation to a CAA or other OEO program, but are not funded by that agency. With combined assets of $4.6 million, these credit unions have at present a liquidity pool of less than half-a-million dollars; much of this pool is in bank deposits to handle day-to-day operations. Here in Washington, D.C., we have, I believe, perhaps the most interesting and effective community credit unions, serving nine neighborhood development programs. These nine low-income credit unions have recently organized themselves into the American Federation of Community Credit Unions, and one of its 47-444 0-70—3 main objectives is to seek additional means to assure continued funding for the local unions. Attached to this statement is the most recent monthly report showing the status of each of these nine credit unions. It is important to note that today, there are approximately 13,579 members; compare this to just two years ago when there were less than 10,000. And membership continues to grow at rapid rates. As of April, 1970, these members had savings of over $1,296,850 and this is their own money; "people" money so to speak. And savings are growing at rapid rates also. Now, what happens with this money? As of April, 1970, the nine credit unions had a total of 3,576 loans outstanding, a total of $1,190,500. Mr. Chairman, in and of itself, these statistics would be extremely impressive. But when these loans are broken down into size categories, they clearly show the real impact of the low-income credit union. Consider these statistics: Without going into too many statistics, in 1969 these nine community credit unions made 435 loans for rent, 173 for food, 296 for medical purposes, and 492 for clothing, to name but a few. Mr. Chairman, banks in this area (and maybe all over the country) are not making loans of under $700-$1,000. Savings and Loan Associations are not organized for these purposes. Who, then, services the needs of these low-income consumers? Loan sharks at exhorbitant rates, or small loan companies at 30-36%? Clearly, we must look to the credit union, at reasonable 12% rates, to assist these consumers. But, here in Washington-and indeed around the country-the community credit unions have limited assets. The dollars really go out as fast as they come in. And this is why we testify in support of a program of share insurance. This would probably be the least expensive way for credit unions to increase their capital assets. I personally have spoken to many leading bankers and businessmen who would be very willing to deposit assets in credit unions-if their assets were insured. Private institutions, labor unions, churches and even pension funds should be encouraged to assist their local community credit union (or indeed help start one), but we must create the vehicle to insure these deposits and the Federal Share Insurance Fund embodied in S. 3822 would do just that. Accordingly, we endorse the concept of S. 3822. To effectively assist our limited-income citizens, however, we wish to recommend a number of amendments. 1. We support the enactment of S. 2146 and S. 2259, on which hearings have already been held by this subcommittee. 2. We recommend that the type of accounts which may be insured by the proposed Fund be expanded to include deposits made by government agencies and deposits of other insured credit unions. 3. We hope this subcommittee will seriously consider authorizing the Treasury Department, upon request of the credit union members, to forward pension checks to credit unions. Similarly, HEW social security checks and state/local welfare checks should be authorized to be deposited directly in credit union accounts. We appreciate the opportunity to testify this morning, and wish to offer the assistance of the National Consumer Law Center in these vital consumer areas. Senator BENNETT. Thank you. This concludes today's hearing. Tomorrow we will meet at 10 o'clock to hear Mr. Robertson of the CUNA International, Mr. Rogers of the National Association of Federal Credit Unions, and Mr. McCarthy and Mr. Anchors representing the Lockheed Credit Union at Marietta, Ga. (Whereupon, at 10:57 a.m., the subcommittee recessed, to reconvene at 10 a.m., Friday, June 19, 1970.) (A copy of the bill and a report from the National Credit Union Administration follows:) |