Credit Union Times

David Morrison

January 18, 2006

CHICAGO – The Woodstock Institute, a community reinvestment non-profit
and occasional critic of mainstream credit unions, has drafted a
comment to the FDIC that will ask the insurer to deny DFCU Financial
Federal Credit Union’s insurance application unless and until the
credit union makes significant changes to its proposed CRA plan.

The $1.8 billion credit union applied to the Office of Thrift
Supervision and the FDIC to change to a mutual bank charter in December
2005. Both the OTS and the FDIC need to sign off on the application in
order for it to move forward. The FDIC accepted comments from the
public on CRA portion of the application until Jan. 13.

In the CRA part of its application, the applying credit union proposes
the geographic area for which it will be assessed for CRA compliance as
a bank, along with what level of compliance it expects to have to meet
and what plans it will put into place for passing the lending,
investment and service tests that CRA mandates.

Woodstock’s senior vice president Marva Williams questioned how
prepared DCFU Financial was to meet these tests in the draft of her

“Our concerns are with the Community Reinvestment Act (CRA) plan of
DCFU Financial, which does not adequately meet the community
reinvestment needs of the proposed bank’s assessment area,” Williams
wrote. “Woodstock Institute requests that the OTS deny this application
unless certain conditions…are imposed. We also request an extension of
the comment period, the disclosure of certain additional information,
and a public hearing be conducted to discuss the community and other
impacts of this conversion,” she added.

In its CRA plan, DCFU Financial proposed Wayne and Oakland counties as
its service assessment area, a locale which DCFU Financial said is
roughly one-third low-income, on-third middle-income, and on-third
upper-income. But most of the branches the credit union proposes to
serve this area with are in the upper-income parts of the counties and
the credit union didn’t outline any plans to build additional branches.

Woodstock’s draft letter objected to the credit union’s CRA proposal on
all three of CRA’s tests––lending, investment and service––and included
the credit union not having done an assessment of its own membership to
show how it is currently serving low- and moderate-income households
among its members. Doing so, Woodstock argued, would help provide a
benchmark by which the former credit union’s progress could be

On lending, Woodstock worried, DCFU Financial did not indicate that it
had any experience working with low- and middle-income families on
mortgage financing. The institute also was concerned that DCFU did not
go into more detail about what groups or with whom it planned to market
its services into the low- and middle-income communities it designated.

“[T]he plan does not fully explain which communities and consumer
organizations it will engage or the nature of those relationships”
Williams wrote, “leading one to believe that the credit union has no
history of these strategic partners. In addition, churches are also a
strategic partner of outreach efforts in LMI (low and middle income)

DCFU Financial should also consider adopting more flexible underwriting
standards for at least some of its loans to lower and middle income
households, Woodstock said, such as the rent and non-traditional
payments other banks sometimes use to asses credit ratings. It should
also plan to market refinances in the low- and middle-income market
since predatory lenders often target low-income communities with
fraudulent refinance offers.

When it came to the service test, Woodstock noted that DFCU’s plan
shorted the assessment area of the number of branches that would be
available in low- and moderate-income neighborhoods as well on any sort
of alternative to payday lending.

“Only one or 9 percent of DCFU Financial’s 11 current and proposed
branches is located in a moderate-income census tract and there are no
branches in
a low-income census tract,” Woodstock said. “The CRA plan should
include goals to add at least 2 full service branches in LMI census

Woodstock appreciated that DCFU’s application indicated that the bank
would have products aimed at low- to moderate-income households, but
questioned whether the credit union as a bank might employ “barriers”
such as credit checks to low-income households being able to access
them. Research had indicated that things like not having credit checks,
five dollars or less account opening requirements, and no minimum
monthly balance played key rolls in helping low-income households use a
bank’s financial products, the Institute said.

“Without the conditions requested, DCFU Financial’s CRA activities will
only make minimum commitments to the communities,” the institute
concluded its letter. It asked that the OTS grant its request for an
extension of the comment period to more fully consider these issues and
urged the OTS to refrain from granting approval without imposing the
conditions it suggested.

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